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Outlook For Masks, Materials and Wafers

Business is supposed to rebound in 2020, but that’s not so clear anymore.

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After a slowdown in the first half of 2019, chipmakers and equipment vendors face a cloudy outlook for the second half of this year, with a possible recovery in 2020.

But what about other key technologies like materials, photomasks and silicon wafers? These are also critical for the semiconductor supply chain and are key indicators where the market is heading.

In the first half of 2019, materials suppliers were impacted by a downturn in the memory market, the U.S.-China trade wars and a sluggish economy.

What’s next? Here’s the outlook for masks and wafers as well as materials, namely CMP, resists and others:

Photomasks: mixed outlook
After record sales in 2017, the photomask business set a new high of $4.04 billion in revenues in 2018, according to SEMI. In April, SEMI projected that the photomask market would grow 3% in both 2019 and 2020. The growth drivers include masks with advanced technology feature sizes less than 45nm, according to SEMI.

The captive mask shops dominate the leading edge. These are chipmakers like Intel, Samsung, TSMC and others, which have their own in-house photomask operations. The merchant photomask makers make and sell masks to outside customers. In 2018, captive suppliers lost 1% market share, dropping to 64% share from 65% in 2017, according to SEMI. The remaining share is occupied by the merchant mask suppliers.

In the first half of 2019, meanwhile, the mask business was generally slow amid a sluggish climate in the overall semiconductor industry.

What’s the outlook? “The photomask market overall will be relatively mixed in the second half of 2019,” said Patrick Ho, an analyst with Stifel Nicolaus. “We are entering the normally seasonal stronger period of the year (ahead of the holiday season) but admittedly, some markets have excess inventory and are in the process of a correction, such as memory, industrial and automotive devices. At the same time, there are still pockets of strength, such as MPUs and artificial intelligence, and this will help drive new mask output.”

Each segment—captive and merchant—have different growth dynamics. “Now, fully understand that leading players like Intel, TSMC and Samsung (on the memory end) produce almost all of their own masks, so their output likely increases,” Ho said. “Merchant vendors may be somewhat softer than those that produce their own masks as some of the second-tier chipmakers are likely experiencing more hardships than those leading chipmakers.”

Silicon wafers: down and out?
In 2018, total silicon wafer shipments eclipsed the all-time market high set in 2017, according to SEMI. During the period, supply was tight and prices were high.

So far, though, 2019 has been a rough year. Worldwide silicon wafer area shipments totaled 2,983 million square inches in the second quarter of 2019, down 2.2% from the first quarter and 5.6% lower year-over-year, according to the SEMI Silicon Manufacturers Group (SMG).

“Global silicon wafer shipments are being impacted by the same headwinds that are facing the broader industry,” said Neil Weaver, chairman of SEMI SMG and vice president of product development and applications engineering of Shin Etsu Handotai (SEH) America, in a recent statement. SEH is the world’s largest silicon wafer supplier.

Going forward, the outlook is mixed. “Silicon wafer volume was about 9% lower for the first half of 2019 than it was in 2018. This volume level of about 3 billion square inches per quarter is expected to hold nearly constant for the second half of 2019,” said Richard Winegarner, president of Sage Concepts, a research firm.

“Silicon wafer producers are hurting more from price decreases than from volume decreases. Spot prices are as much as 20% lower than the long-term contract prices established during the 2018 memory device boom,” Winegarner said.

In its recent results, meanwhile, silicon wafer supplier Sumco projects that a recovery in wafer demand won’t occur until the second half of 2020. Then, there will be tight supply again in 2021, according to Sumco, the world’s second largest silicon wafer maker.

Electronic materials—mixed bag
The outlook for electronic materials is a mixed picture. “The long-term outlook for electronics/semiconductor materials is very promising,” Stifel Nicolaus’ Ho said. “I am a stout believer that next-generation devices are based on more materials-intensive engineering, something Applied Materials CEO Gary Dickerson has talked about for some time. We have seen this increasing materials intensity already in markets like 3D NAND, and on the advanced foundry/logic front. We are also seeing more materials and new materials such as cobalt being used in these devices.

“This is what helps drive continued process tool intensity, in segments like etch, deposition and planarization. I believe next-generation foundry/logic devices will see further increases as we go to gate-all-around at say the 3nm node and below and nanowire structures, while next-generation DRAM is likely going to transition to some form of 3D structure, like NAND, which will then drive materials intensity once again,” Ho said. “These transitions may or may not require EUV, but with new materials and more advanced layer structures, depositing and etching, and even cleaning these materials becomes more intensive. So, in short, over the next few years, I am very bullish on semiconductor materials intensity.”

On the business front, though, it’s a mixed picture. Summarizing the situation in a recent conference call, Bertrand Loy, president and chief executive of Entegris, said: “The second quarter was soft for the industry and was somewhat softer than anticipated for Entegris. In spite of the pervasive uncertainty, we are seeing increased evidence that our business will be stronger in the second half of this year.”

Each materials segment is different with various dynamics. For example, photoresists, a key material used in lithography, has recently entered the spotlight.

In July, Japan imposed export restrictions on three key materials purchased by South Korean chipmakers, including photoresists. Samsung and SK Hynix are heavily dependent on Japanese resist suppliers. But optical and EUV resists cannot be easily replicated, meaning Korean chipmakers face some challenges.

“EUV lithography is first being used by Samsung Electronics to reduce turn-around-time and improve yield in their 7nm-node logic line in South Korea, while the designs allow for multiple exposures of 193nm DUV lithography to produce the same chips in more time,” said Ed Korczynski, a senior technology analyst at TECHCET, a research firm. “However, qualifying a new IC lithography material for high-volume manufacturing typically takes many months and millions of dollars in test wafers and metrology, so the recent export restrictions by Japan will definitely hurt the bottom lines of South Korean fabs.”

Despite these trade issues, TECHCET projects the litho materials market will grow from $3.2 billion in 2019 to $4 billion by 2023.

Chipmakers, meanwhile, are using more chemical mechanical and polishing (CMP) steps than ever. The CMP consumable materials market in semiconductor manufacturing is forecasted to reach $2.7 billion in 2019, according to TECHCET.

The first half of 2019 was slow for CMP consumables, but business is improving for this and other electronic materials markets. “Starting with electronic materials, despite continued semiconductor industry uncertainty in the near term, we have seen signs of stabilization in demand from memory customers and expect recovery to continue over the next several quarters, as channel inventories are reduced and demand from multiple end markets improves,” said David Li, president and chief executive of Cabot Microelectronics, in a recent conference call.

“CMP pads and electronic chemicals showed growth over the same quarter last year. Lower CMP slurries revenue, due to the softer industry conditions, especially in the memory sector, led to electronic materials pro forma revenue decreasing 5% compared to the same quarter last year. As previously discussed, our CMP slurries have a high participation in memory, and were adversely impacted by DRAM and NAND production cuts at our customers this year,” Li said.

Now, chipmakers, fab tool vendors and material suppliers are looking out to 2020. Business is supposed to bounce back. But with the trade wars raging on, coupled with possible signs of a recession in some nations, it will likely be a stormy period in the industry.

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