Japan's Market Outlook for 1999 and Beyond

Hideki Motai, Research Department, Press Journal -- Semiconductor International, 11/1/1998

Growth in the world's semiconductor market has been sluggish since 1996 due to softening of the DRAM market. The market in Japan has been no exception, down 10.3% in 1998 compared with 1997. Market value has fallen to $34.159 billion (4.1268 trillion Yen, a 0.5% increase based on the Yen).

The major culprit for this sluggish growth is the DRAM market, which has fallen into a significant negative growth of -22.2% compared to the previous year (based on the Yen). Memory products other than DRAMs have also recorded negative growth, further aggravating the sluggish growth of the Japanese market. The negative growth for mask ROM and EPROM, for example, have been significant, causing overall growth of MOS memory products to register a 15.8% drop. The MPU has also fallen into negative growth of 9.4% compared with the previous year, from the high growth rate of 38.8% in the previous year, due mainly to sluggish growth in the PC market and a drop in per unit prices in the Japanese market.

The rate of investment for the information industry has generally slowed due to the worsening profit outlook of the Japanese industry. Sales of consumer electronics equipment have fallen due to the decrease in consumer purchases caused by the rise in consumption and cut-back or minimal increase in payroll due to the poor profit outlook of the industry. In other words, the Japanese economy has fallen into a severe vicious cycle, which is directly affecting the electronics equipment market.

The ratio of the Japanese market to the world market has also fallen sharply from 25.9% in 1996 to 22.7% (based on the U.S. dollar). The ratio of the Japanese market has been on a downward trend for the past several years due to the rapid growth seen in other Asian markets. In 1997, the downward trend grew significantly worse.

Keys to market recovery.

What is the outlook for 1998 and beyond? The greatest concern is the direction of the Japanese domestic economy. The uncertain future of the Japanese economy is becoming increasingly worse. We predict that no real economic recovery can be expected to occur in 1998. Consequently, the growth rate of the semiconductor market for 1998 is forecasted to be a very modest 2.4% increase based on the U.S. dollar (7.5% increase over the previous year based on the Yen). There is a good possibility that it may even be lower.

Our forecast for 1999 and beyond is that 'Windows98'' and the '$1000 PC' will revitalize the PC-related market and become the prime mover for economic recovery. After 2000, the gradual rise in the market for digital home electronics equipment such as digital television sets will significantly contribute to the recovery of the semiconductor market. The annual growth rate is expected to be 10.6% for 1999, 12.6% for 2000, 12.3% for 2001 and eventually reach a 6.96 trillion Yen ($U.S. 57.62 billion) market with a growth rate of 12.1% by 2002.

For the growth rate to recover as forecasted here, effective measures for economic stimulus by the Japanese government must be implemented. It is also indispensable for electronic equipment manufacturers to develop new products to stimulate consumer interests.

The Japanese market is forecasted to recover significantly after 1999. However, the share of the Japanese market in the world market is expected to decrease steadily, since its growth rate is expected to grow at a lower rate than in other regions. It was forecasted that it would drop steadily from 22.7% in 1997 to 18.0% in 2002, resulting in the lowest rate compared to the other three major regions (North America, Europe and Asia).

Semiconductor manufacturing equipment market

The Japanese semiconductor equipment market in 1997 was estimated to be $6.99 billion, a 5.1% decrease from the previous year (838.46 billion Yen, a 4.7% increase based on the Yen). Manufacturers of mainly DRAM products held off on capital investments due to the soft DRAM market. Consequently, a small negative growth from the previous year was recorded. The overall world market is forecasted to be $24.38 billion, a 5.2% increase over the previous year. But Japan's share of the world market is expected to drop from 31.8% in the previous year to 28.7%. Japan had been the world's largest regional market, but the top position will now be held by the North American market, constituting 31.0% of the world's market.

Looking at the overall market by type of equipment, front-end equipment such as thermal processing equipment, ion implantation equipment, CVD equipment, etc., we see that all are experiencing negative growth or minimal growth. Thermal processing equipment (oxidation, diffusion furnaces and RTP equipment) show a market value of 31.7 billion Yen ( $U.S. 262 million), a 12.2% decrease. The ion injection equipment show a market value of 27.6 billion Yen ($U.S. 228.5 million), a 4.8% decrease, and CVD equipment shows a market value of 86.8 billion Yen ($U.S. 718.6 million), a 9.1% decrease, all exacerbating negative growth of the overall market for manufacturing equipment.

On the other hand, there is one type of equipment that is doing well. CMP equipment recorded a high growth rate of 72.4%. Additionally, assembling and testing equipment also recorded double-digit growth. Assembling equipment showed a market value of 58.7 billion Yen ($U.S. 485.9 million), an 18.6% increase, and testing equipment showed a market value of 177.7 billion Yen ($U.S. 1.47 billion), an 11.1% increase.

Negative growth unavoidable in 1998

As for our predictions for 1998, since many semiconductor manufacturers have reduced capital investment in new facilities from 1997, there is a high probability that the situation will deteriorate. Most major Japanese semiconductor manufacturers have reduced capital investments in new facilities this fiscal year, as compared to the previous year, with the exception of a few manufacturers. Total investment value for the 11 major companies in Japan is 760 billion Yen ($U.S. 6.29 billion), a 28.2% decrease compared with fiscal year 1997 (Fig. 1). Furthermore, some companies are beginning to close down overseas operations, further aggravating the crisis.

Fig. 1. Total investment value for the 11 major companies in Japan is 760 billion Yen ($U.S. 6.29 billion), a 28.2% decrease compared to the 1997 fiscal year.

A dark cloud is forming over the Korean and Taiwanese markets as well, where Japanese manufacturing equipment manufacturers have made strong efforts to expand. Korean device manufacturers were forced to reduce capital investments in new facilities due to the effects of the recent economic crisis. Taiwanese manufacturers, which have actively pursued capital investment in new facilities in the past, aided by an increase in orders from the United States, have also been experiencing a drop in orders recently, and have begun to reduce facilities investments.

Overall, capital investments in new facilities have cooled off among device manufacturers in 1998. It appears that a drop in the world market for manufacturing equipment would be unavoidable. Although some equipment manufacturers predict the market has bottomed out, a significant negative growth seems inevitable in 1999.

The Semiconductor Manufacturing Equipment Association of Japan (SEAJ) has announced its forecast results showing negative growth for the 1998 manufacturing equipment market compared with 1997. The value of the Japanese manufacturing equipment sales (total value of domestic and overseas sales by Japanese companies, including those operating overseas) is estimated to be 1.13 trillion Yen ($U.S. 9.35 billion), or 85.4% of the previous year value. Total Japanese market sales value (combined total of Japanese companies' manufacturing equipment aimed at the domestic market and foreign capital companies' manufacturing equipment aimed at the Japanese domestic market) is estimated to be 630.7 billion Yen ($U.S. 5.22 billion), or 84.7% of the previous year value.

Smaller dimensions, Cu and 300 mm to lead recovery

For 1999 and beyond, we predict that further refinement of feature sizes to less than 0.18 µm and adoption of copper wiring can be cited as key factors toward market recovery. The current situation indicates that 0.18 µm prototypes can be built by domestic manufacturers with mass production expected to start in 1999. The adoption of copper wiring is gaining attention among Japanese manufacturers for high-speed processors. The United States is more advanced in practical applications, but this area is gaining attention in Japan as well. Major Japanese device manufacturers have been planning construction of mass production lines for the 0.18 µm logic starting in 1999. Nearly half of these companies have publicly announced that they will adopt copper wiring. A strong recovery in the equipment market can be expected if these plans are carried out by these companies.

Additionally, increased demand associated with the startup of mass production lines for semiconductors corresponding to 300 mm wafers can be expected after 2000. In many cases, procurement of manufacturing equipment meeting the new requirements will be needed when new production lines for the 300 mm wafers are constructed. And since the amount of manufacturing equipment used in the semiconductor mass production line is on the order of several hundred units, when construction for the 300 mm production line begins on a full-scale level, the manufacturing equipment market will certainly be stimulated.

Investment needed to construct mass production line facilities for 300 mm wafers has been calculated using simulations. Investment required for a production line mass producing 30,000 wafers of 256M DRAM per month is roughly estimated at 211.1 billion Yen ($U.S. 1.74 billion). Investment required for a production line mass producing multi-layered wiring logic using copper as the interconnect material has been calculated at 233.7 billion Yen ($U.S. 1.9 billion). Investment required for a production line mass producing large capacity DRAM has been calculated at 252.7 billion Yen ($U.S. 2 billion), each representing total value of manufacturing equipment, gas and purity supply system facilities and plant buildings. Since manufacturing equipment alone occupies ~80% to 90% of the total, if a move for constructing mass production lines began in earnest, there is no doubt that the manufacturing equipment market will be revitalized.

300 mm wafer camp is divided

Those who plan to introduce 300 mm wafers are divided into aggressive and cautious support groups. Here are the construction plans and future prospects revealed by key Japanese companies:

NEC will construct a new plant to produce 300 mm wafers on the present site of NEC Electronics Roseville Plant (California), NEC's U.S. subsidiary. The investment value will be $1.4 billion (180 billion Yen). This will be the production base for system-on-chips and 0.15µm devices such as the 1G DRAM. It is scheduled to commence operation in 2002, and about 700 new jobs will be created. The production capacity is expected to be 20,000 wafers per month, and the floor space will be about 600,000 ft².

Toshiba, on the other hand, has not disclosed any specific plans. There is strong indication that mass production will start in 2001 to 2002, but for the time being the company is placing a higher priority on refinement of pixel sizes rather than production of larger diameter wafers. Koichi Suzuki, manager of the Semiconductor Business Division and director of Toshiba, said at the executive symposium, Semicon Kansai 98, held in June, 'We are not denying that plans are in place to produce 300 mm wafers, but it should be made clear that the refinement of pixel size should be given first priority.'

Hitachi claims it will begin construction of new manufacturing lines in 1999 while closely watching the market situation. The tentative base of production is the Naka plant (Ibaragi Prefecture). Advanced DRAM succeeding the 256M DRAM, system LSI, large capacity flash memory, SH microcomputer, etc., will be produced. The expected production capacity is about 10,000-20,000 wafers per month. The capital investment in the facility is expected to be on the order of ¥100 billion to 150 billion Yen ($U.S. 827 million to $U.S. 1.24 billion).

Fujitsu may postpone the start of operation at its new Aizu-Wakamatsu plant (Fukushima Prefecture) from 2001 to 2002. This plant includes a floor space of 189,000 m² and a cleanroom area of 15,000 m². The initial production capacity will be 15,000 wafers per month with 0.18 µm design rules. The items produced are expected to be 256M and 1G DRAMs and logic devices. The capital investment is expected to be on the order of $1.2 billion.

Mitsubishi Electric reports that construction of a prototype production line will be in 2000 at the earliest. Initially it will aim at producing 0.18 µm products on the 200 mm wafer production line, then decide on construction of the 300 mm wafer production line, depending on the market situation. Like Toshiba, Mitsubishi also intends to place higher priority on refined pixel size rather than production of large diameter wafers. It reports the design rule of the 300 mm wafer production line could be 0.18 µm, or even a startup based on a 0.15-0.13 µm rule. A new plant building will be constructed at the Kochi Plant (Kochi Prefecture) for mass production.

Oki Electric Industry is also preparing to launch a new production line after 2000, depending upon the market situation. It is in the process of acquiring a suitable site for its production base in Japan. Whether 300 or 200 mm wafers will be produced in the new production line is currently being studied.

Matsushita Electronics Industry is placing its priority on the study of a small-scale plant. The feasibility of producing 300 mm wafers will be investigated as an extension of this study. Sharp is investigating the feasibility of producing 300 mm wafers at its main production plant, Fukuyama Plant (Hiroshima Prefecture). Other manufacturers have not decided on their future plans.

The outline of the present plans and future prospects of various devices manufacturing companies have been reviewed as described above. Overall, the companies can be divided into two groups. One is the 'positive' group that announced specific plans to construct 300 mm wafer production lines ahead of other companies. The other is the 'cautious' group that maintains the approach of concentrating on the refinement of pixel sizes first and then deciding on the production of 300 mm wafers while closely monitoring the market situation. As shown, expectations for the production of 300 mm wafers are clearly divided between the various companies. Consequently, the timing of introducing the new production capability will likely be different for each company.

Equipment market for 300mm wafers will rise in earnest after 2001

Fig. 2. A forecast for the world market of manufacturing equipment used in the preprocessing of 300 mm wafers (based on the number of orders received). (Source: Press Journal Publication, Capital Investment in Facilities in the 300 mm Wafers Era and the Semiconductor Manufacturing Equipment Market.)

In this section, we provide a forecast of the time of startup and beginning of production operation using 300 mm wafers based on the current status of the world's various semiconductor manufacturers. The time of startup signifies when the construction of mass production lines begins, and the commencement of production operation means the start of mass production. The time when mass production lines begin to gradually increase to full production is forecasted to be beyond 2000. After 2002, the number of production lines commencing production operation will increase rapidly, with 26 production lines commencing startup by the fourth quarter of 2003 and 16 lines commencing actual operations.

Of these, Japanese manufacturers will be slow in their moves compared to U.S. and Taiwanese manufacturers, but they are predicted to begin in earnest after 2000. By 2003, it is forecasted that a total of six production lines will have begun their startup.

Given this situation, the semiconductor manufacturing equipment market is also forecasted to recover its growth trend, aided by demands for equipment required in the production of 300 mm wafers. Figure 2 shows a forecast for the world market of manufacturing equipment used in the preprocessing of 300 mm wafers (based on the number of orders received). It is estimated that a full-scale startup will begin in earnest after 2001, and the market value will reach $16.59 billion (approximately ¥2.24 trillion) by 2003. It is forecasted that demands for 300 mm wafer manufacturing equipment will constitute a powerful force in revitalizing the Japanese semiconductor manufacturing equipment market after the turn of the century.