SAN JOSE, Calif. The semiconductor materials industry can be summed up in one word: lousy. Chemicals. Photomasks. Photoresists. Silicon wafers. Slurries. Specialty gases. You name it. They are capital-intensive, low-margin businesses.
And they don't get any respect. After near record-breaking growth in the semiconductor chemicals and materials market in 2004, this business is projected to hit the "skids" and grow only by 7.7 percent in 2005, according to The Information Network (New Tripoli, Pa.).
The chemicals and materials market was projected to grow 22.2 percent in 2004. Total sales will grow from $10.6 billion in 2003 to $13.0 billion in 2004 and on to $14.0 billion in 2005, said Robert Castellano, president of The Information Network. "Consolidation in the materials industry is reducing the number of suppliers, which should buffer pricing pressure from customers," he said (see Nov. 13 story).
Still, even in the IC upturn, two sectors photomasks and silicon wafers have been non-profit industries for years. Collectively, vendors have lost their shirts in the IC downturns and barely made a buck during the upturns.
Still, it was a big year in both segments. The big news in the photomask industry occurred in October, when diverse Japanese giant Toppan Printing Co. Ltd. (Tokyo) agreed to buy DuPont Photomasks Inc. (Round Rock, Texas) in a deal valued at approximately $650 million (see Oct. 5 story).
The blockbuster Toppan-DuPont deal created one of the world's largest merchant suppliers of photomasks. Prior to the deal, the mask industry consisted of four major players: Dai Nippon Printing (DNP) and Toppan of Japan, as well as DuPont and Photronics Inc. of the United States.
The proposed Toppan-DuPont deal leaves the United States with only one merchant supplier of masks: Photronics. It also underscores the ongoing erosion of the U.S. technology base, leaving some to wonder if the United States needs a new semiconductor equipment and materials consortium (see Oct. 5 story).
The Toppan-DuPont announcement did not surprise some analysts, who predict more changes in the photomask industry. "This didn't surprise me," said Ken Rygler, a former executive of DuPont Photomasks and now president of photomask technology consultancy Rygler and Associates Inc. (Austin Texas). "I expect to see more vertical consolidation in the industry," he said.
Going into 2005, there will be many questions for the photomask industry:
--Can Toppan and DuPont successfully integrate their respective operations? Many believe the two entities will experience some major culture clash issues as they merge.
--Can Photronics keep up and fend off its Japanese rivals?
--More importantly, will mask costs continue to soar of out sight? Some speculate that a 65-nm mask will run $3 million each and a 45-nm product will cost $6 million.
Broken wafer model
Meanwhile, in the silicon wafer industry, there was no single event that matched the Toppan-DuPont blockbuster announcement in 2004. But that doesn't mean the sparks were flying in the downtrodden industry.
During a conference in early 2004, Nabeel Gareeb, chief executive of silicon wafer maker MEMC Electronic Materials Inc. (St. Peters, Mo.), admitted that the business model in this industry was broken, creating the need for a new paradigm (see Jan. 13 story).
Sadly, however, there was no real paradigm shift in 2004 and it was business as usual for the industry with the exception of a few bright spots. Despite decent demand in 2004, many vendors shuttered a significant percentage of their 200-mm lines to cut costs.
"The silicon wafer model is broken," said Ted Parmigiani, an analyst with Lehman Brothers (New York). "The only way to fix it is consolidation (among the vendor base)."
Indeed, there are too many wafer suppliers chasing after too few customers. As a result, there was a plethora of bad news in 2004, especially at Germany's Siltronic AG (Munich). Earlier this year, Siltronic, the world's third-largest maker of silicon wafers, planned an initial public offering in March that aimed to raise about $750 million (see March 15 story). Then, reports surfaced that the company scrapped plans for the IPO (see March 25 story).
Others struggled as well. Japanese silicon wafer maker Shin-Etsu Handotai Co. (SEH) cut production in the United States in 2004. Sumitomo Mitsubishi Silicon Corp. (Sumco), a silicon wafer venture between Japan's Mitsubishi Materials Corp. and Sumitomo Metal Industries Ltd., remains what some say is a mess.
One of the few bright spots is MEMC. Overall, leading suppliers of silicon wafers forecast year-end wafer shipments for 2004 to be 23 percent higher than in 2003, according to the SEMI Silicon Manufacturers Group (SMG) Consensus Forecast. The Consensus Forecast, obtained through surveying SMG members, also projects total wafer shipments to increase by about 5 percent in 2005.
According to the survey forecast, silicon shipments are projected to increase from 6,313 million square inches in 2004 to 6,596 million square inches in 2005. Shipments are expected to rise to 6,784 million square inches in 2006, and 7,201 million square inches in 2007.
(Return to the 2004 Top 10 story list or go to No. 10).