Japan's Semiconductor Industry Continues its Recovery

Hideki Motai Press Journal Inc., Tokyo -- Semiconductor International, 11/1/2000

The past several years have seen Japan's share of the semiconductor market dwindle, but this trend has begun to reverse. Its share of the world market has increased to 21.4% from 20.0% in 1998. The 1999 Japanese semiconductor market has eradicated the negative growth that lasted through 1998, increasing 11.0% over the previous year to reach ¥4.02T ($37.36B) last year (Fig. 1).

This recovery can be attributed to the increased IT investment by industry and government, and expanding demand for low-priced PCs and portable telephones with integrated Internet and e-mail functions. Although the domestic economy has not yet fully recovered, IT-related products showed an exceptional rise in demand. Favorable results from restructuring the IT companies has stimulated active investment.

The emergence of low-priced PCs - falling below the ¥100,000 ($930) level - has not only roused demand among first-time buyers, but also stimulated the demand for second and replacement machines. Consequently, the domestic PC market has expanded to more than 10 million units.

Moreover, portable telephones equipped with Internet and e-mail functions have boosted the demand for not only new subscribers, but also for replacement telephones. Consequently, the domestic shipment of portable telephones has surpassed that of conventional telephones.

Device markets improve

Most semiconductor devices have shown increased growth from the previous year. The DRAM market slipped for three consecutive years, but reversed that trend in 1999, recording growth for the first time since 1995. SRAM has also shown growth; triggered by the expanded demand for portable telephones, the market has improved by more than 30%. The greatest growth, however, has come from flash memory. Strong demand created not only by portable telephones, but also by the introduction of silicon audio players, and expanded demand for digital still cameras, has pushed the growth rate to a remarkable 53.1% increase from the previous year.

In logic devices, standard cell and field-programmable logic (FPL) have accomplished rapid growth. Growth in both of these devices is due to the strong demand for the replacement of gate arrays and expanded demand for communications equipment and digital home appliances. Particularly, the industry has seen a rapid rise in FPL orders from communications equipment. The manufacturers of digital home appliances are keeping a keen eye on its application, as the number of design-ins is increasing.

The outlook beyond 2000 continues to show promise. Although the Japanese economy shows signs of trouble, IT-related investment is expected to steadily grow for the time being. PCs and portable telephones are also expected to maintain their rate of growth.

For their part, digital home appliances - such as silicon audio players, DVD players and digital televisions - and car electronics equipment compatible with ITS are expected to generate a full-fledged market in the future, turning into a powerful prime mover for the semiconductor market. Although the silicon audio player just hit the market in 1999, demand is expected to surge after 2000 as major record companies enter the music distribution business and as convenience stores offer music download services. The demand is expected not only from the stand-alone players, but also from portable telephones with integrated player functions. And DVD players are expected to see increased demand, replacing VCRs and CD players as the equipment prices come down and more content becomes available.

With all this in mind, the Japanese semiconductor market is expected to reach ¥4.51T ($42B) in 2000, marking a 12.2% increase over 1999. It will continue to grow steadily until 2002, at which point a slowdown is expected as demand for IT-related equipment cools down. Nonetheless, growth is expected to continue, albeit at a slower rate.

The effect on equipment

Like the semiconductors themselves, the 1999 Japanese semiconductor manufacturing equipment market (based on sales value) also seems to have done away with the negative growth that lasted through 1998. It reached ¥582.2B ($5.4B) in 1998, showing a 7.7% increase over 1998. The recovery in growth reflects the recovery and revitalized investment by semiconductor manufacturers.

What will happen in 2000? The facility investment made by the device manufacturers has shown a sharp increase, stimulated by the expanded demands of portable telephones, communications equipment, IT-related equipment and digital consumer equipment. Intel, Taiwan Semiconductor Manufacturing Co. (TSMC) and other overseas companies have significantly increased their investment, and Japanese device manufacturers are beginning to increase their investment as well.

Consequently, orders for semiconductor manufacturing equipment have sharply increased. According to the Semiconductor Manufacturing Association of Japan (SEAJ), the accumulative value of orders for Japanese equipment (equipment made by Japanese companies for domestic and overseas shipment) reached ¥781.2B ($7.3B) for April-July 2000, a 211.9% increase over the same period a year ago. The value of orders for the Japanese market (equipment made by Japanese and foreign companies for domestic shipment) for April-July 2000 reached ¥449.8B ($4.2B), a 218.3% increase over the previous year.

SEAJ expects the sales value for Japanese manufacturing equipment for the entire year to hit ¥1.73T ($16.1B), a 53.3% increase from the previous year. The sales value for the Japanese market also is estimated to increase by 52.9% from the previous year.

There is high probability that this situation will continue through 2001, but it may change after 2002 as demand lightens for IT-related and digital consumer equipment. On the other hand, the investment for increased production made in 2000-2001 will manifest itself in increased production after 2002. Therefore, the supply-and-demand balance for devices will reverse, possibly falling into an oversupply situation as the industry hits the bottom of its cycle. Facility investment made by Japanese semiconductor manufacturers is also expected to be restrained (Fig. 2).

SEAJ forecasts the sales value of the Japanese market to cool down after FY2001, showing a 3.7% drop in FY2002 and a 5.8% drop in FY2003. The drop could be even greater than expected, but should see improvement during the latter half of 2003, at which point the orders for manufacturing equipment should begin to gradually recover. At that point, demand for IT-related equipment is expected to pick up again, spurring recovered demand for devices, which will in turn spur facility investment.

300 mm predictions

Moreover, construction of production lines compatible with 300 mm wafers should also start to accelerate from this period. This will probably not take place on a massive scale before 2002 because the maturity of 300 mm manufacturing equipment has not yet reached a level satisfying the device manufacturers, and the price of 300 mm wafers remains high. But this situation is expected to improve after 2003, so the industry should see more 300 mm production lines at that point. Once manufacturers realize the cost savings of fabrication with 300 mm wafers compared with 200 mm wafers, 300 mm fabrication should surge.

Figure 3 shows the forecast for the world market for the value of orders received, and the value of sales of manufacturing equipment for preprocessing 300 mm wafers. The market in 2001 for orders received will reach a growth rate exceeding 80% over the previous year. However, it will cool off in 2002, affected by the silicon cycle, ending up in negative growth. This situation is expected to continue into 2003. However, as active construction begins on 300 mm fabs, the orders received will recover dramatically. For 2003, the growth rate is expected to reach 80% again, and 2004 should see it reach almost three times that of the previous year.

The sales market should follow a similar curve, with the market expected to expand greatly in 2004. At this point, the ratio of 300 mm equipment to the entire manufacturing equipment market is expected to rise to about 50%.

Returning to the forecast for the equipment market, the orders received for manufacturing equipment is expected to recover starting in the latter half of 2003, returning to full-scale growth in 2004. At that point, the proportion of investment made for the 300 mm production line with respect to total facility investment is expected to rise rapidly, making 300 mm changes a powerful stimulant for the equipment market. The sales market is also expected to return to full-fledged growth from 2004, although it is expected to languish throughout 2002 and 2003.

An industry in flux

During this time, the business models of the manufacturing equipment makers will undergo fundamental changes. It is highly likely that a few major manufacturers will achieve an oligopoly in the market through takeovers and mergers. Today, it is no longer possible to meet the requirements of device manufacturers by producing a single line of equipment. Manufacturers face increasing demands from customers to present a total solution, integrating several types of equipment. This trend will increase even more in the era of 300 mm wafers. And survival will depend on whether or not they can provide such total solutions. Few device manufacturers will be able to meet this trend by themselves. Others will grope for alliance. .

SEMICON Japan 2000: Dec. 6-8-- Sponsored by Semiconductor Equipment & Materials International (SEMI), SEMICON Japan will be held Dec. 6-8 this year at the Nippon Convention Center (Makuhari Messe) in Chiba, Japan. In addition to the exhibition, events will include technical programs and standards meetings, running Dec. 4-8. Topics for the technical symposium include flash memory, productivity and the 300 mm fab, lithography, multi-level interconnect, mask technology, etching, new device technology, and packaging technology & materials. Most workshops and symposiums require a registration fee (those registering before Nov. 17 are offered a discounted rate), but a few will be offered for free, including Tuesday's International Workshop on 300 mm Software Requirements for Automated Manufacturing, Wednesday's Kumamoto Regional COE Forum Toward Next Generation Semiconductor Processes (in Japanese only), Thursday's Chemical and Gas Manufacturing Group General Meeting, and Friday's Workshop on Electrostatic Compatibility and Semiconductor Manufacturing Process (in Japanese only). A Selete Program Update, being presented on Friday, is also free, but it requires pre-registration. On Wednesday, Dec. 6, SEMICON Japan will host a President's Reception at the Imperial Hotel at 6:30-8:30 p.m. Exhibitor numbers for this year are not yet final, but SEMICON Japan 1999 saw 1,506 exhibitors from 25 different countries, presenting attendees with 4,047 booths. There were 113,460 visitors last year over the three-day exhibit period. Of those visitors, 27.80% were from semiconductor device manufacturing companies, 15.07% from semiconductor equipment manufacturing and 13.00% from electric/electronics system manufacturing. More than 25% of the attendees worked in research and development technology, followed by 17.70% in sales and marketing and 13.07% percent in management technology. For this year's show, exhibition hours will be from 10 a.m. to 5 p.m. on Dec. 6 and 7, and from 10 a.m. to 4 p.m. on Dec. 8. For more information, or to register online for SEMICON Japan, visit www.semi.org. .

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