An Analysis of Semiconductor Equipment Industry in Taiwan. 1. The status quo of the global semiconductor equipment industry

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1 An Analysis of Semiconductor Equipment Industry in Taiwan Hui-Juan Chen, Industrial Research Section, MIRDC Publication Date: June 30, The status quo of the global semiconductor equipment industry As far as the regional market in the world is concerned, based on the analysis of revenue percentages of regional markets of semiconductor equipment in the world from 2009 to 2014, as well as the statistical data by the Semiconductor Equipment and Materials International (SEMI), Taiwan took the first place in 2012 in the world with a market size of about USD$9.6 billion, which accounted for 25.1% of the global market, and grew annually by 12.7%. The cause of the growth was mainly due to the record-breaking amount of capital expenditures by Taiwan Semiconductor Manufacturing Company (TSMC) and the increased outsourcing orders from international packaging companies. TSMC made a substantial increase in capital expenditures in Plant 14 and 15 in 2012 and 2013, which was to expand the production line of 28 nm; ASE Group and SPIL (Siliconware Precision Industries Co., Ltd.) accelerated their investments in advanced packaging process in order to meet the requirement of mobile devices. South Korea, with a market size of about USD$9.59 billion, took the second place in the global equipment market, which accounted for 25.0%. Although the capital expenditure of Samsung in 2012 fell short of its previous estimate, the equipment market size in South Korea grew by 11% in 2012 since the main subjects of Samsung s investment were located in South Korea in As a result, its market share increased substantially from 19.9% in 2011 to 25.0% in North America, with a total market size of USD$7.95 billion, took the third place in the global -1-

2 equipment market in 2012, which accounted for 20.8% in the global market, with a decrease of 14.1% compared with that in Although the total market size in 2012 was not as good as that in 2011, the capital expenditures of manufacturers such as Intel, Global Founders, Micron and Samsung still secured an important place for the equipment market of North America in the world. Japan, with a market size of USD$3.72 billion, took the fourth place in the global equipment market, which accounted for 9.7% in the global market, with a decrease of 36% compared with that in As the SEMI market report pointed out, the total size of semiconductor equipment market in Taiwan, Japan, South Korea and North America amounted to USD$30.86 billion, which accounted for 80.7% in the global equipment market (USD$38.22 billion), increasing from 73.4% in In the face of inventory corrections, the semiconductor industry will not see a boom season in the third quarter in 2013 and the operating expenses will probably decline in the fourth quarter. However, equipment manufacturers such as Hermes Microvision, Grand Plastic Technology, and Scientech will not be affected by the inventory corrections, because they will necessarily invest in planning advanced progressing procedures for their clients due to their distribution of equipments, and their operating expenses are expected to grow quarter by quarter. As equipment practitioners point out, in spite of the industrial inventory corrections in the second half of the year, this industry still grows compared with that of last year. Besides, the capital expenditures of large manufacturers are used for advanced manufacturing procedures, which, considering the operating competitiveness, are necessary. Probably the installation of primary equipments will be affected by the market status quo so and thus be delayed. However, since domestic equipment manufacturers comparatively focus on -2-

3 distributing and dealing secondary equipments, they will be slightly affected by the delay. 2. The status quo of semiconductor equipment manufacturers in Taiwan In recent years, outstanding Taiwanese manufacturers of semiconductor equipments include Hermes Microvision, Marketech International Corp. and Foxsemicon Integrated Technology. Hermes Microvision, the largest equipment agent in Taiwan, has invested in AIBT (Advanced Ion Beam Technology Inc.). They set up its research and development center in California so as to conveniently make use of rich human and material resources of semiconductor processing equipment in the United States.They also released their self-owned brand, istar, an under 90 nm process ion implanter, which has been officially introduced into its production line after prudent tests and evaluations by Epistar Corporation. escan, another E-beam inspection equipment, has been distributed globally. At present, the assembling plant of Hermes Microvision in Tainan Science Park, Taiwan, with 70% of the parts provided by local suppliers, annually produces 50 units. In addition to undertaking the contract manufacturing of front-end equipment subsystems for Applied Materials and Mattson in America, Foxsemicon Integrated Technology, on the basis of the research and development plan of the Industrial Development Bureau, Ministry of Economic Affairs, develops the laser cutting equipment for TFT LCD panel, the cutting technology for ultra-thin glass panel and 8.5G detection equipment of defects, actively entering the fields of LCD equipment and LED lighting. As far as the manufacturing of front-end parts is concerned, Calitech Company possesses 75% of total revenues of consumable -3-

4 parts in the processing of ETCH, CVD, PVD and CMP, and independently produces systems of single-chip photo resist coating, cleaning, photo resist stripping and electroplating. Forcera Materials Company that invested in the largest equipment of ceramics cold isostatic pressing in Taiwan two years ago, has gradually revealed advantages in manufacturing costs so that its exportation business accounts for more than 70% at present. There are other manufacturers such as Gongin Precision Industrial Company, ChenFull International Company, Feedback Tech. Corporation, Gudeng Precision and so on, which have also actively invested in the development and manufacturing of key parts. Besides, foreign manufacturers such as Applied Materials, ASML, Tokyo Electron and Lam Research have set up research, training and manufacturing bases in Taiwan and cooperated with Taiwanese manufacturers on developing subsystems and parts. There are many globally famous key parts manufacturers such as Greene Tweed, Kashiyama, Nihon Ceratec establishing plants in Taiwan and handily providing parts. As to the semiconductor packaging and testing equipment practitioner in Taiwan, there are Grand Plastic Technology and Scientech that are developing wet cleaning equipment, Leading Precision that is developing thin film equipment and M&R Nano Technology that is developing mask aligning and exposure equipment, which have secured a certain share in the market of 8-inch advanced packaging process and actively invested in developing 12-inch equipment. Besides, there are Gallant Precision Machining that produces traditional packaging equipment such as loading, picking & placing equipment, Mason Technology that produces ball mounters, Chroma ATE Inc., OptiViz, Ki-Giant Technology, Prov Technology, and CCT that produce inspection -4-

5 equipments, E&R Engineering Corp and Great Precision Company that develop laser dicing equipment. Furthermore, Taiwanese manufacturers have developed new equipments in recent years such as 12-inch wafer cutting equipment by Zen Voce Corporation, automatic sealing equipment by Gallant Precision Machining that has also cooperated with universities in technology development and successfully developed 12-inch staked wafer loading equipment, and 12-inch wafer under bump metal sputtering and etching equipment by Leading Precision and Grand Plastic Technology. The 3D IC technology has progressed significantly in areas such as IC designing, wafer manufacturing, packaging and testing, and is expected to be applied in mass production in 2014 to 2015, and various applications will then gradually spring up. As to the TSV deep hole working lithography, at present there are Taiwanese manufacturers such as Holian Tech that has begun to develop aligner and stepper, and ELS System Technology that has invested in developing coater, as well as foreign manufacturers such as Ultratec that has been promoting the assembling of lithography equipment in Taiwan; as to the finishing process, since the wafer bonder is a key equipment, Zhisheng, a Taiwanese manufacturer, has made achievements in baking, reflowing and automatic laminator. 3. A SWOT analysis of semiconductor equipment industry in Taiwan Figure 1 analyzes the global competitiveness of Taiwanese semiconductor equipment industry, which shows that Taiwan s market size of semiconductor equipment industry reached NTD$307 billion in Although Taiwan s market size in 2013 accounted for 29% in the global market, its GDP accounted for only 5.0% in the -5-

6 world, which shows Taiwan s semiconductor manufacturers mainly use products from foreign equipment manufacturers. That is to say, Taiwan s semiconductor equipment manufacturers lag behind foreign counterparts in competitiveness. According to the Threats in Figure 1, it shows that the governments of South Korea and Singapore as well as manufacturers are actively developing semiconductor equipment industry. If Taiwan remains content with its status quo, it will probably lose its present place. Figure 1 A SWOT analysis of Taiwan s semiconductor equipment industry Strength Weakness 1. Taiwan s IC equipment market size reached 1. Since foreign manufacturers long NTD$307 billion in 2013, which accounted for 29% in the world market. And there are 18 protection has formed the barriers to entry, it is only possible to enter through the original plants specialized in 12-inch wafer, which certification and introducing the production make Taiwan the densest area of wafer pants in the world. 2. Taiwan s wafer contract manufacturing process has taken the leading position in the world, which will motivate the research and development of equipment. 3. Efforts on developing LCD equipment and parts initiated by the government of Taiwan line into Taiwan. 2. It is difficult to develop some key modules such as laser and optical lens group because of control strategies and poor industrial base. 3. Because of the manufacturers size and users consideration of risks, it is difficult to develop the complete machine so as to drive the whole industrial chain. have accumulated certain technological capabilities. Opportunity 1. Since the domestic supply rate of IC consumable parts has reached 50%, it is possible for users to continually promote the percentage of home-made parts so as to reduce manufacturing costs. 2. It is possible to make use of the -6- Threats 1. The self-made rate of South Korean IC equipment has reached 47.5%, a part of which has entered the market in Taiwan. 2. Singapore makes use of low taxation and internationalization to actively attract foreign investments. 3. Foreign equipment manufacturers plan the

7 manufacturing capability of IC/LCD parts to develop the technology of vacuum/automatic and other universal modules. 3. It is possible to introduce the technological base of LCD cleaning and inspection equipment and module so as to develop IC equipments. layout in places other than Taiwan in Asia by helping local manufacturers enter the competition. Data source: Metal Centre MII (December, 2013) -7-