SAN FRANCISCO Semiconductor equipment suppliers will need to evolve their business models in order weather a storm of changes facing the industry over the next several years, according to two Gartner Dataquest analysts that presented here at Semiconductor Equipment and Materials International (SEMI)'s Market Symposium on the eve of the organization's Semicon West tradeshow.
Klaus-Dieter Rinnen, Gartner Dataquest managing vice president, said semiconductor equipment and materials will increasingly become commodities, with core semiconductor differentiation shifting from manufacturing to design and intellectual property (IP). Rinnen said industry consolidation would result in fewer than 10 equipment suppliers satisfying 80 percent or more of semiconductor manufacturing equipment demand by 2014. Currently, he said 15 companies satisfy 80 percent of the demand, trending down from 35 in the late 1980s.
Equipment manufacturers will also have to cope with consolidation among its customer base. By 2014, he said, less than 25 semiconductor manufacturers would be building new fabs, compared with 45 today.
Jim Walker, Gartner Dataquest vice president of research for semiconductor manufacturing, said semiconductor and electronics companies would move increasingly to outsourcing models, farming out all but the most essential aspects of their businesses.
Walker said an industry-wide migration to wafer level packaging (WLP) technology would lower overall device costs. He said the number of multi-chip packages would grow at a compound annual growth rate of 21.3 percent from 2003 through 2008.
Walker said manufacturing economics would drive companies to increasingly work together, creating "vertical/virtual" manufacturing integration as the semiconductor supply chain adopts a subcontract model. Walker said foundries would account for at least 30 percent of semiconductor production by 2010.
Rinnen forecast that the capital equipment market would be down 6.5 percent in 2005 and an additional 8.5 percent in 2006. He reiterated his firm's forecast of slow, single-digit growth for the semiconductor industry in 2005 (5.9 percent) and 2006 (6.5 percent).
"Capital spending for 2005 and 2006 will reflect the mood of the industry," Rinnen said, noting that semiconductor companies had been very cautious with expenditures since the 2001 industry downturn.
Rinnen said capital equipment companies should look for alternate business models to support core businesses. He urged them to look to the aerospace industry as a model of an industry where suppliers sell to very few customers.
Walker predicted big growth in the years ahead for electronic manufacturing service (EMS) companies and original design manufacturers, or ODMs, which he defined as companies that design and manufacture a product that will ultimately be branded by a more well known company. He predicted that combined total revenue for both types of companies would grow from roughly $200 billion in 2005 to more than $260 billion in 2008.
Walker urged companies to make "revolutionary" changes to business models. "The greatest impacts on industry have come from changes to business models and supply chains," he said.