The semiconductor industry has been growing continuously for the past couple of years and the industry does not seem likely to decline anytime soon. This trend is defying the traditional growth and slowdown cycle witnessed every few years in the past decade. Macro trends such as Industry 4.0, Internet of Things (IoT), connected cars, surge in memory necessity, next-generation communication technology (5G), and other wireless standards have significantly improved demand for all classes of semiconductor devices. The impact of these Mega Trends on the semiconductor industry will be positive for the foreseeable future. However, it is not necessary that the expected steady industry growth will cascade to the semiconductor capital equipment market. Hence, this report is focused on examining the different scenarios that will impact the growth of the capital equipment market.
Cyclical Trend—A Direct Link with Demand Fluctuation
In the past, among several reasons, the cyclical trend in the semiconductor industry was attributed to misjudgment in demand forecasting. It has been difficult to predict the demand variation due to the unprecedented fluctuation in the consumer electronics market and other macro trends. This resulted in either underinvestment or overinvestment of capital equipment, thereby affecting the fab capacity and overall fab operational efficiency. However, based on the current scenario, the demand for integrated chips will be high for the foreseeable future. Therefore, it is easy to expect that capital equipment growth will be in-line with demand. However, a closer look at the fab investment and capacity addition plan provides a different outlook.
Fab Investment Plans
Fab investments witnessed a surge in 2017, and this impact is expected to be felt in 2018 as well. The capital equipment market is expected to achieve all-time high revenue in 2018. Even though all devices and older technology nodes witnessed a surge in demand, much of the revenue is attributed to investment in memory devices. The following is a brief analysis of the expected impact from developing and existing technology nodes.
Advancing Technology Nodes
It is no doubt that continuous research and development activities will facilitate the progression of device shrinking, while also accommodating enhancement in materials and form factor. As physical and technological limits are tested due to device shrinking, capital equipment positioned to resolve such challenges will become highly priced. Furthermore, successful device development and effective process transfers will result in mass production; this will certainly aid the volume shipment of next-generation capital equipment. However, as device nodes are shrinking below 1x, development time is increasing considerably. This means that purchase orders will be delayed impacting the market growth. Despite R&D investments for 3nm and 5nm being large, not many fabs will implement these technologies. Hence, in the long-term, the opportunity that advanced technology nodes provide will slow down significantly.
In the short-term, however, memory, logic, and next-generation RF and mm-wave devices are providing good growth opportunities. Memory devices in particular had attracted significant investments from the likes of Samsung. As per data from semi.org, the number of facility additions for memory devices alone would be above 10 from 2017 to 2020. However, fab investment plans in logic device nodes is low, marking this segment as the one with the least opportunity.
Existing Technology nodes
The positive implication that Mega Trends such as IoT have left on the semiconductor industry is significant, and this holds true for older technology nodes as well. Specifically, several sensor technologies have found revived demand; also, MEMS technology is witnessing new sensor developments, which in-turn creates new applications. Also, devices such as power semiconductors, LED, Analog, and Opto devices are gaining momentum. All these devices are attracting new fab investments up to 2020; but these investments are not as high as those for advanced technology nodes. In fact, many of the existing technology-node fabs might look for tool conversion to fit larger size wafers, or procure used equipment from other fabs. Therefore, market opportunities from existing technology nodes will be lower than other advanced nodes.
In addition to the above factors, it is expected that overall fab investments are likely to slowdown in the following years. Furthermore, the lifecycle of capital equipment in general is high, which will again hinder the market growth. As several fresh investments were made in the last couple of years, it will be hard to find renewed growth opportunities in the near future.
Even from a geographical perspective, China, which is a major growth driver for the capital equipment market, had already surged in investment but will reduce in the coming years.
In conclusion, even though the future of semiconductors appears steady, the capital equipment market is likely to witness a growth slowdown in the near future. Therefore, market participants might have to diversify their product portfolio to emerging areas such as 5G, which will employ compound semiconductors for communication chips and so forth.
