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The next upturn will come, the question is only – when?

Semicon West 2001 in California: business down, but hopes high
The next upturn will come, the question is only – when?

If anybody had expected that Semicon West 2001 would pinpoint the long awaited turnaround for the beleaguered semiconductor industry, they were in for a big disappointment. Times are bad, no doubt, at least when compared to the super boom in capital goods during the last year, and will be bad for the near future. That the upturn will come eventually is clear. The cyclical chip and in turn the whole electronics business dictates the upturn after the downturn. The question is, when?

Fact is, the third quarter of the year 2001 is almost over, and the experts on the show floor and the speakers on the panels of Semicon West didn’t seem to even agree whether the bottom of the present cycle has been reached. Some, like Semi researcher Elizabeth Schumann pointed to the book-to-bill ratio (0.42 in April, 0.52 in May). Yet, no recovery is visible. We will have to wait for the next benchmark event for a reading of the so-called future, probably Productronica in Munich, Germany.

Inventory overhang and overcapacity on all levels of production and low consumption of electronics, therefore, are the watchwords of the season as it tunes from the summer doldrums into a sleepy fall.” The semiconductor industry is struggling with overcapacity”, Semi president Stan Myers clarifies the obvious. But there is some rationale to the pain: ”Every time our industry experienced a blistering growth year, it was destined to have a year of slow growth afterwards.” After last year’s e-quipment and material growth of 87% (to $47.7bn), the no-growth 2001 limped along with a projected decline of 35%.
Bad as that sounds, the equipment industry doesn’t actually face abyss. Some companies (exceptions e-xist) still operate on a solid order backlog of up to six months – the flip side of the troubling overhang mentioned above. However, slowly but surely this backlog is being worked off; hiring freezes and layoffs are on the agenda. The Asian chip foundries, typically in Singapore and Korea, have already noticed. They have seen their fab utilization slip to 50%. Some sources say it’s more like 20 to 30%. That’s a heck of a downturn, and the recent mergers and red-ink news from contract manufacturers (see page XX) support the gloomy state the industry is about to enter if the turnaround everybody is waiting for doesn’t materialize soon, say, by the first quarter of 2002.
Many suppliers had the best year in history followed by the worst year in history. However, the current slump has another dimension: R&D expenditures for innovative process technologies must continue at their usual pace. As Franz Richter, CEO of Suss MicroTec, sees it: ”Downturns are always an opportunity to invest in next-generation technologies and be more competitive.” This message was pretty much echoed all over the show floor andat industry panels. Richter: ”There are areas where people invest; packaging and optical components.”
Of course: the ones to best weather the downturn are the leaders, technology and market-wise. Intel will invest $7.5bn in capital equipment this year as if there were no today – only a brighter tomorrow. Gaining or securing market share is the game of the leaders; the rest of the pack, as usual, survives on consolidation and cutting cost. One pertinent observation shared by all those we asked: globalization is the great equalizer of our times. This downturn knows none of the traditional time lag between the industrial regions of the world: now everybody is down at the same time. No more shifting of resources or activities to get over the dry spells in one region at the expense of the others.
Evidently, the frontend segment of the equipment industry has been hit harder than the backend this time, says VDMA official Jens Uwe Fuhrmann, and the fears and jitters are more pronounced in the US. ”In Europe, things run a bit more smoothly and moderated.” But, he says, for the first time ever, board assembly business is affected by the slump as badly as semiconductors are. Courageously preparing for the coming boom in waferfab building (according to Semi, great things are to be expected from the opening of China to high-tech consumer markets) is M+W Zander, leader in cleanroom construction, with their acquisition of Knight. ”They bring capabilities we didn’t have before, like civil and structural engineering, not only in semiconductor fab construction,” says CEO Helmut Laub.
Expansion into neighboring fields is a strategy that paysof in times of turmoil. ”The spiral of innovation turns ever faster,” says Walter Rössger, Brussels-based VP Semi Europe. Europe does have some advantage in that hectic in and out of business cycles. ”Since we can’t have those fast capacity ramp-ups because of our labor laws, we cannot fall down equally abruptly and dislocate valuable manpower.” His advice to the US industry is to accept the European model. ”There is no merit in the short-term disposing of talent.” On the other hand, Rössger believes, Europe should quickly adopt the dual-use strategy in American high-tech research funding: ”Whatever technology is in the national interest of the US will be supported by money and brains. Then, after the goal has been reached, there comes the commercial spinout for the prosperity of the people.”
This spinout could even become more important as the traditional backend segment (or in Semi code test, assembly, packaging – TAP) is being integrated with the frontend and automated to avoid process variabilities in ever-shorter product cycles. Packaging is one area where investment in R&D has not stopped despite the slowing. In fact, it can’t be stopped because innovation marches on, and there is no way of skipping technology cycles. ”Packaging starts to matter in terms of performance,” Scott Kulicke said at the occasion of the 50th anniversary of Kulicke & Soffa, celebrated at Semicon West. ”We see a future where packaging becomes a consideration for wafer design and wafer fabrication. To solve this is a conformance problem.” In other words, frontend and backend converge under the continued pressure of silicon downscaling and of wafer-level processing. ”There is ever more frontend technology adopted by the backend, such as lithography and wet chemistry,” says Paul Siblerud of Semitool, program chairman of the Wafer Level Packaging Workshop. ”That’s due to cost saving measures and reasons of device performance improvement.”
All of a sudden, the backend will definite-ly no longer be regarded as just a hassle. It is a value-enhanc-ing process step of manufacturing. ”It’s no longer a derogatory expression,” ScottKulicke believes. Se-mi has reacted to these changed priorities. Next year, hopefully then in the midst of recovery, the backend part of the show will come first from July 17 to 19 in San Jose, and the frontend will follow from July 22 to 24.
Werner Schulz
EPP 155
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