Understanding the effects of larger wafers on the global semiconductor equipment supply chain

Abstract

This thesis examines how an investment in 450mm wafers might affect capital equipment suppliers in the semiconductor industry and assesses if the 450mm transition is in the industry's best interest. The 450mm transition is currently scheduled for 2012 by the ITRS (International Technology Roadmap for Semiconductors), but the overall industry remains divided on the issue, and without sufficient consensus, a transition is simply not possible. The cost of developing equipment for a new wafer size has increased dramatically over the last few wafer size transitions. Furthermore, producing more efficient tools also decreases the number of tools needed by the semiconductor manufacturers if growth stays flat. These factors have caused reluctance among equipment suppliers to go ahead with a transition to 450mm wafers. However, the largest semiconductor manufacturers contend that more efficient tools will lead to cheaper products and stronger semiconductor growth. They argue that this growth will make up for supplier revenue lost due to efficiency gains. This thesis analyzes the dynamics of the capital equipment industry. Qualitative factors, such as past performance, recent trends, and the equipment industry's competitive landscape, are considered using Porter's Five Forces model. A quantitative analysis using the author's supplier cost model (SCM), is applied to several potential 450mm transition scenarios, showing that the industry is sensitive to various inputs such as demand variability, tool productivity, and development costs, to name a few.

(cont.) These qualitative and quantitative analyses are combined to demonstrate that a transition to 450mm is in the best interest of the semiconductor capital equipment industry. The equipment industry is presently in an unhealthy state, with most firms struggling to maintain a reasonable profit amidst the high competition and volatile market conditions. Consolidation will eventually be the key to improving the industry structure, but consolidation will be a long and slow process if the industry remains on 300mm wafers. 450mm will stimulate consolidation throughout the industry, quickly bringing the industry to a more stable and sustainable state. The transition will likely be a painful process, and many equipment suppliers will have to exit the market, but it will allow fewer suppliers to be more profitable and healthier in the long run.