April 9, 2012 — Barclays Capital’s CJ Muse looks at the underlying trends in semiconductor wafer fab equipment (WFE) in 2011, following Gartner Inc’s data release. Top 5 takeaways? The top 5 WFE vendors continue to gain market share, Intel is a key customer with a big capex increase, the leading equipment vendors strengthened their hold on their respective WFE sub-segments, WFE intensity continues to edge higher, and expect several changes in the landscape in 2012 and beyond.
1. Similar to semiconductor chip maker consolidation, the semiconductor fab equipment supplier sector is undergoing secular consolidation. The top 2 suppliers in each segment are gobbling up market share and synergistic acquisitions. Historical data clearly shows the top 5 front end equipment makers taking a larger percentage of the overall WFE pie. For 2011 in particular, the top 5 vendors — ASML, Applied Materials (AMAT), Tokyo Electron (TEL), KLA Tencor (KLAC), and Lam Research (LRCX) — controlled ~60% of WFE. Looking to 2012, with Varian (VSEA) now embedded in AMAT and the LRCX/Novellus (NVLS) merger likely to be completed, consolidation should continue. The top 5 share gainers among equipment companies with sales exceeding $475M included ASML, KLAC, Hitachi High, TEL, and ASMI. Look for more pricing and R&D investment control in the face of pressures from the consolidating chip maker base, in addition to gaining more leverage from their individual 450mm investments.
2. Intel’s capital expenditures (capex) are up 107% from 2010, compared to the industry as a whole’s capex growth of 25%. Intel accounts for ~18% of the semiconductor industry’s spending. This made Intel an important customer for companies like ASML and KLAC, along with ASMI and Hitachi High. On the flip side, Lam’s lack of exposure to Intel’s etch spending drove a decrease in share for LRCX.
3. By and large, the 2011 market share data illustrated continued gains by the top equipment vendors in each key segment.
- ASML gained 1 percentage point of lithography market share (81%), though its unit share declined from 74% in 2010 to ~61% in 2011, reflecting customers’ strategy to purchase their critical layer/leading edge tools from ASML and allocate the lagging-edge portion of their business to Nikon/Canon. ASML could achieve an 80% revenue market share in 2012 especially as Nikon trails with its S620 immersion tool and is behind on EUV development.
- KLAC reached a historical process control market share high — rising 3% — enabling a 55% overall market share in 2011. AMAT saw its share roughly flat at 12% while Hitachi and Rudolph each saw a 1% decline in the overall process control market share.
- Varian, now a subsidiary of AMAT, maintained strong market share leadership in ion implant at 72% market share.
However, smaller vendors leveraged to Intel (whose capex grew from ~11% of the capex in 2010 to ~18% in 2011) experienced outsized gains in specific sub-segments, including etch, CVD, and semi test. The top 3 CVD vendors lost incremental share in 2011 (their total share declined from 83% in 2010 to ~76% in 2011), with Hitachi and ASMI picking up points at their expense likely as a result of their leverage to Intel. LRCX and AMAT lost overall market share in etch (LRCX went from 47% in 2010 to 43% in 2011, with AMAT going from 20% to 12%), with TEL picking up 7% and Hitachi picking up 6%, again likely due to the mixshift to Intel. Lam’s single-wafer cleaning tool share dropped slightly to 19% in 2011 from 21% last year, with incremental growth at TEL. Though the market is small, in 2011 Lam achieved 100% market share in the bevel clean market, up from 62% the prior year. Teradyne’s share of the semi test market declined from 43% in 2010 to 36% in 2011, while Advantest/Verigy’s share grew from 42% to 49%, again as a result of Intel’s heavy spending on SOC test during the year. Intel is expected to return to normal spending on test in 2012.
4. While the latest Gartner data sizes the 2011 WFE market (excluding MOCVD equipment for the LED space) at ~$35B, Barclays believes that some irregularities and omissions in reporting are skewing the number higher, with the actual 2011 market at ~$31.5B. Taking this number with actual 2011 SIA semiconductor revenue data, it appears that WFE intensity (WFE as a % of semiconductor industry revenues) inched up again from ~9.7% in 2010 to ~10.5% in 2011. And, if the Gartner data is correct, intensity increased even more.
5. Changes will come in 2012.
- Teradyne entered the wireless device test in 2011 via the LitePoint acquisition, and should see strong market share in 2012 with leverage to top share winning customers include Samsung, Apple, and Broadcom. While Advantest/Verigy benefitted enormously from ~$400M in test spend from Intel in 2011, look for Teradyne to recapture share lost in 2012 and beyond, led by gains in mobility and Intel’s normalized spending. Layer in Advantest attempting to convert its key customers from Verigy’s 93K to its T200 platform and Barclays predicts further share gains for Teradyne in the coming years. TER’s SOC test market share will expand to ~47.5% in 2012 and then to 55-60% over the next 5 years.
- While ASML is the undisputed leader in EUV lithography, some have raised concerns about Nikon’s ability to catch up to ASML in immersion with its new 621 tool. Intel is demonstrating two tools today from Nikon and the 14nm decision has not been made. ASML will likely continue to dominate at Intel, particularly as Intel looks to adopt double patterning and quadruple patterning at the 14nm node and below. Moreover, while ASML continues to invest in EUV, the company is also spending considerably on sustaining its competitive advantage in the ArF arena, both wet (immersion) and dry. ASML will maintain its current dominance in the immersion segment.
- LRCX could penetrate Intel on the etch side. While Hitachi remains highly confident that they will maintain share here, anticipation of the 450mm transition on Intel’s part and the technical know-how of LRCX at 14nm and below should allow LRCX to make inroads.
- With Novellus’s market share in PVD inching lower from 6.2% in 2009 to ~5.5% in 2010 and ~4.5% in 2011, Barclays expects a combined LRCX/NVLS entity to exit the PVD business.
- Finally, KLAC’s superior product line-up should allow it at least to maintain its leading share in process control, if not increase it.