SEMI Outsourcing Industry Overview

SEMI Outsourcing Market Enrique Shadah
Business Ecosystems LLC

1005 Boylston St
Ste 235
Research Document Newton Highlands, MA 02461
Contents
This presentation is divided into 2 parts.
1 Semiconductor Market
2 Semiconductor Equipment Market
© 2002 Business Ecosystems LLC. All rights reserved. 2

Semiconductor Markets
The semiconductor market is expected to continue growing but at a lower

pace.
• Global semiconductor demand has grown at CAGR 10% since 1991 from to
$139 billion in 2001, however growth is expected curb as the main markets for
semiconductors are maturing.
• Global semiconductor equipment demand has grown at 12% CAGR since 1991
to $28 billion in 2001, following closely that of semiconductors, but there is still
debate of how new technology will off-set reduced growth expectation of end-
user markets.
• Outsourcing of non-core activities by equipment makers has become almost an
industry standard and many companies still have more room for outsourcing.
• Currently, there are many suppliers that provide outsourcing services to
equipment OEMs, however there are niche markets that do not have high
competitive intensity (I.e. manufacturing outsourcing).
Semiconductor equipment is an attractive market for outsourcing

providers.
Global semiconductor demand has grown at CAGR 10% since 1991 to $139
billion in 2001 and equipment demand has grown at 12% CAGR since 1991
to $28 billion in 2001, following closely that of semiconductors.
$250.00 Semiconductor Demand and Equipment Billings
$200.00
Billings ($billions)
Sales ($billions)
$150.00 Equipment billings ($billion)
Semiconductor sales ($billion)
$100.00
$50.00
$-
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: “World Market Shares 1982-1990, 1991-2001,” SIA Industry Statistics, 2002; “World Wide SEMS,” SEMI, 2002.
World semiconductor markets are driven by computer and

telecommunications chips; the former entering transition from growth to
mature stage.
Semiconductors End Use
100%
90% 13% 13
Source: ICE; Status.
The Americas have maintained leadership in semiconductor demand since

1992 and lost its place by a small margin to the Asia Pacific Region in 2001.
World Market Sizes ($billions of sales)
$70.0
Total
Americas EUR Japan Asia Pacific Total $200.0
$60.0
$175.0
$50.0 $150.0
$125.0
$40.0
$100.0
$30.0
$75.0
$20.0
$50.0
$10.0
$25.0
$- $-
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Source: “World Market Shares 1982-2001”, SIA, 2002.
As telecommunications chip use is increased on a global basis,

semiconductor production outside the U.S. will also increase, pressing
equipment makers further towards globalization.
•Pioneers in wire-less
telecommunication chips
•Non-volatile memory for
telecomm applications
•High-end
Microprocessors
•Wire-line •Innovation in chip production
telecommunications techniques
chips (broad-band) •DRAMs, flash and other memory
•PC hotbed chips
•Innovative companies •Largest consumer of wire-less
telecommunication chips
•Houses world’s largest Foundries
and Contract Electronic
Manufacturers
Source: “Semiconductor Industry Survey”, Standard and Poor, February, 2002

American and Japanese based firms continue to dominate worldwide

semiconductor markets.
Americas Europe
100% 100%
75% 75%
Other
Japanese
50% 50%
American
25% 25%
0% 0%
1982 1985 1988 1991 1994 1997 2000 1982 1985 1988 1991 1994 1997 2000
Japan Asia Pacific

100% 100%
75% 75%
50% 50%
25% 25%
0% 0%
1982 1985 1988 1991 1994 1997 2000 1982 1985 1988 1991 1994 1997 2000
Source: “World Market Shares 1982-2001”, SIA, 2002. 8

© 2002 Business Ecosystems LLC. All rights reserved.
The top 10 semiconductor companies have represented about half of

industry revenues in the past five years, however companies in the list
have changed.
Largets Semiconductor Com

(Ranked by 1995 and 2001 r
Rank Company (Country)

Source: “Semiconductors Industry Survey,” S&P, February, 2002, pp.9; www.instat.com 9
Contents
This presentation is divided into 2 parts.
1 Semiconductor Market
2 Semiconductor Equipment Market

Semiconductor Equipment
Although the semiconductor market has experienced healthy growth, its

cyclical nature poses challenges for semiconductor and equipment
companies.
100%
Billings
80% SalesEquipmentbillings
Semiconductor sales
60%
40%
YoY change
20%
0%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
-20%
-40%
-60%
7 years cycle 5 years cycle
Source: “World Market Shares 1982-1990, 1991-2001,” SIA Industry Statistics, 2002; “World Wide SEMS,” SEMI, 2002.
Semiconductor equipment companies are exposed to stronger demand

cycles than semiconductor manufacturers due to long equipment lead
times and high inventory costs.
In 2001, WFE semiconductor equipment market plummeted 41% to $21

billion from $36 billion in 2000.
Semiconductor Equipment Front-End Estimated Market Size
WFE
Total 2000: $36.2 billion
4%
Total 2001: $21.3 billion
Note: the proportion of each type of equipment category was assumed to be similar to that of N.A. Billings YTD 2002
Source: “World Wide SEMS,” SEMI, 2002 © 2002 Business Ecosystems LLC. All rights reserved. 12
The top 10 equipment companies have increased their share of the

equipment industry’s revenues in the past three years, representing over
70% of the industry in 2001.
Largets Semiconductor
(Ranked by 2001 reven
Rank Company (Coun

Source: “Semiconductors Equipment Industry Survey,” S&P, February, 2002, pp.8; VLSI research Inc.
Outsourcing of non-core activities by equipment makers is almost a

standard step towards effective management of the industry’s cycles.
• Equipment companies that successfully lower their operating leverage will most
likely survive to the industry’s cycles.
• Additionally, the semiconductor equipment technology roadmap poses many
challenges to toolmakers, which need to focus on their core to be successful.
• Semiconductor companies are suffering increasing pressure to manage the
growth of manufacturing equipment prices as Fabs and IDMs are facing shorter
electronic product life cycles and saturated customer’s preferences for more
hardware functionality.
• There is consensus among many of the companies interviewed for this study
about the need to outsource manufacturing operations, but still there is no clear
indication of what type of companies would survive as the supplier of choice.
Thus, a window of opportunity is still open for companies that are

positioned to provide outsourcing services to toolmakers.
Equipment companies that successfully lower their operating leverage will

most likely survive to the industry’s cycles.
Changes in Operating Leverage
30.00
~
20.00 Lam Research
Tokyo Electron
10.00 Axcelis
Varian SEA
-
1997 1998 1999 2000 2001 Applied Materials
(10.00) Novellus
Mattson
(20.00) KLA-Tencor
(30.00)
~
Note: operating leverage is defined as the percentage change in operating earnings as a result of a 1%
change in revenues over the same period.
Source: Company annual reports, Innovent analysis. 15

Toolmakers are facing the challenge of lowering inventory levels

throughout the value chain.
Inventories as % of Current Assets

Applied Materials Novellus Mattson KLA-Tencor
Lam Research Tokyo Electron Axcelis Varian SEA
50.0% 50.0%
40.0% 40.0%
30.0% 30.0%
20.0% 20.0%
10.0% 10.0%
0.0% 0.0%
1996 1997 1998 1999 2000 2001 1996 1997 1998 1999 2000 2001
• For leading companies such as Applied Materials, Axcelis, Novellus, KLA and
Varian, inventories have been declining relative to total current assets in the
last six years.
• This has been achieved mainly by following principles of lean manufacturing,
outsourcing and world class supplier management practices.
Source: Company reports, Innovent analysis 16

Technology roadmap poses many challenges to toolmakers, which need to

focus on their core to be successful.
Integration level, cost, speed, power, compactness, Technology

functionality, imply, among other things: Outsourcing
Process • 300mm wafer processing at reasonable costs, sub-micron • Subsystem (laser, power,
Challenges line widths, lower energy consumption gas handling, chemical
• Low cost of ownership (consumables, maintenance and handling, automation)
repair) design (R&D)
• Subsystem manufacturing
and testing
• Intellectual property driven
• Design (R&D) of wafer processing core module (CMP,
(IP)
PECVD, Lithography, Cleaning, Etching,
Core Inspection/repair, etc.)
• Integration of a complete machine Manufacturing
• Testing complete machines Outsourcing
Tool- • Subsystem and component (laser, power, gas handling, • Electronic, electrical and
maker chemical handling, automation) design (R&D) mechanical component
Non- • Subsystem and component manufacturing and testing manufacturing
core • Electronic, electrical and mechanical component • Component and assembly
manufacturing integration
• Component assembly • Build to spec driven
Technology outsourcing and manufacturing outsourcing are the two main

avenues that toolmakers are taking to focus on their core.
Source: “Semiconductor Equipment Industry Surveys,” S&P, February 2002; Interviews with Lam Research, Axcelis Technologies, Mattson, Novellus
Systems, Varian Semiconductor Equipment Association, MKS Instruments, Veeco, Brooks-PRI Automation; Innovent analysis.
Value chain evolution shows equipment companies relying more on

outsourcing to leverage R&D costs in specific systems and to migrate to a
variable cost model as a way to manage the industry’s cyclicality.
1960’s to 1980’s 1990’s through today 2002 and beyond
End user End user End user
IDMs IDMs IDMs
Equipment Equipment Equipment

(Tools) (Tools) (Tools)
Multi-specialty
Technology
Tier 1
Technology outsourcing
Outsourcing
Manufacturing
outsourcing
Manufacturing
Tier 2
outsourcing
Components Contractors Components Components
Raw Raw Raw

materials materials materials
Note: arrow width represents the strength of the relationship.
Technology outsourcing companies are expected to help toolmakers

develop key subsystems, while manufacturing outsourcing firms are
expected to be the source of fixed cost reductions in manufacturing.
2002 and beyond
Highlights
End user • Five main tool subsystems are being outsourced: 1) gas delivery
systems, 2) chemical delivery systems, 3) laser sources, 4) power
management and 5) wafer handling systems.
• R&D efforts of outsourcing companies help toolmakers develop
IDMs
products faster.
• Toolmakers are requiring delivery of configurable subsystems,
specification and design expertise, and management of supply
Equipment chain logistics from outsourcing companies to lower cycle times.
(Tools) • Global manufacturing and customer support become critical for
outsourcing and contractors due to global footprint of toolmakers.
• Consolidation of outsourcing companies in order to reach critical
Multi-specialty
mass and provide the breadth of skill required is happening.
Technology
• Manufacturing outsourcing providers posed with challenge of
outsourcing
Tier 1
managing working capital and asset intensity as materials

management becomes critical due to the high mix, low volume
Manufacturing nature of operations.
outsourcing • Early involvement in tool design for manufacturing efficiency will
increase
Tier
Components • Further specialization with focused R&D expenditures

2
Raw
materials
In 2001, the worldwide market for outsourcing services was approximately

$12 billion, and is expected to grow faster than the industry’s average as
toolmakers increase the amount of activities outsourced.
Assumptions COGs Composition for Toolmakers
• WFE represents 76% ManufacturingOS

of the equipment $25.00
Technology OS
market in 2000 and $20.00
RM, Lab, OH
2001
($billions)
$15.00 $8.4
• Gross margins for
equipment $10.00 $3.6 $4.9
companies are 45% $5.00 $2.1
$8.0
• Proportion of $4.7
$-
equipment COGs 2000 2001
dedicated to $8.36 $4.91
ManufacturingOS
outsourcing is 60%
Technology OS $3.58 $2.11
• Of this, 75% is
RM, Lab, OH $7.96 $4.68
manufacturing and
25% technology
outsourcing
Source: Interviews with leading toolmakers, Innovent analysis.

Currently, there are many companies that provide outsourcing services to

toolmakers, but there are niche markets, such as electromechanical
assembly, that have low competitive intensity.
Manufacturing Continuum Technology

outsourcing partners outsourcing partners
Component and •Concentrated, clear market

Simple components
assembly integration leaders are identified and
•Highly fragmented, many •Fragmented, heading towards have concentration of the
companies consolidation as critical mass is market
•Examples: becoming more important •Examples:
–Machine shops •Examples: – Specialists with focused
–PCB manufacturers – Electronic integrators such as R&D: MKS, Cymer,
–Cable harnesses Solectron, Jabil, Sanmina, Advanced Energy, Brooks-
–Frames Suntron Pri, Helix, Inficon, Varian
–Sheet metal – Electromechanical integrators Vacuum, etc.
such as Coorstek, Suntron,
Barriers to entry: Gem City Engineering, Wolfe Barriers to entry:
• Asset base Engineering, etc. • R&D capability
• Manufacturing engineering • Customer service and fab
skills (materials, electronics, operations support
etc.) • Client relationships
• Customer service • Reputation
• Client relationships • Technological diffusion

Competitive intensity for the manufacturing outsourcing industry is in the

low to mid ranges, leaving the door open for companies with the required
skill set to enter the industry and succeed.
Thrust Industry Facts Conclusion
Clients • Toolmakers are consolidating, this also There is significant potential for contribution to
consolidates the structure of their supplier base toolmakers manufacturing operations if suppliers
• Also, they are increasing the levels of begin to assemble key tool subsystems.
manufacturing outsourcing to reduce exposure to Toolmakers need to lower their operating leverage
industry’s cyclical nature and shift to a variable cost model, which is not
• Are increasing the bar regarding outsourcing possible without manufacturing outsourcing
supplier’s selection criteria companies. The bargaining power of customers is
• Are willing to develop long-term partnerships with relatively low in terms of the technological demand
exceptional suppliers needed vs. available in the market, thus an OS firm
that meets toolmaker’s selection criteria, has high
probabilities of getting and keeping a contract.
Competitors • Fragmented industry, major player do not have There is opportunity for incumbents to increase
more than 10% of the $5 billion market market share as the outsourcing industry expands,
• Outsourcing capabilities depend heavily on however they need to develop the right mix of skills
mechanical, electrical, electronic and value chain (clean assembly and welding, logistics,
management expertise manufacturing engineering, ERP and materials
• The number of competitors is growing management, etc.) in order to get an entrance at the
• Some companies are forming alliances or are toolmaker’s door.
growing through acquisitions to combine various
skill sets that would be very difficult to grow
internally (I.e. merger EFTC with K*Tec in 2002 ,
Saint-Gobain and Holz machining in 2000, Ontario
Corp and CDS systems)
• Capital intensity is determined by the company’s
business model (pure assembly vs. vertically
integrated)

Competitive intensity for the manufacturing outsourcing industry is in the

low to mid ranges, leaving the door open for companies with the required
skill set to enter the industry and succeed (continuation).
Thrust Industry Facts Conclusion
Potential • IP component companies are integrating forwards The window of opportunity is open for
competitors as technology or manufacturing outsourcing manufacturing outsourcing companies, but is
companies (I.e. a leading component company is closing as new companies are poring in the market.
planning to build custom gas delivery systems) The first company to develop a sustainable model
• Global electronic assembly manufacturers are that serves the industry through its ups and downs
targeting the semiconductor equipment market will have the clear first mover advantage.
(Jabil, Sanmina, Suntron, etc.)
Suppliers • Comprised mainly of raw materials, components Is unlikely that the supplier base for manufacturing
and machining services suppliers outsourcing companies is going to change much,
• Fragmented, but for some key components (I.e. however managing these suppliers (lead-times,
mass flow controllers) there can be a limited supplier development, monitoring, long term
number of suppliers (MKS, Celerity) commitments, etc.) is increasing in importance as
the complexity of the outsourced equipment
increases and client requirements become tougher.
Technology • Currently, toolmakers are averse to outsource the Manufacturing outsourcing companies must be
manufacture of IP assemblies as some are updated about their clients technology roadmaps.
protected as trade secrets These outsourcing firms will have an increasing role
• Equipment complexity is increasing due to in design to manufacture engineering as IP
technological demands (more demands on lower protection issues are resolved via contract clauses
power consumption, new sources of energy, more and/or strategic alliances.
automation requirements, etc.)

Manufacturing outsourcing companies are facing tougher selection criteria,

due to rationalization of their customer’s supplier base.
Criteria Value Importance Rationale
Diversification within Less than 30% of revenues from High Increasing the probability that a supplier will
SEMI single customer (rough average, survive a downturn in the client’s business
depends on specific toolmaker)
Diversification in other Less than 25% of revenues in semi Very high Promote suppliers ability to withstand semi
industries (rough average, depends on equipment industry cycles, thus ensure
specific toolmaker) reliable future customer support
Material handing Extensive use ERP systems (BOM, Very high Increase likelihood of positive respond to
capabilities product follow-up, e-connectivity, sudden increases in equipment demand
etc.)
Supplier base development and
management
Manufacturing Threshold: high number of High Suppliers are given non-core items to
engineering skills manufacturing engineers/employee manufacture, thus it is critical that a
supplier is able to propose modifications of
Ability to improve new product new designs and to manufacture Build-To-
designs (mechanical, electronic, Print (BTP) items very efficiently
materials, chemical, assembly and
testing functionality)
Quality standards Semiconductor industry standards Average Need of compliance with toolmaker’s
compliance compliance customers’ (Fabs) quality standards
ISO 9001, orbital welding, etc.
Source: Interviews with Lam Research, Axcelis Technologies, Mattson, Novellus Systems, Varian Semiconductor Equipment Association, Innovent
analysis. © 2002 Business Ecosystems LLC. All rights reserved. 24
Manufacturing outsourcing companies are facing tougher selection criteria,

due to rationalization of their customer’s supplier base (continuation).
Criteria Value Importance Rationale
Location One day’s driving distance high Need to support JIT (kanban) manufacturing
from supplier, on a global methods in each of the customer’s locations.
basis! There exists an industry directive to reduce
inventories in the value chain.
Financial solvency Cashflow positive, no risk of high Supplier capacity to cope with high levels of
financial distress due to working capital, mainly inventory, when
excessive debt manufacturing complex mechanical assemblies
and of fixed assets (PP&E: machining tools,
clean-rooms, plant facilites, etc.)
Source: Interviews with Lam Research, Axcelis Technologies, Mattson, Novellus Systems, Varian Semiconductor Equipment Association, Innovent
analysis.

Competitors in the manufacturing outsourcing industry for semiconductor

equipment are fragmented.
2001
Estimated U.S. Outsourcing $5,000 million

manufacturing Market
Revenue (1) Average = $46 million

(n=25)* Max = $195 million
Min = $4 million
Range = $191 million
1) When possible, revenues from semiconductor related operations were selected, thus
these numbers represent conservative revenue estimates.
* Excludes companies such as Solectron, Sanmina, Jabil, Suntron, etc, who are mainly
focused on the electric/electronic manufacturing outsourcing market; also includes sales
figures presented in Duns Database for which 2001 period was assumed.
Source: Dun & Bradstreet company reports, Innovent analysis.

There are more companies capable of manufacturing components than any

other type of product.
Manufactu-ring Sample 30 Highlights
service companies
Simple 93% (28) •Component manufacturing outsourcing companies are mainly diversified into medical, flat panel
Components displays, aerospace, military and front- and back- end semi equipment markets
•Component manufacturing is basic for the industry, many companies that can manufacture
assemblies, modules and subsystems can machine individual components on a production basis
•The companies that did not choose to have component manufacturing capabilities are those that
focus on delivering whole modules of subsystems to customers (I.e. Celerity systems has IP
components, but does not manufacture custom machined components on an outsourcing basis)
Assemblies 90% (27) •Companies chose not to do assemblies either because it is not their core focus (I.e. a machining
company dedicated to components) or because it is pursuing bigger projects (modules and
subsystems)
•It is relatively simple to manufacture assemblies parting from a component manufacturing
operation, and depending on the type of assembly, facilities Cap Ex might be needed I.e. clean
room construction
Tool Modules 60% (18) •Companies tend to have a specific expertise in the semiconductor equipment market I.e. Isys
manufacturing (laser welding), FM industries (subsidiary of NGK insulators), Jade Corporation
(experts in assembly), etc.
•Operational challenge to be successful in integrating a complex module is far greater than that of a
assembly of component manufacturer; thus these companies tend to be vertically integrated from
the raw material level
Subsystems 30% (9) On average, companies tend to have IP in one or more specialties of the semiconductor industry.
This is particularly true for companies that specialize in Gas Box design. I.e. Wolfe Engineering,
Celerity, MKS, Dakota Systems. Marler Enterprises and CDS Leopold are companies that also
have semi expertise in other areas such as ion implantation tools
Complete tools 10% (3) Companies like Coorstek, Gem City Engineering and Maine Machine have dared to assemble
complete tools; there is not indication that they are doing this profitably
Source: Dun & Bradstreet company reports, company © 2002 Business

WebPages andEcosystems
InnoventLLC. All rights reserved.
analysis. 27
There is consensus among many of the companies interviewed for this

study about the need to outsource manufacturing operations, but still there
is no outsourcing company that has honed the Key Success Factors.
Buying Criteria Key Success Factors
Diversification within • Solid strategic planning process
SEMI
• Excellent brand recognition
Diversification in other • SBU management philosophy
industries
• Aligned organizational structure
• Service related industries (based on technological content)
Manufacturing Outsourcing
Material handing • Efficient and effective utilization of ERP systems linked with supplier base and inbound
capabilities logistic function
• Project based organization
Manufacturing • Development of unique manufacturing techniques
engineering skills
• Fast prototyping
Quality standards • SPC in place, intelligent quality systems, effective preventative quality systems
compliance
• Quality certifications in all of the relevant manufacturing processes (orbital welding,
brazing, plating, clean room operations, etc.)
Location • Effective capacity rationalization and planning processes
• World class inbound and outbound logistics function
Financial solvency • Working capital management
• Focus on return on assets (operating margins X asset turns)
• Ability to withstand cycles

Contents Appendix
Appendix

Technology Outsourcing
Toolmakers
Components Subsystems End
(Tools & Fabs
suppliers suppliers Markets
Process)
• Raw materials
• generic
components
Product line
spectrum
sub- Complete
Components Assemblies Modules
systems tools
Non-proprietary design Manufacture to Print

(may include proprietary technology) “High-mix, low-volume”
• Mechanical (fluids, heat • Materials handling
transfer) engineering • Lean manufacturing
• Electrical/Electronic E. • Quality certification
• Design for manufacturing E. • Clean room manufacturing
• Materials E.
• Semiconductor process
knowledge
Manufacturing Outsourcing*
* Excludes electronic outsourcing providers

sub- Complete
systems tools
A & D Precision Machining

Adem LLC
Allied Devices
B&B Manufacturing
Brenner Tool & Die
Main Companies
C.D.S. Engineering
Celerity
CMS Welding & Machining
Coorstek
D&H Manufacturing
Co
Dakota Systems
Dff Corporation
FM Industries
GCE industries
Gem City Engineering
Note: the list of companies showed here is not exhaustive. It is based on Interviews with leading toolmakers such as Axcelis, Brooks-Pri, FEI, Lam
Research, Novellus, MKS, Varian, Veeco and Innovent research.
sub- Complete
systems tools
Isys Manufacturing
Jade Corporation
Karlee Company
Knust-Sbo
Maine Machine
Main Companies
Marler Enterprises (M.E.I.)
Nor-Cal
Norwood Tool
Prattville Industries
Rentec
Saint-Gobain (Holz)
Synchrovac
Ultra Clean Technology
Wolfe Engineering
Note: the list of companies showed here is not exhaustive. It is based on Interviews with leading toolmakers such as Axcelis, Brooks-Pri, FEI, Lam
Research, Novellus, MKS, Varian, Veeco and Innovent research.
Coorstek
CDS Engineering
Saint-Gobain (Holz)
Karlee Company
Gem City Engineering

noilli m05$ > eunev e R
Syncrovac
Brenner Tool & Die
Wolfe Engineering
GCE Industries
Nor-cal
B&B Manufacturing
FM Industries
Allied Devices Dff
Dakota systems Main Machine
Innovent
Jade Corporation U.C.T.
CMS Weld. and Mach. Norwood Tool
(part of CDS) Rentec Isys Manufacturing
Knust-Sbo
D&H Manufacturing
m05$ < eunev e R
Prattville
A&D Precision Adem Llc Marler Enterprises
Component
Component manufacturer
manufacturer Higher
Higher electromechanical
electromechanical assemblies
assemblies

Technology Outsourcing
Sub-system Tools & Process

Components OEMs
OEMs OEMs
• Valves • Vacuum pumps • Lithography

Main product categories
• Fittings • Pressure systems • Etch & clean

• Cables • Power conversion and control • Ion implantation
• Materials systems • Deposition
–Quartz • Laser technologies • CMP
–Silicone carbide • Tool automation • Thermal processing
• Gauges / meters • Gas and fluid control • Inspection and
• Controls measurement
• Switches –Reticle and mask
inspection
–Metrology
–Wafer defect
inspection

Technology outsourcing: Components.
IP Driven World market Price ranges ($) Main companies
size ($Millions) (for a typical (% Share of Market SOM)
Components manufacturing process)
Total Gas flow Y2000: 400 1,000 - 9,500 Aera, STEC, Unit Instruments (kinetics), Mykrolis,
$1,000 control (general purpose is MKS Instruments, (first four comprise about 80% of
million around 2,500) the market. EMCO, a division of Advanced Energy,
produces sonic systems for niche applications
Valves, fittings Y2000: 260 450 - 9,000 MKS Instruments (25%), Inficon, Helix, VAT and BOC
Edwards (7%-8% each), others (45%)
Gauges Y2000: 215 200 – 6,400 •Capacitance based gauges: MKS (leader)
(pressure (general ASP 1,000 –
measurement) •Indirect measurement gauges: Granville Phillips, a
2,000) division of Helix, (25%), MKS Instruments, Inficon,
BOC Edwards
Gas analysis Y2000: 70 25,000 Inficon (35%), MKS Instruments-Spectra (20%),
and other Ulvac, Stanford Research Systems and Anelva (less
sensors than 5% each), Variety Instruments, Luxtron and SC
technology
Leak detection Y2000: 15 20,000 – 30,000 Inficon and Alcatel Vacuum, (18% - 20% each),
Varian, Ulvac (each with less than 10%), MKS is a
new entrant with a portable leak detection device
Source: “Subsystem and Components, A Primer Report”, Lehman Brothers, July 9, 2001
Technology outsourcing: Subsystems.
size ($Millions) (for a typical (% Share of Market SOM)
Subsystems manufacturing process)
Vacuum Pumps Y2000: 1,500 5,000 – 25,000 Alcatel vacuum products, Anelva, IGC-APD
Cryogenics, A-Vac industries, BOC Edwards,
Branston Engineering, CTI-Cryogenics, Ebara
Technologies, Hy Vac products, Kashiyama,
Leybold Vakuum, Osaka Vacuum, Pfeiffer
Vacuum, Seiko Seiki, Ulvac Technologies, Varian
Vacuum
Power Direct Current Y2000: 490 3,100 – 175,000 •Top ten suppliers control almost all of the market
conversion and
control systems Mid-frequency (ASP of 9,500) •Advance Energy (53%), ENI and MKS-ASTeX
for (second and third)
Radio-frequency
semiconductor •Other suppliers: Comdel, Huettinger, Kyosan,
applications Matching networks Daihen, Muegge Electric, Adtec, CPI, Trazar and
($580 million) Microwave Shindingen
Other power Y2000: 90 10,000 – 20,000 MKS-ASTeX (Astro product is the defacto
sources: reactive (Integrated subsystem’s standard, they command 90% SOM), Advance
gas ASP 40,000 – high Energy is a new entrant
value added)
Source: “Subsystem and Components, A Primer Report”, Lehman Brothers, July 9, 2001
Technology outsourcing: Subsystems.
size ($Millions) (for a typical manufacturing (% Share of Market SOM)
process)
Laser technologies for Y2000: 315 500,000 Cymer Inc. (82% SOM of installed excimer
semiconductor applications (Current generation 248nm lasers), Gigaphoton and Lambda-physik
KrF excimer lasers) (second and third, but well behind Cymer)
700,000
(Next-generation 193nm ArF)
Tool Automation Interface Y2000: 400 15,000 – 50,000 Asyst Technologies (80%), Brooks
for Automation* (16%), Adept Technology
semiconductor (third), 31 more supplier who are niche
applications ($755 players
million) Atmospheric Y2000: 150 15,000 – 30,000 (includes PRI* (>60%), MECS**(5%), Rorze, Daihen,
robots*** hardware, controller and pre- JEL, Brooks, Yasakawa (remaining)
aligner)
Vacuum robots*** Y2000: 95 30,000 Brooks Automation (90%), remaining is split
between Daihen (3%), JEL (3%), PRI (2%)
and MECS and others (3%)
Vacuum cluster Y2000: 75 500,000 Brooks Automation (86%), Daikin (12%), PRI
(simple platforms can sell (2%)
150,000 – 175,000)
Integrated front Y2000: 35 120,000 – 140,000 Asyst (50%), Brooks (29%), PRI (11%),
end (IFE)**** (Basic 70,000 – high end Adept, Rorze
200,000)
* Brooks Automation acquired PRI, a new entrant in the tool automation market, in 2001
** Purchased by Asyst in 2000
*** Excludes robots sold with IFEs and vacuum cluster tools and takes into account only merchant sales and not captive robot capacity. Captive robot
capacity is comprised mainly of vacuum robots as these are highly customized for the process tool
**** Merchant market in 2000 represents about 10%-15% of total market
Source: “Subsystem and Components, A Primer Report”, Lehman

© 2002 Brothers,
Business JulyLLC.
Ecosystems 9, 2001
All rights reserved. 37
Toolmakers.
size (for a typical (% Share of Market SOM)
Tools ($Millions) manufacturing
process)
Process Wafer Defect Y2000: 1,480 SEMs: >$1 mill KLA-Tencor Applied Materials (10%),
diagnostic inspection Inspection (60%-65%) Hitachi (17%), Therma-wave
equipment (includes defect Electron beam (4%), Veeco Instruments
-PDE inspection, CD* & tools: $2-$3 mill (5%), Others (28%)
Overlay, thin film,
(Y2000: $5,120 IPC*, and others CD & Overlay Y2000: 1,131 CD: SEMs <$1 mill KLA-Tencor
million) not shown) (35%-40%)
(Y2000: $4,352 Overlay: $350K-
million) $500K
Thin film Y2000: 435 ~150,000 KLA-Tencor

(35%)
Integrated process control Y2000: ~100 <$100,000 Nova Measuring Instruments (>70% in CMP
(growing sub-segment) IPC market), Nanometrics (Integrated
metrology for CVD), Rudolph Technologies,
Therma-wave (agreement with AMAT), KLA-
Tencor (CMP IPC market)
Reticle inspection/ repair Y2000: 500 $500,000- KLA-Tencor (72%), Leica Microsystems (13%),
$1,000,000 Applied Materials (6%), Nikon (4%), Lasertech
(3%), others (2%)
* CD = Critical Dimension; IPC = Integrated Process Control
Source: “Perspectives”, SG Cowen, May 8, 2001 © 2002 Business Ecosystems LLC. All rights reserved. 38
Toolmakers.
IP Driven World market Price ranges ($million) Main companies
size ($millions) (for a typical manufacturing (% Share of Market SOM)
Tools process)
Lithography Y2000E: 6,000 $5~$10 million Based on units: Nikon (35%), Canon (22%), ASM Lithography
(~1,100 units) (30%), Silicone Valley Group (9%), Others (4%)
Etch & clean Y2000A: 6,808 Not Available Applied Materials, Helix Technologies, Lam Research, Tegal,
Tokyo Electron
Thermal Y2000: 613 Not Available Y2001: Applied Materials (84%), Mattson (12%), Daippon Screen
Processing (1.5%), Axcelis – SEN subsidiary (1.5%), others (1%)
(RTP) Y2001: 368
Thermal Y2000: 622 Not Available Y2001: Tokyo Electron (45%), Hitachi-Kokusai (25%), ASM
Processing International (13%), ASML (10%), Koyo Thermal (4%), Novellus
(Furnaces) Y2001: 420 (2%), Other (1%)
Ion implantation Y2000E: 1,500 High energy >$3.5 Y1999A: Axcelis (46%), Technologies, Varian Semiconductor
(545 units) (30%), Applied Materials (17%), others: Nissin and Ulvac (7%)
High current: $2.5-$3.5
Medium current: $2.5-$3.0
Deposition*: Y2000A: 9,010 Not Available Applied Materials, Genus, Helix, Lam Research, Novellus, Tokyo
Electron, among others.
CMP Y2000A: 1,506 Not Available Y2000A: Applied Materials (55% - gained to 60% in 2001), Ebara
Technologies (22%), SpeedFam-IPEC (15% - fell below 10% in
2001), Lam Research (5%), Peter Wolters & Strasbaugh (3%)
*Includes CVD, metallization, deposition planarization and related.
Source: “Photolithography Outlook 2000”, Lehman Brothers, April 14, 2000; “Beam Me Up, Ion Implantation”, Lehman Brothers, October 23, 2000;
“Semiconductor Capital Equipment”, Bear Stearns, May 2002; Dataquest, April 2002
Wafer
Wafer Fabrication
Fabrication (WFE)
(WFE)
Mask Materials Management, Chemical Distribution, Automation

Mask Mfg.
Mfg.
One cycle, additional deposition…
Diffusion/
Photo-
Wafer
Wafer Mfg.
Mfg. Epitaxi Etch Strip Metal CMP
lithography
Implant
Inspection and Measurement
Test,
Test, Assembly
Assembly &
& Packaging
Packaging (TAP)
(TAP)
Materials Management, Chemical Distribution, Automation
En- Test & IDMs

Wafer Test Dicing Die Bond Wire Bond
capsulation Burn-in
Source: www.infras.com 40

SEMI Outsourcing Industry Overview

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SEMI Outsourcing Market Enrique Shadah

Business Ecosystems LLC

This presentation is divided into 2 parts.

2 Semiconductor Equipment Market

© 2002 Business Ecosystems LLC. All rights reserved. 2

The semiconductor market is expected to continue growing but at a lower

Semiconductor equipment is an attractive market for outsourcing

World semiconductor markets are driven by computer and

The Americas have maintained leadership in semiconductor demand since

World Market Sizes ($billions of sales)

As telecommunications chip use is increased on a global basis,

Source: “Semiconductor Industry Survey”, Standard and Poor, February, 2002

American and Japanese based firms continue to dominate worldwide

Japan Asia Pacific

Source: “World Market Shares 1982-2001”, SIA, 2002. 8

The top 10 semiconductor companies have represented about half of

Largets Semiconductor Com

Rank Company (Country)

This presentation is divided into 2 parts.

2 Semiconductor Equipment Market

© 2002 Business Ecosystems LLC. All rights reserved. 10

Although the semiconductor market has experienced healthy growth, its

Semiconductor equipment companies are exposed to stronger demand

In 2001, WFE semiconductor equipment market plummeted 41% to $21

Semiconductor Equipment Front-End Estimated Market Size

The top 10 equipment companies have increased their share of the

Rank Company (Coun

Outsourcing of non-core activities by equipment makers is almost a

Thus, a window of opportunity is still open for companies that are

Equipment companies that successfully lower their operating leverage will

Changes in Operating Leverage

Source: Company annual reports, Innovent analysis. 15

Toolmakers are facing the challenge of lowering inventory levels

Inventories as % of Current Assets

Source: Company reports, Innovent analysis 16

Technology roadmap poses many challenges to toolmakers, which need to

Integration level, cost, speed, power, compactness, Technology

Technology outsourcing and manufacturing outsourcing are the two main

Value chain evolution shows equipment companies relying more on

End user End user End user

IDMs IDMs IDMs

Equipment Equipment Equipment

Raw Raw Raw

Technology outsourcing companies are expected to help toolmakers

managing working capital and asset intensity as materials

Components • Further specialization with focused R&D expenditures

In 2001, the worldwide market for outsourcing services was approximately

Assumptions COGs Composition for Toolmakers

• WFE represents 76% ManufacturingOS

Source: Interviews with leading toolmakers, Innovent analysis.

Currently, there are many companies that provide outsourcing services to

Manufacturing Continuum Technology

Component and •Concentrated, clear market

© 2002 Business Ecosystems LLC. All rights reserved. 21

Competitive intensity for the manufacturing outsourcing industry is in the

© 2002 Business Ecosystems LLC. All rights reserved. 22

Competitive intensity for the manufacturing outsourcing industry is in the

© 2002 Business Ecosystems LLC. All rights reserved. 23

Manufacturing outsourcing companies are facing tougher selection criteria,

Criteria Value Importance Rationale

Manufacturing outsourcing companies are facing tougher selection criteria,

Criteria Value Importance Rationale

© 2002 Business Ecosystems LLC. All rights reserved. 25

Competitors in the manufacturing outsourcing industry for semiconductor