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    Semiconductor Shortage is Ending

      May 19, 2021

    VLSIinsiders' cloudside chat — May 19, 2021

    • Subsystem M&A is hot. What’s it about?
    • VLSI’s Minor forecast update … NOT!
    • Equipment? Silicon?
    • The semiconductor shortage, is it ending?
    • How many equipment companies supply 3nm?
    • What about inflation in chips and equipment?

    About VLSIinsiders: Every week our analysts have a cloudside* chat to discuss current events and key issues of concern, while sharing what they’ve heard over the past week from the semiconductor industry insiders. 
    * cloudside chat: A fireside chat without the fire and is across the clouds of the internet

    Other VLSIinsiders

    Transcript

    VLSIinsiders' cloudside chat — May 19, 2021

    DAN HUTCHESON: So welcome to this week's VLSIinsiders. Aah…This is Dan Hutcheson.

    ANDREA LATI: This is Andrea Lati.

    JOHN WEST: John West.

    RISTO PUHAKKA: And this is Risto Puhakka.

    DAN HUTCHESON: So, we’ve been talking today, John, ummm…we kind of got into the thing about M&A and especially in subsystems because subsystems is sort of the last domain of the fractionated companies where everybody's in these little specialties. What's going on there? What are you seeing?

    JOHN WEST: Hmm. Yes, really hot right now, clearly, in the equipment space, most of the opportunity is gone now. So, that's going to be quite quiet. But on the subsystem side, it's, it's sizzling hot. I mean, once I can talk about there's MKS acquired Photon Control, we had Ultraclean Technology acquired Hamlet. And Brooks organization is split into two companies, which to the semiconductor from its life sciences. So those are the ones that are in the public domain. But there's dozens of other ones that we know about that are bubbling away under the surface. So, it's a combination of companies trying to buy their competitors, or companies that are in adjacent markets, or even companies from outside semiconductor trying to get some exposure to semiconductor. And they find that subsystems and components is a place where they can actually get in, at a reasonable price, and you get some exposure. So, we've been very busy here dealing with inquiries. So yes, it's been very interesting few weeks.

    DAN HUTCHESON: You think you'll see the kind of thing that we saw with equipment where the rising cost of R&D forced consolidation, and you know, made it harder for these companies, and they needed to have more pricing, leverage to afford the R&D?

    JOHN WEST: Yes, so there is a critical mass. So clearly, the bigger you are, the easier it is to service your customers globally. So, there's a, a drive to consolidate parts of the market, particularly those areas where there's a lot of fragmentation or a geographical element. So, we're seeing interest in, in acquiring or at least putting those companies together, so they get the size and exposures to the market. So, I, I can't say it's any one thing in particular, but all I can say is that I've never known it to be so busy on the M&A front.

    RISTO PUHAKKA: So, one thing is that those deals are a little bit smaller than equipment side, are actually quite a bit smaller. So, so there is a regulatory issue are easier, easier to resolve. So that kind of helps...helps, helps. Also, few puts more fuel to the fire, so to speak, to, to make those deals happen.

    JOHN WEST: Yeah, I, I think they suspect them. The smallest company would be revenues around about 14 to 15 million dollars. And the biggest one so far around about that 300 million dollar mark. So yes, it is smaller than to equipment, but it is still not, that small.

    RISTO PUHAKKA: Yeah, yeah.

    DAN HUTCHESON: Yeah. And I guess it's, it's also being aided by the fact that there's money everywhere right now.

    JOHN WEST: Yes. You know, a lot of money flying around. I mean, the real question is, you know, how do you value these companies? I mean, right now, business is great. And I think everyone's just extrapolating the numbers going forward 10 years, and of course, you know, in 10 years’ time with a trillion dollar semiconductor market, potentially, that would add up to an awful lot of subsystems so you can see why it's a very attractive market.

    DAN HUTCHESON: Yeah, yeah. So, speaking of money flying around. Risto, earlier, you said we have a minor forecast update.

    RISTO PUHAKKA: Yeah, it's, it's, it's relatively minor, but we have a forecast release going out and the overall equipment is up, forecasted up 31%. This year, you know, just go a little bit on the details. Test is on the 20% range. WFE is 31% range in the in, in assembly equipment that… oh my god talk about smoking hot market about 40%, 40% growth for this year. So, so, so pretty, pretty substantial numbers, total equipment, including service north of $130 billion dollars this year, so, so uh…

    DAN HUTCHESON: Wow.

    RISTO PUHAKKA:and, and I talked to one major assembly equipment supplier last night, and they were like, you know, talking about this forecast number. They were like, have you considered the supply constraints and, and, and the you know, reading the transcripts for the last quarter, there starts to be supply constraints. So, we are probably industries growing as much as we can, given the supply with these numbers.

    DAN HUTCHESON: And that kind of falls back into John's daily work, you know, because of all the subsystems that go into those.

    RISTO PUHAKKA: Oh, yeah. Yes.

    DAN HUTCHESON: So, so…ah, ah…I would think it's, it's having, you know, what kind of numbers you're seeing Andrea?

    ANDREA LATI: For, for what part Dan?

    DAN HUTCHESON: Well, I know we up to semiconductors last month to like 20%.

    ANDREA LATI: Yeah.

    DAN HUTCHESON: And then now we've got equipment. You know…

    ANDREA LATI: It's 31%.

    DAN HUTCHESON: It's 31%. So, you crossed the 30% number, which is we haven't seen that since how long?

    ANDREA LATI: Oh, it's been probably close to, I'll say 2007. And then whether 2010? You know, big rebound from the great crash.

    DAN HUTCHESON: Doesn't seem normal.

    ANDREA LATI: Yeah. So yeah, and actually, what, what that big number triggered is really, I have to go back and look at pretty much all our capacity numbers and production numbers. And of course, last year, the semiconductor equipment market had a great year with sales increasing 18%. So, some of that capacity coming online this year, plus whatever is coming from that 31% increase that we're going to do this year. So, I think overall, we are probably going to see the industry capacity growing at least 10% this year. And if we look at in terms of production, silicon production, we're probably going to do close to 14-15%. So, these are began beginning to become pretty big numbers. And so, this whole, you know, shortage situation that, you know, we've been talking about. I think that it's becoming to ease, you know, as more capacity comes, comes online. So, I'll be very surprised if next year we still have this, you know, shortage situation, given how much money is being put in the, in the market in terms of capacity.

    DAN HUTCHESON: Yeah, so you got silicon, or if you got this different market growing 20% and the silicon only growing like 10, does that mean that there's inflation in semiconductor prices?

    ANDREA LATI: Umm…I think there is some inflation, but I think silicon will probably grow about 15%. So that delta 5%, it is, it is actually price increase. Yes.

    DAN HUTCHESON: Okay, so, so we're seeing inflation there. And okay, so if we got a tip, you know, 10 to 50% increase in silicon, the shortage is it ending because the people out there saying it's not going to end till the second quarter of next year and of 2022. I just saw a forecast from one of our competitors that said that and I look at the semiconductor analytics data, and it tends to indicate that things are cooling off. If you got all that equipment coming in, and silicon, it could really shift quickly, right?

    ANDREA LATI: And historically, historically, it always shifts very quickly, you know, it seems like overnight, you go from shortage to you know, glut. So, but yeah, you're right, given what we're seeing in the marketplace, and also how much money is being spent. I think, as I said, I'll be very surprised if we, if this shortage is, you know, are with us next year. I think probably by the end of this year, this situation will more or less be resolved.

    DAN HUTCHESON: Yeah. There's already a lot of the areas that we're, I’m tracking and some of your analytics that are balanced.

    RISTO PUHAKKA: Yes, they start to show up so, so balanced and in, in. And also, also the other thing we have to remember the capacity is also going to the, to the hands who can actually utilize them, like you know, TSMC at Taiwan, you know, they can, they can really get that capacity going as soon as they get the equipment.

    DAN HUTCHESON: Yeah, speaking of TSMC, you know, we talk about inflation, things like that. John said that the, the prices of a lot of the tools, unless it's the technology upgrade, have been pretty constant, right John?

    JOHN WEST: Yeah, I think most tools prices are just going up, say, on average, between 2 and 3% a year would be typical. We rarely see some very steep price jumps, is getting new technology in production. So, the EUV was clearly one of the big ones. INA, EUV is going to drive it even further. Some of the other platforms we're seeing in deposition and etch they're really multiplying the number of chambers on those tools. So, if there's a change in tool configuration, we're seeing big price rises there, but the majority of tools that haven't really changed that much over time, those prices have been growing very slowly. And, and I kind of wonder that you know how sustainable that is, given that the price of raw materials is really starting to jump now. I know that everyone has long term supply contracts where they agree a certain price but at some point, those contracts come to an end. And they have to renegotiate or through, through distress they just can't supply those, those, those parts at those prices anymore. So yeah, be quite surprise to see, you know, prices continue to grow slowly over this, this coming year. I think we could start to see some pricing increase.

    DAN HUTCHESON: So, Risto could that be a factor in leading edge like 3 nanometers because some of the stuff you've done indicates was variation equipment companies in that space?

    RISTO PUHAKKA: Yeah, I mean just, just the reason work with it. There's basically three nanometers of 11 companies, and there may be a 1-2-3 stragglers on some, some very niche segments that's needed. But, but it's literally down to the top, top 11 or so. And in that's substantial concentration. And then there are, I'm 100% sure, there will be segments where there is that technology addition, you know, with some of the edges, you know, the epilayers, or nano, nanosheets, you know, things, things of that nature, which definitely, there is a pretty, pretty exciting technologies, and I'm sure those tools we’ll, will see that.

    DAN HUTCHESON: Really, yeah increase in the process complexity is really blown up the cost of fabs, too and the cost of each one of these nodes.

    RISTO PUHAKKA: Oh, yeah. Yeah.

    DAN HUTCHESON: So, that's also a factor that's driving the equipment market. So, but I'm kind of blown away I, I market equipment larger than 100 billion dollars. That just seems being from the old days, you know, when it seemed like it was flat lining for, for a decade or so, as we ramped up 300 millimeter and displace 200. It’s uhh…

    RISTO PUHAKKA:and, and then 10 year gager, you know, it's top of the TSI is about 10% and 10 year gager or, you know, from, from 16 to 26. You know, and, and the forecast is pretty conservative still even, even so that we see these huge jumps, you know, 17, 18 and now 20, 21. So, so that's the that's the game, game there.

    DAN HUTCHESON: Yeah, be interesting to see if you know, in the past, what we've seen is the market very quickly moves from shortage to glut, maybe it'll stabilize around balance, just because the end demand is so high.

    RISTO PUHAKKA: Yeah.

    ANDREA LATI: Yeah, and I think, Dan, that what we need to watch is really the IC market too, because if you look at equipment has actually outperformed the IC markets for almost six years now. And part of that, of course, is China. But at the end of the day, you know, we need to have a very you know, healthy and you know, fast growing IC market to support this growth that we're seeing in the, in the equipment. So, it's going to be interesting to see what happens the next few years given you know, the remedy that the equipment market is set relative to IC’S.

    RISTO PUHAKKA: I think the IC, IC’s sales guys need to sell with better prices.

    ANDREA LATI: Yes. (Laughing)

    DAN HUTCHESON: They need to go to, to sales school.

    RISTO PUHAKKA: Yeah, they need to go the sales school. Yeah…so…

    DAN HUTCHESON: That's bad. (Laughing) On that note, I'm going to thank you guys for taking the time today.

    JOHN WEST: That’s good. Very good.

    RISTO PUHAKKA: Thank you.

    ANDREA LATI: Bye, bye Dan.