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450mm: Why equipment suppliers abhor the thought of it.

Posted on: 14-Jun-2007

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You've just opened the inaugural issue of what I hope will be a welcome addition to your inbox. They say that if you are going to be a bear, be a grizzly bear; so I decided to take on the biggest meanest issue facing the industry: 450mm.
But before I get into it, I hope you have been enjoying all the new features in WeSRCH 2.0 that we launched a month ago.  Most of all, I hope you enjoy watching the rabbits jump and run as I personally created the animation.
More importantly
  • Vastly expanded Domains covering Electronics, Medical, and Energy
  • Member icons now have a drop downs for Profile, Contact me, View My Papers, and View My Communities
  • You can Report Abuse on Posted Comments
  • Quick Surveys For Each Domain
  • News sorted for each Domain and Category
  • Keyword Ads with Flash
  • Resume Posting
  • New Drop Down Menus
As for May's Quick Survey answers: 
Heathcare should focus on Quality of Life, not extending it,
Hybrids are for the eco-concious,
and in a closely fought battle . . .
450mm will be in production between 2010 and 2019.
450mm: Why equipment suppliers abhor the thought of it. 
The real problem with 450mm — which chip makers have overlooked, while equipment makers are painfully aware of — is the financial implications for the latter. Investors see the issue of an industry that has not grown since 2000. Thus, there was zero ROI (Return-On-Investment) on the 300mm investment more than 10 years after it started. This is also why R&D spending is declining in the equipment industry and why there are only 2 viable suppliers left in many markets. Now, let’s look at it another way: Since the latest roadmap is pushing out the date for 450mm to 2015. At VLSI’s expected growth rates, fab equipment (where the bulk of the 450M R&D requirement will be) will reach $52B in 2015. That is assuming no introduction of larger wafer sizes. The potential impact of 450mm on this market would be the $52B divided by 2.25, which is the areal increase of the silicon. Thus, the market demand for fab equipment would drop from $52B to a low of $23B — putting it 23% below today’s level. This is what equipment suppliers fear most and is in fact pretty much what happened with 300mm, as they were not able to raise prices for the wafer size increase alone, only for technology gains.
Let’s look at the R&D side of the equation. VLSI expects a total of $371B to be spent between now and 2015 of wafer fab equipment. If 5% of this is devoted to developing tools for 450mm, the amount of potential R&D needed will be roughly $20B. So, 450mm is actually doable. It’s not a question of ‘is the money there?’ It’s a question of Return-On-Investment. Why spend $20B to buy a potential revenue decline of just under $30B? It makes no business sense at all for equipment suppliers! In fact, it doesn’t even make sense if the chip makers pay the entire bill!
This is why my oft cried need for a new business model to address 450mm is essential before it will make any sense to equipment suppliers. The easiest way to approach it is to focus on pricing and net margins for equipment suppliers. If you halve the equipment market, but double net margins, the difference is a wash from an investment perspective. To get a decent return, you have to triple net margins. I have no belief that this can be accomplished with current buying practices. If you double equipment prices, it begins to make sense for equipment makers. But then it becomes a wash for chip makers.
The bottom line is that issues surrounding 450mm are really not technical. Nor are they result of some extrapolation of Moore’s Law. They are financial: pure and simple.
One Atom Short of a Gate Dielectric . . .
Walking though a client’s parking lot to go to lunch the other day, Risto pointed out all shiny new cars in the lot along the lines of Ken Levy’s quip that “ you know the downturn is coming when the area where your sales people park looks like a German car dealership.” So the client asked Risto to guess who they belonged to: the CEO, the President, the VP’s? . . . No, the best cars in the parking lot all belonged to the Sarbanes-Oxley consultants. While too funny, this parking lot picture of the value shift is also a sad statement of the American government’s attempt to re-engineer the country’s competitive framework in the name of protecting shareholders.

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About weQuest:
weQuest's are written by G Dan Hutcheson, his career spans more than thirty years, in which he became a well-known as a visionary for helping companies make businesses out of technology. This includes hundreds of successful programs involving product development, positioning, and launch in Semiconductor, Technology, Medicine, Energy, Business, High Tech, Enviorntment, Electronics, healthcare and Business devisions.

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