Photomask for wafer fab: A look at the industry’s structure

(September 17, 2010) — Using Michael Porter’s "The 5 competitive forces that shape strategy" as a template, Franklin Kalk, CTO of Toppan Photomasks, examined the photomask industry structure and how it determines industry profitability. Porter’s five forces are 1) the threat of new entrants (that is, other firms entering the market to compete against the incumbents), 2) the bargaining power of suppliers, 3) the bargaining power of customers, 4) the threat of substitutes (that is, products that might replace photomasks), and 5) the rivalry among the existing firms in the lithography industry.

Kalk spoke with senior technical editor Debra Vogler in-depth about the photomask industry. Get the full interview in this podcast, "Franklin Kalk, Toppan, goes in-depth into lithography market" Play Now or Download

It’s useful to quote what I think is Porter’s most important statement: “Industry structure drives competition and profitability, not whether an industry is emerging or mature, high tech or low tech, regulated or unregulated.”  His point is that we manage our own destiny by how we structure our business. I find it instructive to segment the mask industry into captive and merchant manufacturers, with consideration also given to what we call virtual captives, that is, manufacturers that are joint ventures between merchants and their customers (one example of this is the AMTC, a JV between GLOBALFOUNDRIES and Toppan Photomasks).

 

The 5 competitive forces for mask manufacturers

Competitive force

Threat to captives

            Threat to merchants

 

Threat of new entrants

Low. Very large financial and technical barriers.

 

Threat of substitutes

Low. NIL: integration barrier
BDW: could help business at low wafer volumes.

 

Bargaining power of suppliers

Moderate. Captives are part of large semiconductor companies.

Moderate. Virtual captive model can provide volume leverage.

(Small market leads to near monopolies in two areas.)

 

Bargaining power of buyers

Low. Buyers have no choice.

High. Multiple mask firms compete for the same customers.

 

Rivalry among competitors

Low. Demand-based, not technology-based, outsourcing.

High. Low product differentiation.

(Increasing high-end market; shrinking low-end market.)

A brief assessment of Porter’s five forces for captive and merchant mask manufacturers is given in the attached chart. For both captives and merchants, the threat of new entrants into the market is low.  A couple DRAM manufacturers established captive operations within the past 15 years, but the financial and technical barriers to entry are considerable.

Likewise, the threat of substitute products is low. Some people point to electron beam direct write (EBDW) as a potential competitor to masks, but as we’ve said for the past 5 years, EBDW would actually benefit the mask industry because it would increase tapeout activity by making low wafer volume designs affordable to manufacture. So it isn’t a substitute at all; it’s complementary.

The bargaining power of suppliers is moderate for both captives and merchants. Because the mask market size is modest, the supply chain has few companies, and each supply chain segment has a dominant supplier. However, captive mask manufacturers are owned by companies that usually purchase other products from those suppliers, so supplier power is not as strong as one might think. Similarly, the establishment of the virtual captive JV model improves purchasing power for the merchant mask manufacturer by making it part of a larger partnership.

Bargaining power of buyers (i.e., customers) is low in the case of the captive mask manufacturers because the captive business model makes the internal mask shop the first, and maybe the only, choice for masks. Likewise, captives don’t have rivalries with competitors because semiconductor companies with captive shops outsource mask purchases mainly to access capacity, not to access technology.

On the other hand, merchant mask manufacturers are faced with strong buyer bargaining power.  This is especially true for standard and mature products, where several merchant mask firms compete for the same customers. At the leading edge, where the virtual captive JV model is often employed, or where a semiconductor company might choose to work with a single merchant on new product and process technologies, buyer bargaining power may be more modest.

And finally, rivalry among the merchants is intense because they all have access to the same equipment and materials. So one success factor is product differentiation, usually by entering other markets. Some IC mask merchants also provide masks to the flat panel display industry.  Others have broadened their market footprints by more closely associating themselves with design services.

Franklin Kalk, CTO of Toppan Photomasks, may be contacted via http://www.photomask.com/. Read more of Kalk’s recent comments, from the SPIE Advanced Lithography Conference.

Subscribe to Solid State Technology/Advanced Packaging. Follow Solid State Technology on Twitter.com via editors Pete Singer, twitter.com/PetesTweetsPW and Debra Vogler, twitter.com/dvogler_PV_semi. Or join our Facebook group

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