Semiconductor Materials: Record Volumes, Record Revenues

Semiconductor Materials: Record Volumes, Record Revenues

by Lara Chamness and Dan Tracy, SEMI Industry Research and Statistics

Semiconductor materials form the base of the $1.5 trillion electronics industry— an industry that is increasingly selling into the consumer electronics market. The explosion of consumer-oriented applications is driving growth in the semiconductor industry and is creating many opportunities for semiconductor materials suppliers as new materials are integrated into wafer fabrication and semiconductor packaging. While the Semiconductor Industry Association predicts that semiconductor market will grow 4% in 2008, the global semiconductor materials market is forecasted to grow 9% in 2008 to reach a record $46.1 billion.

Even though the device and materials industries are experiencing historical highs, revenues only tell part of the story. The year 2000 stands out in recent memory as an extraordinary year for the semiconductor industry. However, in 2004 the industry quietly exceeded the revenue high set four years earlier in spite of the fact that device average selling prices for the past several years were well below the levels seen in 2000. To reach record revenues, the industry has been shipping record amounts of devices. In fact, device shipments in 2003 exceeded 2000 levels but because of lower average selling prices the industry fell short of the revenue high set in 2000. Since 2003, the industry has continued to ship more devices than the previous year, at the same time average selling prices remain under pressure (Figure 1). Although overall device revenues have been setting records since 2004, it is clear that these revenues are the result of the tremendous volumes of chips shipped— not strength in pricing.

Figure 1: IC Unit Shipment and Pricing Trends

Source: WSTS, July 2008

Closely tied to device shipments is materials usage; as more devices are manufactured, more material is required. Figure 2 illustrates annual device shipment growth compared to semiconductor material revenue growth from 1997-2007. The chart illustrates that material revenues roughly correlate to device shipments with the notable exceptions of 2000 and 2001. Material revenues outpaced device shipment growth in 2000 as device manufacturers placed double and sometimes triple orders to ensure continuity of supply. The sharp decline in the materials market in 2001 reflects the use of accumulated materials in inventory. In 2006, the materials market exhibited strength as additional 300 mm wafer capacity came online and advanced packaging was widely adopted.

Figure 2: Semiconductor Shipment Growth and Materials Revenue Growth 1997-2008

Source: SIA, SEMI

An analysis of revenue trends between 1997 and 2005 indicate that spending on materials averaged 14% of device revenues (Figure 3) with 2007 and 2008 materials spending representing 16% and 20%, respectively. As mentioned above, this increase from the historical average is attributed to the aggressive 300 mm ramp and increasingly complex packaging technologies being deployed, as these materials have higher average selling prices.

Figure 3: Semiconductor and Semiconductor Materials Revenue Trends

Source: Rose and Associates 1990-1999, SEMI 2000-2008

Device manufacturers are not alone in experiencing price pressure. In addition to the downward pricing pressure on devices, there has been upward pressure on raw materials, as illustrated in Figure 4. The blue and green lines show the price indices for crude oil and metals from the International Monetary Fund over the last 12 years, with 2005 as the base year. The crude oil index has increased over 100 percent since 2005 and the metals index has increased over 90 percent over that same time.

The red and yellow lines show the continuous downward price pressure on both ICs and silicon wafers. In effect, materials and device suppliers are facing pressure on both their top and bottom lines. Given the increasing role of consumer electronics to our industry, this price pressure is expected to remain on device and materials manufacturers for the foreseeable future.

Figure 4: Raw Material and Pricing Trends

Source: IMF, Base year of Index = 2005, WSTS, SEMI SMG

As the result of the intense cost down pressure, the manufacture of semiconductors is migrating to lower cost regions as tracked by wafer fab capacity, Figure 5. On a regional basis, Korea, China, and Taiwan gained share at Japan, Europe, and North America’s expense. It is important to note that although market share is declining in Japan, North America and Europe— chip manufacturing capacity in absolute terms is increasing— these regions are not adding capacity as quickly as the regions located in Asia-Pacific. Since 2000, global wafer fab capacity has increased over 70% to reach 16 million wafers per month in 200 mm equivalents.

Figure 5: Fab Capacity Trends

Source: World Fab Watch January 2001, SEMI World Fab Forecast, June 2008

Because materials usage is a function of the number of devices, the materials market reflects manufacturing trends, Figure 6. With the largest installed fab capacity base and a significant manufacturing base in packaging, Japan continues to dominate worldwide semiconductor materials consumption at 22% share of the worldwide revenues. In 2004 Taiwan surpassed North America, bumping North America down to third. By 2006, North America again lost its footing to fall to fifth place behind Rest of World Regions and South Korea. Rest of World Regions (ROW) include Singapore, Malaysia and other areas in Asia. Taiwan is expected to remain in the number two position for the immediate future because of the strong growth in wafer fabs and packaging subcontractors.

Figure 6 also details the regional materials markets. It clearly shows that Japan, South Korea, and Taiwan have both a strong fab base as well as a significant packaging base. Wafer processing materials dominate the North American and European markets. Packaging materials account for the majority of materials purchases in the ROW and China regions.

Figure 6: 2008 Regional Materials Markets by Segment

Source: SEMI Materials Market Data Subscription, May 2008

Wafer Fabrication Materials

It is estimated that 45 nm and smaller geometries will account for 17% of potential fab capacity this year, up from 4% last year (Figure 7). As the industry continues its relentless march towards shrinking device geometries, more and more complex materials will be required to enable the succeeding node. Advanced photoresists and ancillaries, selective CMP slurries, precursors, and other new materials will be used in larger volumes. Another trend impacting the wafer fabrication materials is silicon pricing. The substrates that devices are manufactured on are becoming more expensive on average as the industry ramps 300 mm wafers and competes with the solar industry for this critical raw material. Given these drivers, the wafer fabrication materials market is forecasted to grow 9% this year.

Figure 7: 2006-2008 Fab Capacity by Technology Node

Source: SEMI World Fab Forecast, May 2008

Fab materials currently make up about 60% of the value of the total worldwide semiconductor materials market, with the majority of revenues coming from silicon sales (Figure 8). Taken together, silicon and photomasks account for 64% of the wafer fabrication materials market. In 2009 and 2010, overall fab materials growth is expected to achieve 7% and 6% growth, respectively.

Figure 8: 2008 Fabrication Materials Market by Segment

Source: SEMI Materials Market Data Subscription, May 2008

Packaging Materials

Mobile devices such as wireless phones and portable media players are driving the strong adoption of more sophisticated packaging materials. Given the diversity of end user electronics, no single packaging technology meets all requirements or needs, so the proliferation of package types will continue and material needs will evolve.

At the same time, given pressures to reduce costs, some of the advanced packaging technologies are becoming increasingly competitive to traditional packaging solutions. Quad Flat-pack No-lead (QFN), wirebond ball grid array (BGA), and CSP are generally considered commodity items, with manufacturers focusing development efforts to reduce costs.

As mentioned earlier, rising raw material costs are a major challenge to material suppliers and their customers. Specific to the packaging materials markets are rising costs of important metals: copper, tin, gold, silver, and palladium. This has spurred development efforts either to reduce the amount of metal consumed or, in some cases, replacements for some of the above mentioned metals.

Organic substrates currently make up about 38% of the value of the total worldwide packaging materials market (Figure 9). Prior to 2004, packaging materials were dominated by leadframes but as package requirements have become more complex, organic substrates have supplanted leadframe technology. Much like wafer fabrication materials, semiconductor packaging materials are also expected to exhibit moderate growth rates of 9% this year and 6% in both 2009 and 2010 to reach $20.6 billion by 2010.

Figure 9: 2008 Packaging Materials Market by Segment

Source: SEMI Materials Market Data Subscription, May 2008

Conclusion

There is a significant regional shift occurring in the semiconductor industry, which is being accelerated by the growing price sensitive consumer electronics market. The industry has shipped record amounts of devices for the past five years, and as a result, the industry has seen record revenues for the past four. Trending with the device market, the semiconductor materials market has experienced growth for the past four years as well. The materials market is also reflecting the device manufacturing market in terms of geographic distribution.

Current analysis of materials spending as a percent of device revenues indicate that the industry is spending slightly above the historical average of 14%, due to record amount of silicon shipped, the 300 mm ramp, and the widespread adoption of advanced packaging technologies. While the industry is recording record revenues, it is also experiencing significant price downward pressure in the face of upward price pressure on raw materials such as oil, chemicals, and metals. At the same time, materials suppliers are being asked to provide novel solutions to increasingly complex device requirements. Advanced materials, such as 300 mm diameter silicon wafers, dielectric precursors, selective CMP slurries, and advanced packaging materials will be used in larger volumes, creating many opportunities in the materials market. It is expected that these new materials will not be immune from intense cost down pressure. Moving forward, the total materials market is expected to grow 9% this year and 7% in 2009, with slightly stronger growth coming from wafer processing materials.

Portions of this article were derived from the Material Market Data Subscription and the World Fab Forecast Report. These reports are essential business tools for any company keeping track of the semiconductor equipment and material markets. Additional information regarding this report and other market research reports can be found at www.semi.org/marketinfo.