Semi Outsourcing Industry Overview

SEMI Outsourcing Market Research Document

Enrique Shadah Business Ecosystems LLC 1005 Boylston St Ste 235 Newton Highlands, MA 02461

Contents

This presentation is divided into 2 parts.

1

Semiconductor Market

2

Semiconductor Equipment Market

© 2002 Business Ecosystems LLC. All rights reserved.

2

Semiconductor Markets

The semiconductor market is expected to continue growing but at a lower pace. • Global semiconductor demand has grown at CAGR 10% since 1991 from to $139 billion in 2001, however growth is expected curb as the main markets for semiconductors are maturing. • Global semiconductor equipment demand has grown at 12% CAGR since 1991 to $28 billion in 2001, following closely that of semiconductors, but there is still debate of how new technology will off-set reduced growth expectation of enduser markets. • Outsourcing of non-core activities by equipment makers has become almost an industry standard and many companies still have more room for outsourcing. • Currently, there are many suppliers that provide outsourcing services to equipment OEMs, however there are niche markets that do not have high competitive intensity (I.e. manufacturing outsourcing).

Semiconductor equipment is an attractive market for outsourcing providers. © 2002 Business Ecosystems LLC. All rights reserved.

3

Semiconductor Markets

Global semiconductor demand has grown at CAGR 10% since 1991 to $139 billion in 2001 and equipment demand has grown at 12% CAGR since 1991 to $28 billion in 2001, following closely that of semiconductors. Semiconductor Demand and Equipment Billings

$250.00

$200.00 Billings ($billions) Sales ($billions)

Equipment billings ($billion) Semiconductor sales ($billion)

$150.00

$100.00

$50.00

$1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Source: “World Market Shares 1982-1990, 1991-2001,” SIA Industry Statistics, 2002; “World Wide SEMS,” SEMI, 2002. © 2002 Business Ecosystems LLC. All rights reserved.

2001

4

Semiconductor Markets

World semiconductor markets are driven by computer and telecommunications chips; the former entering transition from growth to mature stage. Semiconductors End Use

100% 90% Source: ICE; Status. © 2002 Business Ecosystems LLC. All rights reserved.

13% 13 5

Semiconductor Markets

The Americas have maintained leadership in semiconductor demand since 1992 and lost its place by a small margin to the Asia Pacific Region in 2001. World Market Sizes ($billions of sales)

Total

$70.0 Americas

EUR

Japan

Asia Pacific

$200.0

Total

$60.0

$175.0

$50.0

$150.0 $125.0

$40.0

$100.0 $30.0 $75.0 $20.0 $50.0 $10.0

$25.0

Source: “World Market Shares 1982-2001”, SIA, 2002. © 2002 Business Ecosystems LLC. All rights reserved.

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

$1982

$-

6

Semiconductor Markets

As telecommunications chip use is increased on a global basis, semiconductor production outside the U.S. will also increase, pressing equipment makers further towards globalization. •Pioneers in wire-less telecommunication chips •Non-volatile memory for telecomm applications

•High-end Microprocessors •Wire-line telecommunications chips (broad-band) •PC hotbed •Innovative companies

•Innovation in chip production techniques •DRAMs, flash and other memory chips •Largest consumer of wire-less telecommunication chips •Houses world’s largest Foundries and Contract Electronic Manufacturers

Source: “Semiconductor Industry Survey”, Standard and Poor, February, 2002 © 2002 Business Ecosystems LLC. All rights reserved.

7

Semiconductor Markets

American and Japanese based firms continue to dominate worldwide semiconductor markets. Americas

Europe

100%

100%

75%

75%

50%

50%

25%

25%

0%

Other Japanese American

0% 1982

1985

1988

1991

1994

1997

2000

1982

1985

1988

Japan

1991

1994

1997

2000

Asia Pacific

100%

100%

75%

75%

50%

50%

25%

25%

0%

0% 1982

1985

1988

1991

1994

1997

2000

Source: “World Market Shares 1982-2001”, SIA, 2002.

1982

1985

1988

© 2002 Business Ecosystems LLC. All rights reserved.

1991

1994

1997

2000

8

Semiconductor Markets

The top 10 semiconductor companies have represented about half of industry revenues in the past five years, however companies in the list have changed.

Largets Semiconductor Com (Ranked by 1995 and 2001 r

Rank Company (Country)

Source: “Semiconductors Industry Survey,” S&P, February, 2002, pp.9; www.instat.com

© 2002 Business Ecosystems LLC. All rights reserved.

9

Contents

This presentation is divided into 2 parts.

1

Semiconductor Market

2

Semiconductor Equipment Market

© 2002 Business Ecosystems LLC. All rights reserved.

10

Semiconductor Equipment

Although the semiconductor market has experienced healthy growth, its cyclical nature poses challenges for semiconductor and equipment companies. 100% Billings SalesEquipment

billings Semiconductor sales

80% 60%

YoY change

40% 20% 0% 1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

-20% -40% -60%

7 years cycle

5 years cycle

Source: “World Market Shares 1982-1990, 1991-2001,” SIA Industry Statistics, 2002; “World Wide SEMS,” SEMI, 2002.

Semiconductor equipment companies are exposed to stronger demand cycles than semiconductor manufacturers due to long equipment lead times and high inventory costs. © 2002 Business Ecosystems LLC. All rights reserved.

11

Semiconductor Equipment

In 2001, WFE semiconductor equipment market plummeted 41% to $21 billion from $36 billion in 2000. Semiconductor Equipment Front-End Estimated Market Size

4%

WFE Total 2000: $36.2 billion Total 2001: $21.3 billion Note: the proportion of each type of equipment category was assumed to be similar to that of N.A. Billings YTD 2002 Source: “World Wide SEMS,” SEMI, 2002

© 2002 Business Ecosystems LLC. All rights reserved.

12

Semiconductor Equipment

The top 10 equipment companies have increased their share of the equipment industry’s revenues in the past three years, representing over 70% of the industry in 2001.

Largets Semiconductor (Ranked by 2001 reven

Rank Company (Coun

Source: “Semiconductors Equipment Industry Survey,” S&P, February, 2002, pp.8; VLSI research Inc. © 2002 Business Ecosystems LLC. All rights reserved.

13

Semiconductor Equipment

Outsourcing of non-core activities by equipment makers is almost a standard step towards effective management of the industry’s cycles. • Equipment companies that successfully lower their operating leverage will most likely survive to the industry’s cycles. • Additionally, the semiconductor equipment technology roadmap poses many challenges to toolmakers, which need to focus on their core to be successful. • Semiconductor companies are suffering increasing pressure to manage the growth of manufacturing equipment prices as Fabs and IDMs are facing shorter electronic product life cycles and saturated customer’s preferences for more hardware functionality. • There is consensus among many of the companies interviewed for this study about the need to outsource manufacturing operations, but still there is no clear indication of what type of companies would survive as the supplier of choice.

Thus, a window of opportunity is still open for companies that are positioned to provide outsourcing services to toolmakers. © 2002 Business Ecosystems LLC. All rights reserved.

14

Semiconductor Equipment

Equipment companies that successfully lower their operating leverage will most likely survive to the industry’s cycles.

Changes in Operating Leverage 30.00

~

Lam Research

20.00

Tokyo Electron 10.00

Axcelis Varian SEA

1997

1998

(10.00)

1999

2000

2001

Applied Materials Novellus Mattson

(20.00)

KLA-Tencor

(30.00)

~ Note: operating leverage is defined as the percentage change in operating earnings as a result of a 1% change in revenues over the same period.

Source: Company annual reports, Innovent analysis.

© 2002 Business Ecosystems LLC. All rights reserved.

15

Semiconductor Equipment

Toolmakers are facing the challenge of lowering inventory levels throughout the value chain. Inventories as % of Current Assets 50.0%

Lam Research

Tokyo Electron

Axcelis

Varian SEA

Applied Materials

40.0%

40.0%

30.0%

30.0%

20.0%

20.0%

10.0%

10.0%

0.0% 1996

1997

1998

1999

2000

2001

Novellus

Mattson

KLA-Tencor

50.0%

0.0% 1996

1997

1998

1999

2000

2001

• For leading companies such as Applied Materials, Axcelis, Novellus, KLA and Varian, inventories have been declining relative to total current assets in the last six years. • This has been achieved mainly by following principles of lean manufacturing, outsourcing and world class supplier management practices. Source: Company reports, Innovent analysis

© 2002 Business Ecosystems LLC. All rights reserved.

16

Semiconductor Equipment

Technology roadmap poses many challenges to toolmakers, which need to focus on their core to be successful.

Process Challenges

Toolmaker

Integration level, cost, speed, power, compactness, functionality, imply, among other things: • 300mm wafer processing at reasonable costs, sub-micron line widths, lower energy consumption • Low cost of ownership (consumables, maintenance and repair)

• Design (R&D) of wafer processing core module (CMP, PECVD, Lithography, Cleaning, Etching, Core Inspection/repair, etc.) • Integration of a complete machine • Testing complete machines • Subsystem and component (laser, power, gas handling, chemical handling, automation) design (R&D) Non- • Subsystem and component manufacturing and testing core • Electronic, electrical and mechanical component manufacturing • Component assembly

Technology Outsourcing • Subsystem (laser, power, gas handling, chemical handling, automation) design (R&D) • Subsystem manufacturing and testing • Intellectual property driven (IP)

Manufacturing Outsourcing • Electronic, electrical and mechanical component manufacturing • Component and assembly integration • Build to spec driven

Technology outsourcing and manufacturing outsourcing are the two main avenues that toolmakers are taking to focus on their core. Source: “Semiconductor Equipment Industry Surveys,” S&P, February 2002; Interviews with Lam Research, Axcelis Technologies, Mattson, Novellus Systems, Varian Semiconductor Equipment Association, MKS Instruments, Veeco, Brooks-PRI Automation; Innovent analysis. © 2002 Business Ecosystems LLC. All rights reserved.

17

Semiconductor Equipment

Value chain evolution shows equipment companies relying more on outsourcing to leverage R&D costs in specific systems and to migrate to a variable cost model as a way to manage the industry’s cyclicality. 1990’s through today

2002 and beyond

End user

End user

End user

IDMs

IDMs

IDMs

Equipment (Tools)

Equipment (Tools)

Equipment (Tools)

Tier 2

Tier 1

1960’s to 1980’s

Technology Outsourcing

Multi-specialty Technology outsourcing Manufacturing outsourcing

Manufacturing outsourcing Components

Contractors

Components

Raw materials

Raw materials

Note: arrow width represents the strength of the relationship. © 2002 Business Ecosystems LLC. All rights reserved.

Components Raw materials 18

Semiconductor Equipment

Technology outsourcing companies are expected to help toolmakers develop key subsystems, while manufacturing outsourcing firms are expected to be the source of fixed cost reductions in manufacturing. 2002 and beyond Highlights

End user

IDMs

Tier 2

Tier 1

Equipment (Tools) Multi-specialty Technology outsourcing Manufacturing outsourcing

Components

• Five main tool subsystems are being outsourced: 1) gas delivery systems, 2) chemical delivery systems, 3) laser sources, 4) power management and 5) wafer handling systems. • R&D efforts of outsourcing companies help toolmakers develop products faster. • Toolmakers are requiring delivery of configurable subsystems, specification and design expertise, and management of supply chain logistics from outsourcing companies to lower cycle times. • Global manufacturing and customer support become critical for outsourcing and contractors due to global footprint of toolmakers. • Consolidation of outsourcing companies in order to reach critical mass and provide the breadth of skill required is happening. • Manufacturing outsourcing providers posed with challenge of managing working capital and asset intensity as materials management becomes critical due to the high mix, low volume nature of operations. • Early involvement in tool design for manufacturing efficiency will increase • Further specialization with focused R&D expenditures

Raw materials © 2002 Business Ecosystems LLC. All rights reserved.

19

Semiconductor Equipment

In 2001, the worldwide market for outsourcing services was approximately $12 billion, and is expected to grow faster than the industry’s average as toolmakers increase the amount of activities outsourced. Assumptions

ManufacturingOS

$25.00

Technology OS

$20.00 ($billions)

• WFE represents 76% of the equipment market in 2000 and 2001 • Gross margins for equipment companies are 45% • Proportion of equipment COGs dedicated to outsourcing is 60% • Of this, 75% is manufacturing and 25% technology outsourcing

COGs Composition for Toolmakers

RM, Lab, OH

$15.00

$8.4

$10.00

$3.6

$5.00

$8.0

$-

$4.9 $2.1 $4.7

2000

2001

ManufacturingOS

$8.36

$4.91

Technology OS

$3.58

$2.11

RM, Lab, OH

$7.96

$4.68

Source: Interviews with leading toolmakers, Innovent analysis. © 2002 Business Ecosystems LLC. All rights reserved.

20

Semiconductor Equipment

Currently, there are many companies that provide outsourcing services to toolmakers, but there are niche markets, such as electromechanical assembly, that have low competitive intensity. Manufacturing outsourcing partners

Continuum

Component and assembly integration •Highly fragmented, many •Fragmented, heading towards companies consolidation as critical mass is •Examples: becoming more important –Machine shops •Examples: –PCB manufacturers – Electronic integrators such as –Cable harnesses Solectron, Jabil, Sanmina, –Frames Suntron –Sheet metal – Electromechanical integrators such as Coorstek, Suntron, Gem City Engineering, Wolfe Barriers to entry: Engineering, etc. • Asset base

Technology outsourcing partners •Concentrated, clear market leaders are identified and have concentration of the market •Examples: – Specialists with focused R&D: MKS, Cymer, Advanced Energy, BrooksPri, Helix, Inficon, Varian Vacuum, etc.

Simple components

• Manufacturing engineering skills (materials, electronics, etc.) • Customer service • Client relationships

Barriers to entry: • R&D capability • Customer service and fab operations support • Client relationships • Reputation • Technological diffusion

© 2002 Business Ecosystems LLC. All rights reserved.

21

Semiconductor Equipment

Competitive intensity for the manufacturing outsourcing industry is in the low to mid ranges, leaving the door open for companies with the required skill set to enter the industry and succeed. Thrust

Industry Facts

Conclusion

Clients

• Toolmakers are consolidating, this also consolidates the structure of their supplier base • Also, they are increasing the levels of manufacturing outsourcing to reduce exposure to industry’s cyclical nature • Are increasing the bar regarding outsourcing supplier’s selection criteria • Are willing to develop long-term partnerships with exceptional suppliers

There is significant potential for contribution to toolmakers manufacturing operations if suppliers begin to assemble key tool subsystems. Toolmakers need to lower their operating leverage and shift to a variable cost model, which is not possible without manufacturing outsourcing companies. The bargaining power of customers is relatively low in terms of the technological demand needed vs. available in the market, thus an OS firm that meets toolmaker’s selection criteria, has high probabilities of getting and keeping a contract.

Competitors

• Fragmented industry, major player do not have more than 10% of the $5 billion market • Outsourcing capabilities depend heavily on mechanical, electrical, electronic and value chain management expertise • The number of competitors is growing • Some companies are forming alliances or are growing through acquisitions to combine various skill sets that would be very difficult to grow internally (I.e. merger EFTC with K*Tec in 2002 , Saint-Gobain and Holz machining in 2000, Ontario Corp and CDS systems) • Capital intensity is determined by the company’s business model (pure assembly vs. vertically integrated)

There is opportunity for incumbents to increase market share as the outsourcing industry expands, however they need to develop the right mix of skills (clean assembly and welding, logistics, manufacturing engineering, ERP and materials management, etc.) in order to get an entrance at the toolmaker’s door.

© 2002 Business Ecosystems LLC. All rights reserved.

22

Semiconductor Equipment

Competitive intensity for the manufacturing outsourcing industry is in the low to mid ranges, leaving the door open for companies with the required skill set to enter the industry and succeed (continuation). Thrust Potential competitors

Suppliers

Technology

Industry Facts

Conclusion

• IP component companies are integrating forwards as technology or manufacturing outsourcing companies (I.e. a leading component company is planning to build custom gas delivery systems) • Global electronic assembly manufacturers are targeting the semiconductor equipment market (Jabil, Sanmina, Suntron, etc.)

The window of opportunity is open for manufacturing outsourcing companies, but is closing as new companies are poring in the market. The first company to develop a sustainable model that serves the industry through its ups and downs will have the clear first mover advantage.

• Comprised mainly of raw materials, components and machining services suppliers • Fragmented, but for some key components (I.e. mass flow controllers) there can be a limited number of suppliers (MKS, Celerity)

Is unlikely that the supplier base for manufacturing outsourcing companies is going to change much, however managing these suppliers (lead-times, supplier development, monitoring, long term commitments, etc.) is increasing in importance as the complexity of the outsourced equipment increases and client requirements become tougher.

• Currently, toolmakers are averse to outsource the manufacture of IP assemblies as some are protected as trade secrets • Equipment complexity is increasing due to technological demands (more demands on lower power consumption, new sources of energy, more automation requirements, etc.)

Manufacturing outsourcing companies must be updated about their clients technology roadmaps. These outsourcing firms will have an increasing role in design to manufacture engineering as IP protection issues are resolved via contract clauses and/or strategic alliances.

© 2002 Business Ecosystems LLC. All rights reserved.

23

Semiconductor Equipment

Manufacturing outsourcing companies are facing tougher selection criteria, due to rationalization of their customer’s supplier base. Criteria

Value

Diversification within Less than 30% of revenues from SEMI single customer (rough average, depends on specific toolmaker)

Importance High

Diversification in other Less than 25% of revenues in semi Very high industries (rough average, depends on specific toolmaker) Material handing capabilities

Extensive use ERP systems (BOM, Very high product follow-up, e-connectivity, etc.)

Rationale Increasing the probability that a supplier will survive a downturn in the client’s business Promote suppliers ability to withstand semi equipment industry cycles, thus ensure reliable future customer support Increase likelihood of positive respond to sudden increases in equipment demand

Supplier base development and management Manufacturing engineering skills

Threshold: high number of High manufacturing engineers/employee Ability to improve new product designs (mechanical, electronic, materials, chemical, assembly and testing functionality)

Quality standards compliance

Semiconductor industry standards Average compliance

Suppliers are given non-core items to manufacture, thus it is critical that a supplier is able to propose modifications of new designs and to manufacture Build-ToPrint (BTP) items very efficiently

Need of compliance with toolmaker’s customers’ (Fabs) quality standards

ISO 9001, orbital welding, etc. Source: Interviews with Lam Research, Axcelis Technologies, Mattson, Novellus Systems, Varian Semiconductor Equipment Association, Innovent analysis. © 2002 Business Ecosystems LLC. All rights reserved.

24

Semiconductor Equipment

Manufacturing outsourcing companies are facing tougher selection criteria, due to rationalization of their customer’s supplier base (continuation). Criteria Location

Financial solvency

Value One day’s driving distance from supplier, on a global basis!

Importance high

Cashflow positive, no risk of high financial distress due to excessive debt

Rationale Need to support JIT (kanban) manufacturing methods in each of the customer’s locations. There exists an industry directive to reduce inventories in the value chain. Supplier capacity to cope with high levels of working capital, mainly inventory, when manufacturing complex mechanical assemblies and of fixed assets (PP&E: machining tools, clean-rooms, plant facilites, etc.)

Source: Interviews with Lam Research, Axcelis Technologies, Mattson, Novellus Systems, Varian Semiconductor Equipment Association, Innovent analysis. © 2002 Business Ecosystems LLC. All rights reserved.

25

Semiconductor Equipment

Competitors in the manufacturing outsourcing industry for semiconductor equipment are fragmented.

2001 Estimated U.S. Outsourcing manufacturing Market

$5,000 million

Revenue (1)

Average = $46 million

(n=25)*

Max = $195 million Min = $4 million Range = $191 million

1) When possible, revenues from semiconductor related operations were selected, thus these numbers represent conservative revenue estimates. * Excludes companies such as Solectron, Sanmina, Jabil, Suntron, etc, who are mainly focused on the electric/electronic manufacturing outsourcing market; also includes sales figures presented in Duns Database for which 2001 period was assumed.

Source: Dun & Bradstreet company reports, Innovent analysis. © 2002 Business Ecosystems LLC. All rights reserved.

26

Semiconductor Equipment

There are more companies capable of manufacturing components than any other type of product. Manufactu-ring Sample 30 service companies

Highlights

Simple Components

93% (28)

•Component manufacturing outsourcing companies are mainly diversified into medical, flat panel displays, aerospace, military and front- and back- end semi equipment markets •Component manufacturing is basic for the industry, many companies that can manufacture assemblies, modules and subsystems can machine individual components on a production basis •The companies that did not choose to have component manufacturing capabilities are those that focus on delivering whole modules of subsystems to customers (I.e. Celerity systems has IP components, but does not manufacture custom machined components on an outsourcing basis)

Assemblies

90% (27)

•Companies chose not to do assemblies either because it is not their core focus (I.e. a machining company dedicated to components) or because it is pursuing bigger projects (modules and subsystems) •It is relatively simple to manufacture assemblies parting from a component manufacturing operation, and depending on the type of assembly, facilities Cap Ex might be needed I.e. clean room construction

Tool Modules

60% (18)

•Companies tend to have a specific expertise in the semiconductor equipment market I.e. Isys manufacturing (laser welding), FM industries (subsidiary of NGK insulators), Jade Corporation (experts in assembly), etc. •Operational challenge to be successful in integrating a complex module is far greater than that of a assembly of component manufacturer; thus these companies tend to be vertically integrated from the raw material level

Subsystems

30% (9)

On average, companies tend to have IP in one or more specialties of the semiconductor industry. This is particularly true for companies that specialize in Gas Box design. I.e. Wolfe Engineering, Celerity, MKS, Dakota Systems. Marler Enterprises and CDS Leopold are companies that also have semi expertise in other areas such as ion implantation tools

Complete tools

10% (3)

Companies like Coorstek, Gem City Engineering and Maine Machine have dared to assemble complete tools; there is not indication that they are doing this profitably

2002 Business Ecosystems All rights reserved. Source: Dun & Bradstreet company reports, company © WebPages and InnoventLLC. analysis.

27

Semiconductor Equipment

There is consensus among many of the companies interviewed for this study about the need to outsource manufacturing operations, but still there is no outsourcing company that has honed the Key Success Factors. Buying Criteria Diversification within SEMI

Manufacturing Outsourcing

Diversification in other industries

Key Success Factors • Solid strategic planning process • Excellent brand recognition • SBU management philosophy • Aligned organizational structure • Service related industries (based on technological content)

Material handing capabilities

• Efficient and effective utilization of ERP systems linked with supplier base and inbound logistic function • Project based organization

Manufacturing engineering skills

• Development of unique manufacturing techniques

Quality standards compliance

• SPC in place, intelligent quality systems, effective preventative quality systems

Location

• Fast prototyping • Quality certifications in all of the relevant manufacturing processes (orbital welding, brazing, plating, clean room operations, etc.) • Effective capacity rationalization and planning processes • World class inbound and outbound logistics function

Financial solvency

• Working capital management • Focus on return on assets (operating margins X asset turns) • Ability to withstand cycles © 2002 Business Ecosystems LLC. All rights reserved.

28

Contents

Appendix

Appendix

© 2002 Business Ecosystems LLC. All rights reserved.

29

Technology Outsourcing Toolmakers (Tools & Process)

Subsystems suppliers

Components suppliers

Fabs

End Markets

• Raw materials • generic components Product line spectrum

Components

Assemblies

Non-proprietary design (may include proprietary technology)

• Mechanical (fluids, heat transfer) engineering • Electrical/Electronic E. • Design for manufacturing E. • Materials E. • Semiconductor process knowledge

Modules

subsystems

Complete tools

Manufacture to Print “High-mix, low-volume” • Materials handling • Lean manufacturing • Quality certification • Clean room manufacturing

Manufacturing Outsourcing* * Excludes electronic outsourcing providers © 2002 Business Ecosystems LLC. All rights reserved.

30

Manufacturing Outsourcing Components

Assemblies

Modules

subsystems

Complete tools

A & D Precision Machining Adem LLC Allied Devices B&B Manufacturing

Main Companies

Brenner Tool & Die C.D.S. Engineering Celerity CMS Welding & Machining Coorstek D&H Manufacturing Co Dakota Systems Dff Corporation FM Industries GCE industries Gem City Engineering Note: the list of companies showed here is not exhaustive. It is based on Interviews with leading toolmakers such as Axcelis, Brooks-Pri, FEI, Lam Research, Novellus, MKS, Varian, Veeco and Innovent research. © 2002 Business Ecosystems LLC. All rights reserved.

31

Manufacturing Outsourcing Components

Assemblies

Modules

subsystems

Complete tools

Isys Manufacturing Jade Corporation Karlee Company Knust-Sbo

Main Companies

Maine Machine Marler Enterprises (M.E.I.) Nor-Cal Norwood Tool Prattville Industries Rentec Saint-Gobain (Holz) Synchrovac Ultra Clean Technology Wolfe Engineering Note: the list of companies showed here is not exhaustive. It is based on Interviews with leading toolmakers such as Axcelis, Brooks-Pri, FEI, Lam Research, Novellus, MKS, Varian, Veeco and Innovent research. © 2002 Business Ecosystems LLC. All rights reserved.

32

Coorstek CDS Engineering

Saint-Gobain (Holz)

m05$ < eunev e R

noilli m05$ > eunev e R

Karlee Company

Brenner Tool & Die

Gem City Engineering Syncrovac

Wolfe Engineering GCE Industries Nor-cal B&B Manufacturing FM Industries Allied Devices Dff Main Machine Dakota systems Innovent Jade Corporation U.C.T. CMS Weld. and Mach. Norwood Tool (part of CDS) Rentec Isys Manufacturing Knust-Sbo D&H Manufacturing Prattville A&D Precision Adem Llc Marler Enterprises

Component Component manufacturer manufacturer

Higher Higher electromechanical electromechanical assemblies assemblies

© 2002 Business Ecosystems LLC. All rights reserved.

33

Technology Outsourcing

Main product categories

Components OEMs

• Valves • Fittings • Cables • Materials –Quartz –Silicone carbide • Gauges / meters • Controls • Switches

Sub-system OEMs

• Vacuum pumps • Pressure systems • Power conversion and control systems • Laser technologies • Tool automation • Gas and fluid control

Tools & Process OEMs

• Lithography • Etch & clean • Ion implantation • Deposition • CMP • Thermal processing • Inspection and measurement –Reticle and mask inspection –Metrology –Wafer defect inspection

© 2002 Business Ecosystems LLC. All rights reserved.

34

Technology outsourcing: Components. IP Driven Components Total $1,000 million

World market size ($Millions)

Price ranges ($)

Main companies

(for a typical manufacturing process)

(% Share of Market SOM)

1,000 - 9,500

Aera, STEC, Unit Instruments (kinetics), Mykrolis, MKS Instruments, (first four comprise about 80% of the market. EMCO, a division of Advanced Energy, produces sonic systems for niche applications MKS Instruments (25%), Inficon, Helix, VAT and BOC Edwards (7%-8% each), others (45%) •Capacitance based gauges: MKS (leader)

Gas flow control

Y2000: 400

Valves, fittings

Y2000: 260

450 - 9,000

Gauges (pressure measurement)

Y2000: 215

200 – 6,400

Gas analysis and other sensors

Y2000: 70

25,000

Leak detection

Y2000: 15

20,000 – 30,000

(general purpose is around 2,500)

(general ASP 1,000 – 2,000)

•Indirect measurement gauges: Granville Phillips, a division of Helix, (25%), MKS Instruments, Inficon, BOC Edwards Inficon (35%), MKS Instruments-Spectra (20%), Ulvac, Stanford Research Systems and Anelva (less than 5% each), Variety Instruments, Luxtron and SC technology Inficon and Alcatel Vacuum, (18% - 20% each), Varian, Ulvac (each with less than 10%), MKS is a new entrant with a portable leak detection device

Source: “Subsystem and Components, A Primer Report”, Lehman Brothers, July 9, 2001 © 2002 Business Ecosystems LLC. All rights reserved.

35

Technology outsourcing: Subsystems. IP Driven Subsystems

World market size ($Millions)

Price ranges ($)

Main companies

(for a typical manufacturing process)

(% Share of Market SOM)

Vacuum Pumps

Y2000: 1,500

5,000 – 25,000

Alcatel vacuum products, Anelva, IGC-APD Cryogenics, A-Vac industries, BOC Edwards, Branston Engineering, CTI-Cryogenics, Ebara Technologies, Hy Vac products, Kashiyama, Leybold Vakuum, Osaka Vacuum, Pfeiffer Vacuum, Seiko Seiki, Ulvac Technologies, Varian Vacuum

Power Direct Current conversion and control systems Mid-frequency for Radio-frequency semiconductor applications Matching networks ($580 million) Microwave

Y2000: 490

3,100 – 175,000

•Top ten suppliers control almost all of the market

(ASP of 9,500)

•Advance Energy (53%), ENI and MKS-ASTeX (second and third)

Other power sources: reactive gas

•Other suppliers: Comdel, Huettinger, Kyosan, Daihen, Muegge Electric, Adtec, CPI, Trazar and Shindingen Y2000: 90

10,000 – 20,000

MKS-ASTeX (Astro product is the defacto (Integrated subsystem’s standard, they command 90% SOM), Advance ASP 40,000 – high Energy is a new entrant value added)

Source: “Subsystem and Components, A Primer Report”, Lehman Brothers, July 9, 2001 © 2002 Business Ecosystems LLC. All rights reserved.

36

Technology outsourcing: Subsystems. IP Driven

World market Price ranges ($) size ($Millions) (for a typical manufacturing process)

Laser technologies for semiconductor applications

Y2000: 315

Main companies

(% Share of Market SOM)

500,000

Cymer Inc. (82% SOM of installed excimer (Current generation 248nm lasers), Gigaphoton and Lambda-physik (second and third, but well behind Cymer) KrF excimer lasers) 700,000 (Next-generation 193nm ArF)

Tool Automation for semiconductor applications ($755 million)

Interface

Y2000: 400

15,000 – 50,000

Asyst Technologies (80%), Brooks Automation* (16%), Adept Technology (third), 31 more supplier who are niche players 15,000 – 30,000 (includes PRI* (>60%), MECS**(5%), Rorze, Daihen, hardware, controller and pre- JEL, Brooks, Yasakawa (remaining)

Atmospheric robots***

Y2000: 150

Vacuum robots***

Y2000: 95

30,000

Vacuum cluster

Y2000: 75

500,000

aligner)

(simple platforms can sell 150,000 – 175,000)

Integrated front end (IFE)****

Y2000: 35

120,000 – 140,000 (Basic 70,000 – high end 200,000)

Brooks Automation (90%), remaining is split between Daihen (3%), JEL (3%), PRI (2%) and MECS and others (3%) Brooks Automation (86%), Daikin (12%), PRI (2%) Asyst (50%), Brooks (29%), PRI (11%), Adept, Rorze

* Brooks Automation acquired PRI, a new entrant in the tool automation market, in 2001 ** Purchased by Asyst in 2000 *** Excludes robots sold with IFEs and vacuum cluster tools and takes into account only merchant sales and not captive robot capacity. Captive robot capacity is comprised mainly of vacuum robots as these are highly customized for the process tool **** Merchant market in 2000 represents about 10%-15% of total market Source: “Subsystem and Components, A Primer Report”, Lehman Brothers, JulyLLC. 9, 2001 © 2002 Business Ecosystems All rights reserved.

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Toolmakers. IP Driven

World market Price ranges ($) (for a typical size manufacturing ($Millions)

Tools Process diagnostic equipment -PDE

Wafer inspection

(includes defect inspection, CD* & Overlay, thin film, (Y2000: $5,120 IPC*, and others not shown) million) (Y2000: $4,352 million)

Main companies

(% Share of Market SOM)

process)

Defect Inspection

Y2000: 1,480

SEMs: >$1 mill Electron beam tools: $2-$3 mill

KLA-Tencor (60%-65%)

Applied Materials (10%), Hitachi (17%), Therma-wave (4%), Veeco Instruments (5%), Others (28%)

CD & Overlay Y2000: 1,131 CD: SEMs <$1 mill KLA-Tencor (35%-40%) Overlay: $350K$500K Thin film

Y2000: 435

~150,000

KLA-Tencor (35%)

Integrated process control (growing sub-segment)

Y2000: ~100

<$100,000

Nova Measuring Instruments (>70% in CMP IPC market), Nanometrics (Integrated metrology for CVD), Rudolph Technologies, Therma-wave (agreement with AMAT), KLATencor (CMP IPC market)

Reticle inspection/ repair

Y2000: 500

$500,000$1,000,000

KLA-Tencor (72%), Leica Microsystems (13%), Applied Materials (6%), Nikon (4%), Lasertech (3%), others (2%)

* CD = Critical Dimension; IPC = Integrated Process Control

Source: “Perspectives”, SG Cowen, May 8, 2001

© 2002 Business Ecosystems LLC. All rights reserved.

38

Toolmakers. IP Driven Tools

World market Price ranges ($million) size ($millions) (for a typical manufacturing

Main companies

(% Share of Market SOM)

process)

Lithography

Y2000E: 6,000 (~1,100 units)

$5~$10 million

Based on units: Nikon (35%), Canon (22%), ASM Lithography (30%), Silicone Valley Group (9%), Others (4%)

Etch & clean

Y2000A: 6,808

Not Available

Applied Materials, Helix Technologies, Lam Research, Tegal, Tokyo Electron

Thermal Processing (RTP)

Y2000: 613

Not Available

Y2001: Applied Materials (84%), Mattson (12%), Daippon Screen (1.5%), Axcelis – SEN subsidiary (1.5%), others (1%)

Thermal Processing (Furnaces)

Y2000: 622

Not Available

Y2001: Tokyo Electron (45%), Hitachi-Kokusai (25%), ASM International (13%), ASML (10%), Koyo Thermal (4%), Novellus (2%), Other (1%)

Y2001: 368

Y2001: 420

Ion implantation Y2000E: 1,500 (545 units) Deposition*:

CMP

High energy >$3.5 High current: $2.5-$3.5

Y1999A: Axcelis (46%), Technologies, Varian Semiconductor (30%), Applied Materials (17%), others: Nissin and Ulvac (7%)

Medium current: $2.5-$3.0 Y2000A: 9,010 Not Available Applied Materials, Genus, Helix, Lam Research, Novellus, Tokyo Electron, among others. Y2000A: 1,506

Not Available

Y2000A: Applied Materials (55% - gained to 60% in 2001), Ebara Technologies (22%), SpeedFam-IPEC (15% - fell below 10% in 2001), Lam Research (5%), Peter Wolters & Strasbaugh (3%)

*Includes CVD, metallization, deposition planarization and related.

Source: “Photolithography Outlook 2000”, Lehman Brothers, April 14, 2000; “Beam Me Up, Ion Implantation”, Lehman Brothers, October 23, 2000; “Semiconductor Capital Equipment”, Bear Stearns, May 2002; Dataquest, April 2002 © 2002 Business Ecosystems LLC. All rights reserved.

39

Wafer Wafer Fabrication Fabrication (WFE) (WFE) Materials Management, Chemical Distribution, Automation

Mask Mask Mfg. Mfg.

One cycle, additional deposition…

Wafer Wafer Mfg. Mfg.

Epitaxi

Photolithography

Etch

Strip

Diffusion/ Metal Implant

CMP

Inspection and Measurement

Test, Test, Assembly Assembly & & Packaging Packaging (TAP) (TAP) Materials Management, Chemical Distribution, Automation

Wafer Test

Source: www.infras.com

Dicing

Die Bond

Wire Bond

© 2002 Business Ecosystems LLC. All rights reserved.

Encapsulation

Test & Burn-in

IDMs

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