Hard evidence for the increasing importance of materials

By Paula Doe
WaferNews Contributing Editor

Despite the overall industry’s worst year ever, sales remained relatively stable at a range of suppliers of enabling materials, as users kept buying photomasks, slurries, and compound semiconductor substrates even if they weren’t equipping fabs. But the damage in the volume-dependent silicon wafer business was staggering.

Materials suppliers report volumes are picking up as their customers step up wafer starts, and expect profits in the coming quarters to improve accordingly. Entegris says sales were up 10% for the quarter ended in March, and expects another 10% increase for the June quarter, which should start to translate into better margins. Even MEMC sees higher volumes sharply improving the bottom line in the near future.

“Since a low point in demand in the third quarter of 2001, we have seen a modest recovery in worldwide shipments of silicon wafers,” said MEMC CEO Klaus von Horde. “We expect that product volumes will be up in the first quarter of 2002 as compared with last quarter … and our operating profit, before depreciation and amortization, could approach break-even in the 2002 first quarter.”

The fastest growing materials supplier by far was Soitec, whose revenues jumped 127%, to sales of $70.55 million in 2001, as it ramped production of SOI wafers. The French company says its operating income came to more than 20% of sales for the six months through September 2001. It has installed 300mm manufacturing facilities, and plans to bring its second plant in Bernin on stream in July.

Photronics also managed a 5% increase in sales in CY01, though largely thanks to its acquisitions of PKL in Korea and a mask house in Taiwan.

“[Photronics was] under-invested in Asia before,” points out Mark Fitzgerald, analyst with Banc of America Securities, noting it is now invested there and gaining business. Photronics says it’s now the second source to TSMC, after its in-house mask shop, and notes that Samsung became one of its top five customers last quarter. PKL was Samsung’s second-source mask supplier, after its in-house shop. That made Photronics about 3% larger than rival DuPont Photomasks for the year. Photronics executives say they expect 18% share of a $2.7 billion mask market in 2002, edging out DuPont and Dai Nippon at 16% each. AXT, Cabot, Isonics, and DuPont Photomasks also all successfully maintained sales at close to 2000’s strong levels.

Cabot Microelectronics and Entegris actually made money for the year, and a handful of others at least remained close to breakeven. Cabot saw a big jump in demand for CMP slurry for copper, up 2.5-fold in the September quarter over the year before.
“They dominate the market,” says Morgan Stanley Dean Witter Analyst Steven Pelayo. “The issue is when will pricing pressure start.”

The silicon business was, as usual, not the place to be in a downturn. MEMC saw product volumes drop 24% for the year, and ASPs fell as well, pushing revenues down 29%. High fixed production costs meant cost of sales were $0.08 on the dollar more than the wafers’ selling price. The staggering bottom line: a $523 million net loss on $618 million in sales.

Admittedly, there are not a lot of pure-play materials players from which to generalize about the materials market. WaferNews tracks companies which get 50% or more of revenues from semiconductor materials and report results quarterly or by calendar year. We use the figures reported under generally accepted accounting rules for the 12 months through December 2001, and use the restated numbers whenever possible. We will look at foreign-based suppliers later this spring when their results become available.

WaferNews

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