This year, the IC equipment business is expected to hit $46.3 billion in terms of sales, down 5 percent over 2010, according to the firm. In 2010, the business hit $48.8 billion, up a whopping 99.7 percent over 2009, according to the firm.
On the bright side, capital spending is on the rise. Just in the last week, GlobalFoundries doubled its capital spending in 2011. Intel recently said that its capital spending budget would hit $9 billion, plus or minus $300 million, in 2011, implying 73 percent year-over-year growth.
''With Intel now on the offensive, and including recent capex updates from Samsung and GlobalFoundries, our 2011 capex model moves to plus 12 percent year-over-year verses 5 percent’’ in the original forecast, said C.J. Muse, an analyst with Barclays Capital, in a report.
Still, despite an uptick in spending, the tool supply chain is under duress. Not long ago, chip makers had a choice between five or more vendors in each fab tool segment, said GlobalFoundries’ Armour. Today, ''there are not enough choices,’’ he said. ''Usually, it’s a two-horse race. Maybe three.’’
If that wasn’t enough, Armour is also concerned about soaring tool costs and an ''under-investment in R&D.’’
During a panel discussion at ISS, Intel’s Bruck appeared to be less concerned about the shrinking supply base. ''You can get to the duo-poly’’ in terms of the IC fab tool vendor base, he said.
In a report, VLSI's Hutcheson elaborated on Bruck’s so-called C3 Rule. ''VLSI’s data shows that revenue, R&D, and SG&A per platform have risen three orders of magnitude over the last three decades. What cost tens of thousands to do in 1981 now costs tens of millions. Lithography has risen four orders of magnitude over the last three decades,’’ Hutcheson wrote.
''Consolidation in the semiconductor industry would mean less duplicative SG&A for the equipment industry as well. Hence, tools would be less expensive and semiconductor capital efficiency would be greater,’’ he wrote.
''If the semiconductor equipment industry had not consolidated, R&D would between 50 percent and 100 percent of industry revenues. In order to sustain such an R&D load would mean the equipment industry would have to be sized similar to today’s total IC sales. But that’s not the half of it. Without consolidation, SG&A would approach 10,000 percent, taking the sustainable revenue level to more than $30T, which is more than an order of magnitude larger than the entire electronics industry! In other words, Moore’s Law would have been broken long ago,’’ he said.
Still, there are some alarming trends, especially in lithography, which is turning into a one-horse race on the optical side. In 2009, according to Gartner Inc., ASML held 51 percent of the lithography market, followed by Nikon (39 percent) and Canon (9 percent). Last year, Barclays Capital estimated ASML's current share of the leading-edge, 193-nm immersion market at a whopping 80 percent, leaving Nikon and Canon in the dust.
Canon has already exited the leading-edge lithography business. Nikon, which once filled 100 percent of Intel’s leading-edge lithography requirements, took a body blow from ASML last year when the Netherlands-based vendor won half of Intel's leading-edge lithography business at the 22-nm node. Some believe that ASML could grab Intel’s entire leading-edge lithography business-at the expense of Nikon.
Nikon is falling further and further behind, as it struggles to ship its 193-nm immersion tools. As a result, ASML is commanding a premium for its scanners, partly due to the lack of competition from Nikon.
For the last year or so, ASML has also experienced trouble in terms of keeping up with customer demand, causing some chip vendors-namely second-tier memory makers-from getting their tools on a timely basis.
Clearly, this is not a healthy scenario for chip makers. Simply put, Nikon needs to play catch-up or must join forces with another vendor. One possible idea is a joint lithography venture between Nikon and Applied Materials Inc. Another possibility is that Nikon will need a bail-out from the Japanese government.
Nikon will clearly need help if or when chip makers move towards EUV. Right now, ASML is grabbing most-if not-all of the EUV scanner business. If Nikon can’t deliver EUV, ASML will become the sole source in the arena-a nightmarish thought for chip makers. A production-worthy EUV tool from ASML could soon cost $125 million per unit. And without competition, tool costs could go even higher.