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Fab tool business model for better or worse?

Posted: 24 Jan 2011     Print Version  Bookmark and Share

Keywords:semiconductor equipment industry  fab tool industry consolidation  fab tool business model 

At the backend, meanwhile, ATE is currently the subject of consolidation. Recently, Verigy Inc. moved to buy rival LTX-Credence Corp. The combined company will be called Verigy. Verigy itself was formerly part of Agilent Technologies Inc. Agilent spun-out the ATE unit several years ago, thereby forming Verigy. Several years ago, LTX Corp. bought ATE rival Credence Systems Corp., forming LTX-Credence.

Then, last month, Japan's Advantest Corp. made an unsolicited bid to acquire U.S.-based rival Verigy for Rs.557.27 ($12.15) per share in cash. That deal is worth Rs.3,371.16 crore ($735 million). Advantest has since increased its offer. To date, however, Verigy has not accepted the bid.

"This is all about market share and in a shrinking market where there are few moves left to acquire strength. In my view, Advantest's bid to acquire Verigy is a bold move to regain the number one ATE market position from Teradyne. But, as we have seen before, it could backfire and customers could migrate to Teradyne," said Ron Leckie, owner and president of Infrastructure Advisors, in a report.

"So, what happens to LTX-Credence? They can continue to go alone or could certainly be another acquisition target for Advantest, but that would pose additional integration challenges," he said. "It has long been said that Teradyne and LTX could never merge due to cultural and historical clashes stemming from when staff originally left Teradyne to form LTX. But, that was a long time ago—never say never."

Unlike litho and implanters, ATE is in need of consolidation. "Over the last decade, while semiconductor revenues have grown by 50 per cent from Rs.9.17 lakh crore ($200 billion) to Rs.13.76 lakh crore ($300 billion) and unit volumes have more than doubled, the ATE market has shrunk from Rs.30,271.67 crore ($6.6 billion) to Rs.19,263.79 crore ($4.2 billion)," Leckie said. "Over time, consolidation has reduced the number of significant players down from over 30 to five. I forecasted that the five players would reduce to three over the next two years, but it is happening much faster."

On the other hand, fab tool consolidation is expected if or when the industry moves to costly 450mm fabs. "There's a lot of activity going on in the back channel around 450mm to indicate that some big news will break next year," said VLSI's Hutcheson. "The equipment suppliers have stopped resisting it and most have some level of effort underway. Moreover, those that don't are no longer being painted as defiant realists. The thinking has moved from 'Over my dead body' or 'I'll retire before 450' to either 'We'll have to do it if our competitors move' or 'You're falling behind if you're not doing it.' This is a big change."

Don't expect to see 450mm until 2015 or later, however. "While 450mm would significantly lower the cost per unit and increase the output of a fab, the equipment suppliers are not making the investments needed to move to larger diameter wafers. The equipment suppliers did not realise an acceptable ROI on their R&D investment in 300mm tools and they are hesitant to fund development of 450mm wafer capable tools. While we believe that 450mm will eventually move to production, this is unlikely to occur in the next five years," said Gus Richard, an analyst with Piper Jaffray.

Mark LaPedus
EE Times

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