ARM processors gaining momentum in sub-notebook market

NEW TRIPOLI, USA: Since Qualcomm officially coined the term “Smartbook” in late May 2009 to differentiate between Intel’s Atom-based netbook and ARM’s ARM-based subnotebook (now the Smartbook), the IT industry is moving in high gear to supplant Atom’s dominance in the lucrative netbook/subnotebook market.

We pointed out on March 9, 2009 in press releases and blogs that ARM processors, not Intel’s Atom, will benefit from the current technology-economic cycle. We noted that while Intel’s Atom dominate the market in 2009, a movement is underway that will enable the ARM processor to gain a 55 percent market share in 2012.

The term Smartbook now makes it easy for us analysts to differentiate between the two. Below is our forecast of the market:

Netbook/Smartbook Market ForecastSource: The Information Network

Already, Lenovo, Nokia, Foxconn, Sony Ericsson, and Sharp are planning smartbooks. ARM runs under the Linux operating system. Linux is free, whereas Microsoft charges a licensing fee up to $35 on each netbook. To further keep cost down near the intended $100 price point, enter cloud computing.

Google's Linux-based Chrome OS offers an improved suite of productivity applications, which will influence netbook purchasers toward the ARM system. There is a wide array of open-source software that all Linux distributions share. It is reshaping the software industry by reducing the overall cost structure and represents the future of enterprise software.

As cloud computing becomes more sophisticated, we will see an Internet protocol-based convergence of audio, video, productivity applications, and IT data run on ARM-based netbooks.

Smartbook/Netbook FeaturesSource: The Information Network

We also envisioned on March 9 that subsidized netbooks would start appearing. “Along with the growing competition among software service providers, we will see a new infrastructure taking hold, modeled after Hewlett-Packard (cheap printer, expensive ink) and the mobile service providers (cheap cellphone, expensive monthly wireless charge). This subsidized bundle model will grow the ARM netbook to greater market shares.”

We were correct and AT&T seemed to think it was a good idea. The wireless provider started offering subsidized netbooks for as little as $49.99 in two markets, Atlanta and Philadelphia.

Netbooks are showing 3G connectivity rates ten times that of notebooks. Kindle 2 from Amazon is basically a mobile phone platform. The processor is a Freescale Semiconductor i.MX31 with an ARM11 core, and the 3G communication module uses a chipset from Qualcomm.

Sales of netbooks bundled with 3G services in the Taiwan market reached 15,000 units in August, accounting for 50% of total retail sales. Smartbooks, because of their design and need for cloud connectivity, will grow even stronger.

The Information Network raises forecast for semiconductor equipment

NEW TRIPOLI, USA: Huge ramps in semiconductor equipment purchases by leading foundries and IDMs in July and August will result in the equipment market ending 2009 dropping 40 percent instead of 46 percent previously forecast, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

“As we stated on August 13, Applied Materials’ results clearly confirmed that the downturn in the semiconductor equipment market is over,” noted Dr. Robert Castellano, president of The Information Network. “Semiconductor equipment purchased in July was up 12 percent and growth continued sequentially in August, increasing 14.6 percent and taking sales to $869 million.”

The chart compares The Information Network’s leading indicators with semiconductor equipment sales on a monthly basis.Source: The Information Network

The report also notes that The Information Network raised its semiconductor forecast growth for full year 2009 to be minus 17 percent. The company expects the foundry sector to underperform the semiconductor market by 2 or 3 percentage points, thus down 19 percent or 20 percent from 2009.

“Our proprietary leading indicators determine inflection points in economic activity and which we utilize to show turning points in semiconductor equipment sales,” added Dr. Castellano, president of The Information Network.

Weak dollar will impact semiconductor supply chain markets

NEW TRIPOLI, USA: Since last March, the dollar has weakened considerably, which will have an impact on market share leadership, according to the report “Chemicals And Materials For Sub-100nm IC Manufacturing,” recently published by The Information Network.

Market share leadership in a business sector has strategic benefits for a company. It gives them the opportunity to issue press releases and publish pie charts in their annual reports because customers prefer to buy from them over competitors.

More significantly, it means that customers often come to them for solutions because they are more convinced by leaders. Customers look up to leaders to provide them with decisions and solutions to their needs and wants. In addition, market leadership shows the financial community that the company is worth investing in.

“A weak dollar means that goods sold in dollars are less expensive,” noted Dr. Robert Castellano, president of The Information Network. “Companies with a large portion of foreign sales will benefit as their products are cheaper, providing an impetus to buy more.”

When global market shares are compiled by us analysts, they are typically calculated in dollars. If the product is sold by a foreign company in that country’s currency, it is then converted into dollars to total up market shares. This is usually a challenge because there are a variety of methods that could be used, such as the average conversion rate throughout the year or the conversion rate on December 31.

Either will only give an estimate of dollar revenue. The only accurate way is if a company converts each sale into dollars at the time of purchase. Complicating the conversion are multinational companies who sell in different currencies in each country they have an office.

In the semiconductor equipment and materials sectors, which we analyze, market leaders held razor thin leadership positions in 2008, and exchange rates will play a big part in global positions in 2009.

Shown in the table are 2008 market share differences between the top two leaders in three major chemical and material sectors and two equipment sectors for companies who are US based versus foreign based.Source: The Information Network, USA

The differences were 2.1 percent and less. With the top leaders are in different countries, swings in exchange rates will readily tip the scale.

A weaker dollar will generally benefit US companies in the calculation of global market share because revenues generated in a foreign currency will be converted to fewer dollars.

Based on the strength of the dollar for 2009, we suspect market share leadership in to be held by Air Products, Honeywell Electronic Materials, OM Group, Lam Research, and Applied Materials. In a competitive environment, market share is sometimes also a matter of luck and dependent on customers’ performance. If a customer underperforms and stops buying, it will impact revenues of all its vendors up the supply chain.

Bosch will strengthen position in automotive MEMs with integrated approach from Akustika

NEW TRIPOLI, USA: The acquisition of MEMs silicon microphone company Akustika by Bosch will strengthen its leadership in the automotive MEMs devices, according to the report: The Global MEMs Device, Equipment, and Materials Markets: Forecasts and Strategies for Vendors and Foundries, recently published by The Information Network.

“Excuse me if I yawn at the announcement that MEMS microphone manufacturer Akustica Inc. has been acquired by Robert Bosch North America and will become part of its MEMS division, Bosch Sensortec GmbH (Reutlingen, Germany),” noted Dr. Robert Castellano, president of The Information Network.

The company was started in 2001 and has sold over 5 million CMOS microphones for consumer devices like PCs and cell phones.

Competitor Knowles Acoustics, which shipped its first MEMS Microphone two years later, announced that it sold its ONE BILLIONTH microphone this past week. Knowles was acquired by the Dover Corp. a few years ago.

So why would Robert Bosch acquire a MEMs microphone company with market share in the noise level with 36 employees, even though it is one of the oldest entrants in the market? X-Fab provides foundry services for Akustica's microphone chips, so Bosch is only buying IP.

Akustica's products employ standard complementary metal oxide (CMOS) semiconductor processes and microelectromechanical systems (MEMs) to fabricate acoustic membranes and other sensor structures in the same chip with analog and digital circuitry.

However, many MEMS manufacturers prefer to use a hybrid approach to make cost-effective devices rather than a pure monolithic method. Often, the MEMS element is on one chip while the signal-conditioning circuitry is on another, usually an ASIC. Interconnecting the two requires a very careful approach to ensure that acceptable yield and reliability levels are achieved.

Clearly, Bosch is not positioning itself in the MEMs microphone sector but in Akustika’s patents for integrated CMOS and MEMs technology. With Bosch’s expertise in the MEMs marketplace, we suspect they will be successful in using Akustika’s technology in all of their MEMs sensor applications, which has the potential for reduced size and production cost.

Bosch is the market leader in automotive MEMs, with revenues of $430 million in 2009, double the revenues of its nearest competitor Denso of Japan. More than 80 percent of Bosch's MEMs production is sold internally to its automotive subsystems for stability control and tire pressure monitoring.

In the automotive MEMs market, Bosch also competes against Analog Devices, Freescale Semiconductor, Infineon, and VTI of Finland. If the integrated technology can be applied Bosch’s products, it will impact market share of its competitors.

By way of background, we started analyzing the silicon MEMs microphone market in 2003. Since that time the market has grown from 2 million units sold in 2003 to nearly 300 million sold in 2008.

The market, which included initial entrants Knowles Acoustics, Akustika, and Sonion Denmark), has grown to include Analog Devices, NXP Semiconductors, Wolfson Microelectronics, Freescale Semiconductors, STMicroelectronics, and Infineon. China suppliers entered the market in recent years and include Shangdong Goer Acoustics Technology Co. Ltd, Suzhou MEMSensing Microsystems Co. Ltd., and AAC Acoustic Technologies (Shenzhen) Co. Ltd.

Cellular is the major market for MEMs silicon microphones Handsets with dual MEMS (micro electro-mechanical systems) microphones from the world's top-five handset vendors are expected to hit the market in the first quarter of 2009.

The dual MEMS microphones will enter the handset development design-in stage at all top-tier handset vendors in the third quarter of this year, allowing the vendors to launch handsets at the end of the first quarter, or early in the second quarter, of 2009.

For 2009 the report forecasts a 5 percent downturn in the cellphone market, from 1,216 million units in 2008 to 1,156 million units in 2009. The smartphone market, which includes the iPhone, will grow 21 percent from 175 million units in 2008 to 191 million units in 2009. This sector is the key growth area for the MEMS microphone.

For Q2 2009, Nokia let the smartphone market with a 44% share, followed by RIM with a 21 percent share and Apple with nearly a 14 percent share. Competitors such as Sharp, Fujitsu, and HTC held the other 21 percent.

Semicon foundries catching up after poor Q1

NEW TRIPOLI, USA: Semiconductor capacity utilization can give an indication of not only the state of the semiconductor industry but also prospects for the semiconductor equipment markets, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

Because of the downturn in the overall economy in 2009, capacity utilization -– the number of semiconductors made as a ratio to the plant (fab) capacity -- dropped precipitously in Q1 2009 to 55.6 percent from 89.7 percent in Q1 2008, according to SICAS statistics from the Semiconductor Industry Association (SIA).

“Clearly semiconductor manufacturers would not be building new fabs at $3 each to expand capacity when more than 40 percent of their plants are idle. Thus, equipment purchases by these manufacturers would not be for capacity expansion but for new technology usually planned several months out, as it can take up to a year for a company to make a purchase, have the equipment installed, qualified, and then ramped for production,” noted Dr. Robert Castellano, President of The Information Network.

In Q2 2009, as the economy improved and these companies sold off excess inventory, capacity utilization jumped to 76.7 percent. In the chart below, we call this row “actual” capacity utilization as reported by SICAS.Source: The Information Network

Closer examination shows that total semiconductor fab capacity dropped 12.4 percent between Q2 2008 and Q2 2009 as a result of 20 fab closures in 2009. If we calculate capacity utilization based on capacity for Q2 2008 (before the fab closures) and actual chip production in Q2 2009, capacity utilization would be only 67.2 percent in Q2 up from 51.5 percent in Q1 based on capacity in Q1 2008 and actual production in Q1 2009. In the chart, we call this “normalized” capacity utilization.

Obviously, capacity expansion is the furthest thing on semiconductor manufacturer’s minds in 2009. That leaves us with technology expansion. Again looking deeper into the capacity data, if we look at the leading-edge semiconductors, those made with dimension less than 80 nanometers, “actual” capacity utilization rose from 69.9 percent in Q1 2009 to 90.8 percent in Q2 2009.

For these advanced chips, capacity increased 0.7 percent between Q2 2008 and Q2 2009. The capacity utilization of only 69.9 percent in Q1 2009 needs further interpretation. If we again compare capacity in Q1 2008 with actual production in Q1 2009, “normalized” capacity utilization would be 85.6 percent. So, capacity utilization in Q2 2009 only increased 5.2 percent.

We forecast the semiconductor equipment market will drop 46 percent in 2009. What’s the basis of our forecast? Semiconductor manufacturers are bringing up the capacity utilization in the overall semiconductor market, but equipment is almost totally being purchased for technology expansion at the 80nm and below feature sizes, and that expansion so far this year is only 5.2 percent for leading-edge semiconductors.

The capacity for the leading edge semiconductors represented 42 percent of the total capacity in Q2 2009.

Foundries are a different story. Our semiconductor forecast growth for full year 2009 will be minus 17 percent. We expect the foundry sector to underperform the semiconductor market by 2 or 3 percentage points, thus down 19 percent or 20 percent from 2009. Why? In Q1 2009, the semiconductor market dropped 30 percent year over year. However, the foundry sector dropped more than 50 percent.

Foundry capacity, both “actual” and “normalized”, grew 66 percent and 56.5 percent, respectively, between Q1 and Q2 2009.

“They are catching up for a dismal Q1 and hence they will only underperform the overall semiconductor market by 2 to 3 percent,” added Dr. Castellano.

Semiconductor equipment market grew 12 percent in July

NEW TRIPOLI, USA: Applied Materials’ results clearly confirmed that the downturn in the semiconductor equipment market is over, although the overall market will drop 46 percent in 2008, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

“July marked a huge ramp in semiconductor equipment purchases as leading foundries. About $755 million in semiconductor equipment was purchased in July, up 12 percent from $677 million in June 2009,” noted Dr. Robert Castellano, president of The Information Network. “We see growth continuing sequentially in August, increasing 14.6 percent and taking sales to $869 million.”

The chart below compares our leading indicators with semiconductor equipment sales on a monthly basis.Source: The Information Network

“Our proprietary leading indicators determine inflection points in economic activity and which we utilize to show turning points in semiconductor equipment sales,” added Dr. Castellano, president of The Information Network.

Rapid recover ramp in semiconductor equipment market

NEW TRIPOLI, USA: Applied Materials’ results clearly confirmed that the downturn in the semiconductor equipment market is over, although the overall market will drop 46 percent in 2008, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

To understand how fast the market has turned, Applied’s Silicon Systems Group (SSG) had net sales of $498 million, up 91.5 percent sequentially in the previous quarter ending July.

Applied’s fiscal quarter ends one month later than competitors, so a comparison with Applied’s recent quarter will indicate what happened in the month of July.

Close competitor in the vacuum space, Novellus, reported net sales increased 20.5 percent in the latest quarter ending June. KLA-Tencor, competitor and market leader in the metrology/inspection space, saw net sales decrease 6.3 percent sequentially.

ASM Lithography, not a direct competitor but the number two player in the semiconductor equipment market, reported net sales increased 50.5 percent sequentially in the latest quarter.

“To further understand if there is a huge ramp in July, which could impact the current quarter for equipment manufacturers, or whether Applied Materials is increasing shares, we need to look closer at overall market share data and increase granularity by looking at the individual sector shares, noted Dr. Robert Castellano, president of The Information Network.

Applied Materials led the world in equipment sales beginning in the early 1990s, and has essentially continued to outperform the industry average. The chart here shows how Applied has positioned itself in the market in 1979, 1989, 1999, and 2008.Source: The Information Network

In 1999 Applied had more than double the revenues of its closest competitor -- Tokyo Electron. In 2008, the company was only 35 percent ahead of number 2 player ASML.

Applied competes in the semiconductor equipment market in nearly 20 sectors, significantly more than any other supplier. As a result, there is little overlap in individual sectors between Applied and the other top 10 market leaders.

For example, there is no competition with ASML whereas Applied competes with Tokyo Electron in the plasma etch, deposition, and clean sectors. It competes with KLA-Tencor in the metrology/inspection sectors, and Lam Research in the plasma etch sectors.

If we hone in on the sectors, we can better understand how Applied is faring and whether July was a rapid ramp in overall equipment sales or share gains.Source: The Information Network

In 2001, Applied Materials held a 42 percent share of the overall equipment market, holding greater than a 50 percent share in seven of the 17 sectors. Year 2001 is an important year to look at since the overall semiconductor equipment market nosedived after a record breaking 2000, dropping 45 percent year-on-year.

The overall market continued to drop another 45 percent in 2002, but Applied’s revenue decreased only 16.6 percent sequentially. Applied’s overall share thus increased to 48 percent of the overall semiconductor equipment market, and the company held greater than a 50 percent share in nine of the 17 sectors it competed in.

Year 2008 started out to be a good year until the market collapse in Q4, and ended down 29 percent. Applied’s overall market share eroded to 38 percent of the overall equipment market, although it maintained a market share greater than 50 percent in seven of the 16 sectors it competes in (we have not included share date for the company’s gate or clean sectors).

What can be concluded from all this data? Although Applied’s feathers are a bit ruffled, it continues to be the market leader. It may have lost some share over the past decade and may be increasing it this year. But, the 91.5 percent sequential growth exhibited in the latest quarter clearly indicates a rapid ramp in the semiconductor equipment market.

Intel leads PC processor market -– does it matter?

NEW TRIPOLI, USA: There has been a great deal of press lately regarding market shares of Intel and AMD, and a bit of VIA Technologies, in the PC processor (CPU) space.

Since it is really a two-horse race (VIA has less than a 1 percent share), does it really matter? Do PC OEMs like Dell, HP, or Apple wait patiently for the quarterly shares to come out before making a decision to purchase from Intel or AMD? We think not, notes The Information Network.

As market shares between Intel and AMD are not even close (a 4:1 ratio) does it matter to the investor community whether shares change a few tenths of a percent one way or the other? Only perhaps, if there is a trendline or abrupt anomaly.

Our analysis shows that Intel had almost a 79 percent share in the overall PC space that includes desktops, netbooks, notebooks, and servers in Q2. This share was up 1.5 percent from Q1, but down 3 percent from Q4 2008. Clearly, there is no trendline, so we need to look deeper.

In the mobile PC space, which includes notebooks and netbooks, Intel held an 86.9 percent share, up 2.5 percent from Q1 but down 2.1 percent from Q3 2008. Again, no obvious trendline.

The netbook sector is dominated by Intel’s Atom CPU and is growing strongly, as our forecast below shows. AMD has no CPU to compete in the netbook sector. Could the Atom be a factor?Source: The Information Network, USA

In CY2007, before the Atom and netbook took off, Intel held an 82.2 percent share, which grew to an 87.2 percent share in CY2008, as shown in our analysis of shares in the table below.

In Q2 2009, Intel’s share was 86.9 percent. If the netbook market does double in 2009, why isn’t Intel’s share of the mobile sector increasing? Could it be that AMD is gaining share in the notebook space while Intel’s unit shipments of Atom CPU’s increases?Source: The Information Network, USA

"I stated publically before that Intel’s margins have been decimated in the past several quarters, particularly in calendar Q4 2008 and Q1 2009. Intel reported slashed revenues of about a billion dollars for Q4. Could it be that Intel misjudged the success of the Netbook and its Atom processor? Let’s take a look at some figures.

"The Atom is processed with 45nm feature sizes on 300mm wafers and measures 25 square mm. It is priced at about $29. A total of 2,436 Atoms can be made on one wafer for a total selling price of $70.6K (neglecting edge loses and yields for this quick calculation)," noted Dr. Robert Castellano, president of The Information Network.

Intel’s Penryn Core 2 processor is used in notebooks. It is also processed with 45nm feature sizes on 300mm wafers and measures 107 square mm. It is priced at about $279. A total of 660 Penryns can be made on one wafer for a total selling price of $184.1K.

So, even though the Atom is propping up Intel’s unit shipments in the mobile PC sector, so what! It’s making little or no money on the Atom anyway. A more important issue is that it may be losing market share in the notebook market. Why, because Intel had to fill orders for netbooks in Q4 2008 and Q1 2009 and made Atoms instead of Penryns, resulting in lowered margins on a $29 CPU. Once PC OEMs migrated to the AMD CPU, they stayed with it.

And we’ve also forecast previously that while Intel’s Atom will hold more than an 80 percent share of the 23.5-million netbooks sold in 2009, a movement is underway that will enable the ARM processor to gain a 55 percent market share in 2012.

Google’s Linux-based Chrome OS offers an improved suite of productivity applications, which will influence netbook purchasers toward the ARM system.

There is a wide array of open-source software that all Linux distributions share. It is reshaping the software industry by reducing the overall cost structure and represents the future of enterprise software.

As cloud computing becomes more sophisticated, we will see an IP-based convergence of audio, video, productivity applications, and IT data run on ARM-based netbooks.

That could present a dilemma for Intel in the fast growing mobile PC space -– losing market share to AMD in the notebook market and to ARM in the netbook market. As the server PC market comes back to life AMD is positioning itself with the Six-Core AMD Opteron processor.

Except for the bean counters who consume market shares with their cappuccinos, what then is important in the PC space? Clearly, for the investment community it’s profits and outlook. The chart below is a comparison between Intel and AMD for two key financial line items, R&D and gross margins.Source: The Information Network, USA

In the R&D space, AMD is consistently investing greater than 20 percent more of revenues than Intel. This to us is a leading indicator as AMD positions itself in the future. In fact, it is already paying off.

Dirk Meyer, AMD president and CEO noted that "New platform, microprocessor and graphics introductions planned for the second half of 2009 position us well to improve margins and meet our financial goals for the year." This includes the Six-Core AMD Opteron processor months ahead of schedule.

AMD reported that leading enterprise computing providers, including Dell, HP, IBM and Sun Microsystems announced new servers based on the new Six-Core AMD Opteron processor, which is a drop-in replacement for the Quad-Core AMD Opteron processor and delivers up to 34 percent more performance-per-watt in the exact same platform.

Gross margin is another issue and AMD got slammed after announcing its gross margin was 37 percent in Q2 2009 compared to a Q1 gross margin of 43 percent and 38 percent a year earlier.

Intel's closely watched gross margin increased to 50.8 percent from 45.6 percent in Q1 and 53.1 percent in the fourth quarter. VIA Technologies’ gross margin nearly mirrors AMD’s over the past several quarters but we’re still waiting for Q2 to be released.

Investment managers have decided that gross margins are significant. I question that when there are numerous factors affecting margins from one quarter to another.

In fact, Intel concurs, according to their statement “Revenue and the gross margin percentage are affected by the timing of new Intel product introductions and the demand for and market acceptance of Intel's products; actions taken by Intel's competitors, including product offerings and introductions, marketing programs and pricing pressures and Intel's response to such actions; and Intel's ability to respond quickly to technological developments and to incorporate new features into its products.”

More positive indicators for semicon equipment market

NEW TRIPOLI, USA: Expected announcements that capex was increasing are giving hope that the equipment downturn has bottomed out, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

We noted in our TheStreet.com column on Tuesday that “Singapore-based foundry Chartered Semiconductor raised its 2009 capital budget forecast by a third on growing demand, and we expect similar positive activity coming from Taiwan-based foundries TSMC and UMC as they report this week.”

Well, Taiwan's United Microelectronics Corp. (UMC) reported on Wednesday that it was, in fact, raising its capex morning for CY09 from less than $400 million to $500 million. Taiwan Semiconductor Manufacturing Co (TSMC) also revised upward its 2009 capex budget to $2.3 billion. Previously, it estimated a capex of $1.9 billion for the year.

For UMC, revenue increased 108.8 percent quarter-over-quarter and wafer shipments increased 134 percent sequentially to 898 thousand in the second quarter, compared to 384 thousand 8-inch equivalent wafers shipped in the first quarter. The overall utilization rate for the quarter was 79 percent, compared to 30 percent in the previous quarter and 85 percent a year ago.

For TSMC, the world’s largest foundry, revenues for the second quarter were up 87.9 percent sequentially. TSMC recorded wafer shipments of 1.97 million 8-inch equivalent units in the second quarter, up 121 percent from 892,000 units in the first.

We stated in our TheStreet.com column last Thursday that the chip market recovery had begun, but tightened purse strings was keeping the semiconductor equipment market from exhibiting comparable up and down cycles characteristic of the semiconductor market.

We stated that “In January 1995, 11.4 percent of revenue generated by semiconductor manufacturers was spent on new processing equipment. Forward to May 2009 and only 3.8 percent of semiconductor revenue was spent on equipment.”

As shown in the chart below, up until 2001, the semiconductor and the semiconductor markets moved in tandem, exhibiting a peak and a valley every three years. After 2001, things changed –- the semiconductor market continued strong growth until late 2008 while the equipment market was essentially flat until mid-2008.Source: The Information Network

For 2009, we forecast that the semiconductor equipment market will drop 46 percent. In contrast, we forecast the semiconductor market will drop 26 percent in 2009. Most importantly, growth in the equipment market will continue through 2012, increasing 20 percent in 2010 and 49 percent in 2011.

Semicon equipment market recovery will be U shaped!

NEW TRIPOLI, USA: The semiconductor equipment market’s recovery, which we pointed out yesterday appears to have begun, will exhibit a U shaped trend, based on proprietary leading indicators, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

“Our proprietary leading indicators, which determine inflection points in economic activity and which we utilize to show turning points in semiconductor equipment sales have turned positive for the past three months and are exhibiting a U shaped growth so far,” noted Dr. Robert N. Castellano, president of The Information Network.

“Based on past cycles, there is a corresponding shape to the semiconductor equipment market, so we postulate that the growth will also exhibit a U shaped behavior.”Source: The Information Network

For 2009, we forecast that the semiconductor equipment market will drop 46 percent. Most importantly, based again on our proprietary leading indicators, growth will continue through 2012, increasing 20 percent in 2010 and 49 percent in 2011.

“Objective, concrete evidence comes from the positive activity in our proprietary leading indicators in the US. Both our long and short indicators turned up in late 2008, pointing to a business recovery cycle and giving visibility that the days of the recession are numbered,” added Dr. Castellano.

As the recession eases, companies and consumers will unleash pent-up demand and make the electronic purchases driving the semiconductor market, which has already turned positive.

Growing signs that semicon equipment market recovery has begun!

NEW TRIPOLI, USA: Rises in the book-to-bill ratio by North American and Japanese semiconductor equipment manufacturers is giving hope that the downturn has bottomed out. BUT THERE’S A PROBLEM, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

Positive signals are pointing to a recovery:

SEMI reported this week that North America-based manufacturers of semiconductor equipment posted $323.4 million in orders in June 2009 (three-month average basis) and a book-to-bill ratio of 0.77, according to SEMI. The three-month average in June grew about 12 percent from $287.8 million in May, with the on-year drop narrowing to 69 percent.

Japan-based manufacturers of semiconductor equipment registered billings in May 2009 of 39.2 billion yen ($409.7 million). The billings figure is 3.2 percent down from April 2009 and 68.7 percent down the May 2008 billings level.

However, capital equipment expenditures as a percentage of semiconductor revenues have been dropping precipitously, as shown in the chart going back to 1995. In January 1995, 11.4 percent of revenues generated by semiconductor manufacturers were spend on new processing equipment. Forward to May 2009 and only 3.8 percent of semiconductor revenues were spent on equipment.

For all of 1995, 13.8 percent of semiconductor revenues were spent on equipment purchases. For 2007, a healthy year for the equipment market, 11.7 percent of semiconductor revenues were spent on equipment.Source: The Information Network

For 2009, we forecast that semiconductor revenues will drop 26 percent, whereas, we forecast semiconductor equipment revenues to drop 46 percent. The chart clearly illustrates this difference. Capital equipment purchases from January through May 2009 were only 4.9% of semiconductor revenues.

Semiconductor equipment manufacturers, in an effort to gain one-upmanship in the market, have been increasing throughputs of their product. Fifteen years ago, 60 wafers per hour was the norm. Now tools are on the market with a throughput twice that amount, meaning that only half the number of tools are needed to process the same number of wafers.

The semiconductor industry started replacing the manufacture of chips from 200mm to 300mm wafers in 1997. Because of the larger diameter, 2.25 times more chips can be made on a 300mm wafer than a 200mm wafer. In 1997, approximately 8,000 300mm wafers were utilized, representing a small fraction of the 141 million wafers with diameters ranging from 100mm to 200mm.

In 2008, nearly 32 million 300mm wafers were processed, representing 21% of the 149 million wafers processed. Here again, half the number of tools are needed to process the same number of chips.

Technology advances have mitigated the reduction. In 1995, state-of-the-art ICs were manufactured with dimensions of 350nm (0.35 microns). Currently, state-of-the-art chips are manufactured with dimensions as small as 45nm.

Equipment to make these chips doesn’t come cheap. Lithography equipment, for example, from companies such as ASML, Canon, and Nikon cost about $4 million to manufacture a chip with 350mm dimensions but $40 million to manufacture a chip with 45nm dimensions. That’s why, a semiconductor manufacturing plant (fab) that cost $1 billion in 1995 now costs $4 billion.

The semiconductor equipment industry is also suffering from competition from some really large vendors. The top 10 equipment suppliers registered $24.5 billion in sales in 2008, compared with $30.7 billion for the whole market. That left on $6.2 billion in revenues to be shared by the next 50 equipment companies.

So, while things look better for the equipment industry going forward through the remainder of 2009, the long term prognosis doesn’t bode well for the industry in general, and particularly for the small players.

Chrome OS will strengthen ARM’s assault in netbook market

NEW TRIPOLI: USA: Intel’s Atom will hold more than an 80 percent share of the 23.5-million netbooks sold in 2009. However, the ARM processor will gain a 55 percent market share of the 96 million netbooks sold in 2012, according to The Information Network.
Technology changes are underway to undermine Atom’s grip on the market during a recessionary time when people don’t want, and can’t afford, a second laptop just to carry around. The movement is toward the original intention of a netbook – an inexpensive device for accessing the Internet.

“We see two technology factors converging with the poor macroeconomic situation that will create a market for ARM – the release of the Cortex-9 microarchitecture and the emergence of cloud computing. Chrome OS is the first operating system built with cloud computing in mind,” noted Dr. Robert Castellano, President of The Information Network

ARM runs under the Linux operating system. Linux is free, whereas Microsoft charges a licensing fee up to $35 on each netbook.

Linux systems have struggled against Windows in the netbooks market because of the lack of adequate productivity software that is familiar to consumers, particularly Office-based solutions running on ARM-based platforms.

Google’s Linux-based Chrome OS offers an improved suite of productivity applications, which will influence netbook purchasers toward the ARM system.

In addition, to further keep costs down near the originally intended $100 price point of a netbook, enter cloud computing. Cloud computing is a web-based service that resides on the web, and is much cheaper than software packages that are purchased and stored on a netbook’s hard drive or solid state drive. Eliminating a drive will reduce the price of a netbook a further $55.

There is a wide array of open-source software that all Linux distributions share. It is reshaping the software industry by reducing the overall cost structure and represents the future of enterprise software. Some applications require a monthly fee, such as what is available from Software-as-a-Service (SaaS)-leader Salesforce.com, which recently recorded a record financial quarter and its first billion-dollar year. As cloud computing become ubiquitous, competition will drive down monthly SaaS fees.

Along with the growing competition among software service providers, we stated in a Press Release in March 2009 that we will see a new infrastructure taking hold, modeled after Hewlett-Packard (cheap printer, expensive ink) and the mobile service providers (cheap cellphone, expensive monthly wireless charge). This subsidized bundle model will grow the ARM netbook to greater market shares. This strategy is now underway.

As cloud computing becomes more sophisticated, we will see an Internet Protocol-based convergence of audio, video, productivity applications, and IT data run on ARM-based netbooks.

MEMS markets on the rebound!

NEW TRIPOLI, USA: The MEMS device market is faring much better than the overall semiconductor industry but, the MEMS processing equipment market is suffering the same fate as the semiconductor equipment market, according to the report: The Global MEMS Device, Equipment, and Materials Markets: Forecasts and Strategies for Vendors and Foundries, recently published by The Information Network.

MEMS devices cover a broad spectrum of products such as accelerometers, digital mirror displays, gyroscopes, micro fluidic devices, microphones, and pressure sensors.

Since they are such a diverse lot, the have fared better than the overall semiconductor industry. The semiconductor industry declined 2.8 percent in 2008 and is projected to drop another 21.6 percent in 2009. The MEMS device market, in contrast, grew 1.2 percent in 2008 and is projected to increase 1.7 percent in 2009, according to the report.

"The MEMS equipment market dropped 37.5 percent in 2008 and we project a further drop of 31.2 percent in 2009, decreases similar to the 32.5 percent drop in 2008 and our projected 41 percent drop in 2009 for semiconductor equipment," noted Dr. Robert Castellano, president of The Information Network.

“Fortunately, the MEMS equipment market started to rebound in Q2, while we don’t see an uptick in the semiconductor equipment market until mid-Q3,” he added.

Semiconductor equipment bogged down!

NEW TRIPOLI, USA: Rises in the book-to-bill ratio by North American and Japanese semiconductor equipment manufacturers is giving hope that the downturn has bottomed out. BUT HAS IT asks the report: “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

SEMI reported this week that North America-based manufacturers of semiconductor equipment shipped about $391.9 worth of equipment in May 2009, about 1 percent more than April 2009, but 72 percent less than May 2008.

Japan-based manufacturers of semiconductor equipment registered billings in May 2009 of 39.2 billion yen ($409.7 million). The billings figure is 3.2 percent down from April 2009 and 68.7 percent down the May 2008 billings level.

While North American manufacturers posted a 1 percent increase while the Japanese manufacturers posted a 3.2 percent decrease in billings.

Keep in mind that North American billings numbers are “preliminary” and usually drop when the final figures are published a month ago. March billings were reported in April at $455.3 million and revised down to $438.3 million a month later.

April billings were reported in May at $389.9 million and revised a month later at $385.7 million.

To complicate matters, we are now hearing that a significant amount of capacity is entering the market because of the downturn. Qimonda’s bankruptcy can add 120,000 300mm wafer starts per month in used equipment bought by semiconductor manufacturers.

Add to that equipment from other troubled memory manufacturers such as Powerchip and ProMOS, and a total of 400,000 wafer starts a month are possible. The latest SICAS repot shows that in Q1 2009, 300mm capacity was 433,000 wafers starts per week. So, this excess capacity on the market represents 25 percent of the capacity.

“Our proprietary leading indicators, which determine inflection points in economic activity and which we utilize to show turning points in semiconductor equipment sales have turned positive, indicating that an upturn in equipment sales will begin by October, not now (see below),” noted Dr. Robert N. Castellano, president of The Information Network.

“We have been using these indicators since 2000 and they have proven to be highly quantitative metrics in every forecast we have given, and in nearly every given year we have not had to change our forecast midstream. We do not give forecasts in tenths of percentages only to change them two months later.”

Competition intense in semiconductor chemicals and materials

NEW TRIPOLI, USA: Semiconductor chemicals and materials market leaders are holding onto razor thin leadership positions, and exchange rates can play a big part, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

“Market share differences between the top two leaders in four major chemical and material sectors is less than 2.1 percent,” noted Dr. Robert N. Castellano, president of The Information Network.

“In three out of the four sectors, the top leaders are in different countries, so that swings in exchange rates will readily tip the scale. Coincidently, a strong dollar will make US goods more expensive to foreign purchasers.”Source: The Information Network

Semicon equipment market to begin recovery by Oct. 2009

NEW TRIPOLI, USA: The semiconductor equipment market will begin its recovery by October 2009 based on proprietary leading indicators, according to the report: “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

“Our proprietary leading indicators, which determine inflection points in economic activity and which we utilize to show turning points in semiconductor equipment sales have turned positive, indicating that an upturn in equipment sales will begin by October ,” noted Dr. Robert N. Castellano, president of The Information Network. “We have been using these indicators since 2000 and they have proven to be highly quantitative metrics in every forecast we have given, and in nearly every given year we have not had to change our forecast midstream. We do not give forecasts in tenths of percentages only to change them two months later.”

We successfully predicted in our release of May 27 that Mainland China’s cross-straits investment in Taiwan will help the island country to survive the global crisis and at the same time help fix its own IC market. Taiwan has now reversed its stance and is considering allowing 300mm fabs in China. These actions will spur the equipment market in China, which has historically been utilizing refurbished 200mm equipment in its fabs.

“Objective, concrete evidence comes from the positive activity in our proprietary leading indicators in the US. Both our long and short indicators turned up in late 2008, pointing to a business recovery cycle and giving visibility that the days of the recession are numbered,” added Dr. Castellano.

As the recession eases, companies and consumers will unleash pent-up demand and make the electronic purchases driving the semiconductor market, which has already turned positive.

Jump in smartphone orders in Q2 lifting silicon MEMs mics

NEW TRIPOLI, USA: Q2 2009 smartphone orders, up nearly 15 percent sequentially, will lift the silicon MEMs microphone market from its worst year since they became commercially available, according to the report: “Silicon Microphones and Speakers: Technology, Market Analysis, and End-Applications,” recently published by The Information Network.

Orders for smartphones reached 41.5 million units in Q2 2009 in anticipation of early Q3 introduction of several new models. Nokia's Ovi Store launched on May 26. On June 6, the long-awaited Palm Pre will launch on the Sprint Network. LG comes back to the market with two new touchscreen-based cellphones. New BlackBerrys are also rumored to be hitting stores soon. I anticipate the iPhone 2009 will be announced next Monday at the Apple WWDC and the new iPhone 2009 out near the end of June.

"The MEMS silicon microphone market has become a hotbed of activity, spurred by record-breaking growth in consumer electronics products such as hearing aids, cellular phones, cordless phones, headsets, and headphones," noted Dr. Robert Castellano, President of The Information Network. "Initial entrants that included Knowles Acoustics, Akustika, and Sonion (Denmark) has grown to include Analog Devices, Wolfson Microelectronics (UK), Freescale, STMicroelectronics, Infineon, and Omron (Germany)."

China suppliers entered the market in recent years and include Shangdong Goer Acoustics Technology Co. Ltd, Suzhou MEMSensing Microsystems Co. Ltd, and AAC Acoustic Technologies (Shenzhen) Co. Ltd.

For 2009, the report forecasts a 5 percent downturn in the cellphone market, from 1,216 million units in 2008 to 1,156 million units in 2009. The smartphone market, which includes the iPhone, will grow 21 percent from 196 million units in 2008 to 238 million units in 2009. This sector is the key growth area for the MEMS microphone.

TFT-LCD photomask market revenue jumps in 2008

NEW TRIPOLI, USA: LG Micron vaulted to the lead on the heals of LG Display’s growth, according to the report: The TFT-LCD Photomask Market, recently published by The Information Network.

LG Micron took the lead in the market with a 29.3 percent share, dethroning perennial leader Hoya in 2008. LG Micron supplies photomasks to LG Display, also part of the LG Group. Photronics’ market share for CY2008 increased to 18.5 percent from a 16.5 percent share the year earlier. It is interesting to note that Photronics is a US-based company and there is practically no LCD industry in the US.

Revenues for 2008 grew 16.4 percent while unit shipments increased 4.1 percent. The high growth is attributed to the higher prices of photomasks for 8th generation TFT-LCD plants.

“Driving the photomask market are a generation-shift to bigger glass plates and a design-rule cycle of panel technology that changes every 12 months,” notes Dr. Robert N. Castellano, President of The Information Network. “Right now, there seems to be a surplus of panels and excess production capacity for photomasks relative to demand. The downward pressure on prices should continue through this year.”

Demand for LCD panels was weak throughout the fourth quarter 2008 as panel manufacturers significantly curtailed output and overseas panel manufacturers reduced, postponed or cancelled plans for new manufacturing lines. These severe conditions continued during the first quarter 2009. Although plant utilization rates at panel manufacturers in Taiwan and South Korea recovered gradually demand has still not recovered completely.

The photomask industry also is experiencing sluggish demand for all photomasks, including photomasks for new lines, mass production and development, and intensified competition has resulted in significant unit price reductions.

Faced with these difficult circumstances, The Information Network is forecasting unit shipments to decrease 15.5 percent in 2009.

Investment in Taiwan will help fix Mainland China's broken IC industry

NEW TRIPOLI, USA: Mainland China’s cross-straits investment in Taiwan will help the island country to survive the global crisis and at the same time help fix its own IC market, according to the report “Mainland China’s Semiconductor and Equipment Markets,” recently published by The Information Network.

“China’s chip industry is broken, a combination of the recession and too little money being spent by the government. Only $7 billion was spent on fabs in the past five years, enough to build only two 300mm fabs,” says Dr. Robert Castellano, President of The Information Network. “Investments by China into Taiwan will not only enable the country to endure its deepest recession, which was down 10.24% last quarter, but will catalyze a change in the Taiwanese government’s attitude toward semiconductor technology transfer.”

For years, rigid regulations controlled technology and monetary outflows from Taiwanese chip makers to China. Several factors played a role, such as concerns about China stealing and copying IP, fear that the technology would strengthen China’s military capabilities, and loss of jobs.

“Macroeconomic forces have changed the landscape. Taiwan needs money, and although the government may be reticent to give up its advanced technology, China’s massive economic stimulus package to Taiwan will serve to lessen regulations,” added Dr. Castellano. “This move will strengthen China’s semiconductor companies, minimizing the need to import the vast number of chips it currently does to manufacture consumer electronic products.”

China's IC industry is expanding rapidly. In 2008 Mainland China produced 42.5 billion ICs, which accounted for 24.3 percent of domestic demand as a result of massive building programs and the weak economy. In comparison, Mainland China produced only 20.9 percent five years ago.However, in 2008, consumption of ICs in Mainland China is outpaced production in domestically made ICs. Consumption grew 6.8 percent to 174.7 billion chips while production decreased 0.4 percent to 42.5 billion chips.

These issues are resulting in consolidation as the mainly foundry-based Chinese industry (SMIC, Grace, HeJian, ASMC, and CR Micro) competes with TSMC, UMC, and other entrenched Asian foundries. Hua Hong NEC Electronics will soon acquire Grace Semiconductor.

Things are also changing internally in China. As much as $25 billion is earmarked over the next five years to prop up the industry, including $5 billion for the joint venture between Elpida and Suzhou Venture Group and $5 billion for Sino-chip.

“Areas propelling the Chinese IC industry are part of the government stimulus program such as projects to supply subsidized electronic goods to rural areas of China. The construction of 3G networks, the expansion of mobile TV operations are big areas of opportunity,” added Dr. Castellano. “The Chinese government has realized internal stimulus was not enough without the advanced technology needed from Taiwan to make these programs successful.”

Consolidation still rampant in semicon metrology/inspection equipment market

NEW TRIPOLI, USA: The semiconductor setrology/inspection equipment market finally outperformed the rest of the overall semiconductor front-end wafer processing equipment market for the first time in three years, according to the report “Metrology, Inspection, and Process Control in VLSI Manufacturing”, recently published by The Information Network.

“Consolidation in the semiconductor metrology/inspection equipment market is greater than any other sector,” noted Dr. Robert Castellano, president of The Information Network. “Several factors are responsible, but the financial strain of numerous small companies competing against several large ones, exasperated by the downward spiraling macroeconomic landscape, and coupled with an undercurrent of less 300mm equipment needed by the semiconductor manufacturers, has taken its toll.”

The past few years have witnessed the acquisition of the MIE business unit of Vistec Semiconductor Systems, ICOS Vision Systems, Therma-Wave. ADE, August Technology, Accent Optical Technologies, Soluris, Laserfront Technologies, Tevet, Advanced Metrology Systems, and QC Solutions. In addition, Israel-based Negevtech ceased operations.

As the industry moved into the 65nm and 45nm technology nodes, more money was spent on metrology/inspection tools as a ratio of overall equipment buys in 2008. In 2008, metrology/inspection revenues dropped 21.8 percent, while the overall semiconductor front-end wafer processing equipment market dropped 32.8 percent.

However, for both 2006 and 2007, the metrology/inspection market underperformed the overall semiconductor front-end wafer processing equipment market. In 2006, metrology/inspection revenues grew 13.2% compared to 28% for the total front-end equipment sector.

In 2007, metrology/inspection revenues grew 7.2 percent compared to 11 percent for the total front-end equipment sector. Historically, sales of process control tools have mirrored sales of the entire front-end equipment market, with the average spread only 2.4 percent for the previous 12 years.

“For 2009, we project the metrology/inspection market to experience a drop in revenues of 33%, in tandem with the total front-end market, which will drop 41 percent,” added Dr. Castellano.