Outsourcing the risk

Outsourcing the riskThe semiconductor device makers have pulled a fast one, at the expense of the semiconductor production equipment industry. Want to know how and why? David Manners unravels the tale
The semiconductor production equipment industry has been stitched up by the semiconductor device manufacturers.
The industry has a nicer word for it: the device guys have “outsourced the risk” was the phrase used at last week’s ISS Conference organised by SEMI in Rome.
The risk that has been outsourced is the risk of developing next generation equipment – 193nm steppers, 300mm machines and copper interconnect equipment.
The device people told the equipment people they wanted it. The equipment people developed it. Thanks, say the device people, keep it.
“Suppliers can already sell me what I’ll need two to three years down the road,” a grateful Paolo Gargini, director of technology at Intel, told the conference, “the next generation of steppers – 193nm – is already in the bag.”
No one told the stepper guys that 248nm could be stretched all the way to 0.15?m. Intel is drawing effective gate lengths of 0.13?m with 248nm steppers on a production process which will last the company until 2002.
So, having spent the money developing 193nm machines, the stepper manufacturers will see no return on it for years.
It was worse with 300mm. Dan Hutcheson of VLSI Technology estimates $5.4bn has been spent by the equipment industry developing 300mm machinery for the 0.35, 0.25 and 0.18?m process generations.
But no one, except Siemens and Motorola, expects to move to 300mm before the 0.13?m generation.
A $5.4bn investment that won’t see any return until 2002/3 is a damned expensive investment.
Yet device manufacturers were telling the SEMI i300 programme that they would start building 300mm pilot lines as early as 1997.
“We put half a billion into R&D last year, a big chunk of which went on 300mm”, said Rodney Griffiths, president of Applied Materials Europe, “the timing of that was the result of a deliberate and orchestrated push by the device manufacturers.”
SEMI set up a programme called i300 to take soundings of the device manufacturers. In December 1997, the director of that programme, George Lee, said: “We’ve talked to fourteen device manufacturers and six say they’ll have twelve inch pilot lines in 1998.”
US stepper manufacturers Silicon Valley Group (SVG) expected that there would be between six and nine 300mm plants running in 1999. In fact there are no production plants and only one pilot line – the Motorola/Siemens pilot line in Dresden.
But it wasn’t just SEMI. Many people remember Intel’s Gargini telling the equipment industry eighteen months ago in Hawaii that, if they developed 300mm equipment, the device manufacturers would buy it.
No one told the equipment guys that the device guys had changed their minds.
The money was spent, the equipment was developed and now it’s lying unsaleable with no chance of delivering a return on the investment.
The result of this is a disastrous state for the equipment industry with some of the leading players having to lay off up to half their workforces.
At the world’s biggest equipment maker, Applied Materials, Rodney Griffiths says: “We had $1.3bn revenues a quarter at the height of the cycle – that’s double last quarter’s revenues. People talk about the number of empty fabs but no one talks about the number of empty equipment factories. We have cathedrals sitting in Austin”.
If the device guys wanted blood, it’s not difficult to see why. Fifteen years ago the equipment industry was collectively worth one tenth the value of the device industry. Now, at $65bn to $130bn, it’s half.
Faced with the massively escalating cost of equipment, the device people persuaded the equipment people that they were handing over to them custodianship of the industry’s process technology.
Flattered, the equipment industry spent billions developing equipment for new processes. Integrated turnkey fabs, including the process, were going to be the future for the big equipment makers.
But the device manufacturers astounded the equipment manufacturers by reducing the time between process generations from three years to two without requiring a new generation of equipment.
The equipment guys were kippered.

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