10 fab tool predictions for 2011

SAN JOSE, Calif. - What will happen in the fab tool market in 2011? Here are 10 predictions collected from various reports from analyst C.J. Muse of Barclays Capital:

1. Fab tool upturn?

''We see consensus moving from flat to closer to plus 5-10 percent. Specifically, we see flash spending growing ~36 percent year-over-year to $9.8 billion, logic spending up 4 percent year-over-year to $11.6 billion, foundry spending up ~4 percent to $13.9 billion, and DRAM spending down ~12 percent to $10.7 billion.''

2. Potential M&A activity

''In 2010, we witnessed announced consolidation in test, with Verigy and LTX-Credence agreeing to merge followed by Advantest making an unsolicited bid for Verigy. What could we see in 2011? Considering still slow progress with its LED effort, we could see Applied Materials Inc. (AMAT) look to acquire an MOCVD maker (i.e. Veeco, Aixtron). AMAT also has no presence in lithography, so perhaps Ultratech or other area within litho could be of interest. Finally, AMAT could pursue bolt-on acquisitions within its (solar tool) c-Si business.

Lam Research has discussed potential for strategic purchase. It’s unclear what direction they may go, but it would clearly have to be a small to mid sized company with leading share where the company's operational know-how could drive accretive synergies.

KLA-Tencor is on record that they are in cash-harvesting mode, so we would not expect acquisitions in process control with the exception of perhaps something in packaging or LED. This said, there are a number of smaller process control companies (NANO, RTEC, NVMI, FEIC, etc.) that might consider M&A activity.

Finally, considering Yen appreciation and recent unsolicited offer by Advantest, we could see front-end equipment companies in Japan be more active which could include Tokyo Electron, Dainippon Screen, and Hitachi High Technologies.''

3. ASML rolls rivals 

''ASML should continue to gain share, with lithography continuing to grow as a percentage of the wafer front-end equipment (WFE) pie. Importantly, look for key customers to double order litho in 2012 (i.e. both immersion and EUV) which should enable litho to continue to grow as a percentage of WFE into 2012.

We raised our 2011 industry immersion tool estimate to 138 from 130 and compared to the 115 we estimate for 2010. Of the 138 tools, memory remains the largest driver at 78 (57 percent of total demand), followed by logic with 32 and foundry with 28. For ASML, we forecast their market share to grow to 87 percent in 2011 from 78 percent in 2010.

Layer in our view that ASML is winning additional share at Intel and that expensive duplicative mask sets will preclude GlobalFoundries and Toshiba from buying too many tools from Nikon, we look for share gains to continue to shine for ASML.''

(According to Muse, ASML will take 100 percent of Intel's leading-edge litho business in 2011-at the expense of Nikon. However, Nikon will grab IBM's litho business.)  

4. ASML-A star is born

''ASML is experiencing strong demand, as seen in the guidance raise and also our
industry analysis. Our estimates are 19 percent ahead of consensus to reflect expectations of continued high orders in 1H '11. While 1Q/2Q11 orders should decline from 4Q’s record, we don’t think such 'negative' order momentum is relevant in this cycle. We have factored into our 2H11 estimates bookings of 10 EUV tools.''

5. Litho boom

''While immersion tools are used for both new wafer capacity along with shrinks, typically only KrF (248-nm) and ArF (193-nm) lithography tools are purchased when there are new wafer starts being added. Our checks within the lithography foodchain suggests total KrF and ArF Dry unitshipments reached 104 in 2010, but will grow to ~147 units in 2011. The clear takeaway here is that visibility to new wafer start projects is gaining momentum, and this is what we believe is driving visibility to growth in this area. All positive for semi equipment, in our book.''

6. Applied: Back to the future  
 
''We expect underappreciated AMAT to begin to see some admirers in 2011. We have been vocal critics of AMAT’s now-failed efforts in thin-film solar, but are now changing our stance on AMAT. We now have a non-consensus call that AMAT will continue to surprise to the upside throughout CY11 led by favorable share trends in WFE, profitable EES results, and continued margin improvements in AGS.

AMAT re-established itself as a player in silicon in 2010 with share expected to grow by 2 percent to ~20.5 percent. Led by continue move of manufacturing from Austin to Singapore, we look for AMAT’s silicon to absorb recently negotiated Samsung volume discounts.''

7. Applied faces challenges  

''AMAT has been able to get etch wins from Tokyo Electron, CMP wins from Ebara and maintain Semitool’s strong presence in wafer level packaging plus win share at TSMC and at Intel. At this point, AMAT is still yet to challenge leaders in etch (Lam Research), in metrology and inspection (KLA) or in plasma doping (Varian).''

8. Lam to ram rivals

''Although Lam Research has been one of the best performers among Front End names in 2010, we believe shares have further room to run in 2011, aided by continued expansion in the company’s market share in etch and clean, coupled with exposure to the key spenders in 2011 (NAND and foundries).''

9. Varian shines

''With growing momentum in Varian’s Solion implant tool among solar cell manufacturers, we expect strong upside to the company’s publicly stated target of ~$25-30 million in solar revenues in CY11 and ~$100 million in 2012.''

10. 2012 looks bright

''2012 (is) still early, but initial read is positive. We are hesitant to jump on the 'super cycle' bandwagon, but we clearly think it is reasonable to suggest that 2011 is not a peak year for capex (we suggest $31 billion WFE vs. prior peak of $36 billion). Here we point to technological advances driving increased capital intensity and emerging market demand enabling silicon content to continue to grind higher. And bigger picture, we view the macro backdrop as a positive factor heading into 2011 and beyond.''