Mixed Signals Seen For Fab Tool Industry

The fab tool market is ready to rebound, but the industry is also at a critical juncture.

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After a slight downturn in 2013, the semiconductor equipment market is expected to rebound and see solid growth in 2014, according to forecasters at SEMI’s Industry Strategy Symposium (ISS) at Half Moon Bay, Calif.

Gartner, IC Insights and VLSI Research separately projected strong growth in the fab tool industry in 2014. But on the downside, the number of large fab tool buyers continues to dwindle. Indeed, leading-edge chipmakers continue to consolidate amid soaring IC design and manufacturing costs.

All told, the fab tool industry is at a critical juncture. “Two roads have, in fact, diverged in our industry,” said Rick Wallace, president and chief executive of KLA-Tencor, during a keynote address at ISS. “Most of us are at the crossroads. Based on the recent events, it appears that one of those roads is consolidation. While there are advantages to be gained in critical mass, it’s tough to see how a large scale merger makes a company better, not just bigger. Sure, there are going to be cost synergies, but at what expense?”

The other road involves economics. In fact, the industry is asking itself a hard question: Can it afford to fund all of the costly projects on the table? Indeed, the industry continues to march down the complex and expensive process technology curve. It is also juggling other major and expensive projects, such 450mm fabs, extreme ultraviolet (EUV) lithography, stacked die, and, of course, new device architectures like finFETs.

“There have been many warnings about the end of Moore’s Law. And yet, the industry continues to move forward,” Wallace said. “I believe that Moore’s Law is much more likely to die in the board room than in the laboratory. I also believe the only scenario more challenging than staying on Moore’s Law is what would happen if we got off it.”

On the positive side, the fab tool industry is entering a new growth cycle. IC Insights predicts that capital equipment spending will reach $62.3 billion in 2014, up 9% from 2013. In 2013, capital equipment spending fell 2%, according to the research firm.

The worldwide semiconductor market will hit $350.7 billion in 2014, up 7% from 2013. In 2013, the IC market grew 5%, according to the research firm.

Capital intensity, however, is heading in the wrong direction. “After averaging 25% in the late 1990s, the ratio is forecast to decline to 15-16% in the 2010s,” said Bill McClean, president of the firm.

And there are fewer large fab tool buyers in the market. In 2005, the top 10 chipmakers represented 55% of the total capital equipment spending in the industry, according to IC Insights. In comparison, the top 10 chipmakers are expected to represent 81% of the total capital equipment spending in 2014, according to market research firm.

Others also see an upturn. “Capital spending growth returns after a two-year decline,” said Bob Johnson, an analyst at Gartner. In total, semiconductor capital equipment spending is expected to hit $39.8 billion in 2014, up 16.1% over 2013, according to Gartner. In 2013, semiconductor capital equipment spending fell 9.3%, according to the firm.

Another firm, VLSI Research, predicts that the semiconductor equipment industry will see 14.8% growth in 2014. This compares to a 6.2% decline in 2013. The worldwide semiconductor industry is projected to grow 9% in 2014. This compares to 7.3% growth in 2013, according to VLSI Research.