Another Way to Evaluate Market Segmentation

Chip equipment user behavior has changed dramatically in recent years. With the consolidation of buyers and the pervasive shift from regional sales management to account management, it is no longer important to focus solely on regional markets. In today's market, it is just as important for equipment makers to look at their customers' needs in terms of their product applications, instead of where the product is manufactured. After all, these applications are what drive growth in the various equipment technologies, as the product requirements are more closely aligned with the application. Reporting by application offers the benefit of providing alignment to the electronics end use markets. Anticipating the need for such industry data, we have implemented a database that provides equipment sales by manufacturer and customer type. The customers are categorized as follows:

1. Foundry/Subcontractors — This category combines equipment sales to foundries, as well as test and assembly subcontractors.
2. Memory integrated device manufacturers (IDMs) — This includes equipment sales to IDMs of memory.
3. System-on-a-chip (SoC) IDMs — This includes equipment sales to IDMs of logic devices. This category is further divided according to the type of SoC applications, which include computing, communications, consumer and other.
4. DAO — This includes manufacturers of discrete, analog and other semiconductor devices.

In 2006, worldwide sales of chip manufacturing equipment reached $45B, which represents a 24% growth from 2005. Sales to memory manufacturers grew 36%, those to SoC IDMs grew 18%, and those to DAOs grew at the same rate as the overall industry's pace at 24%. The growth in equipment sales to foundries and subcontractors was the slowest at 11%.

Memory makers were the largest consumer of equipment in 2006. They were responsible for 40% of the dollar value of new systems sold last year. In comparison, SoC IDMs constituted 33%, foundries and subcontractors accounted for 20%, and manufacturers of DAOs made up the remaining 6%.

Memory manufacturers bought 43% of all wafer fabrication equipment sold in 2006. These front-end tools include systems used for lithography, ion implantation, chemical mechanical polishing (CMP), deposition, etch and clean, and other wafer processing steps. Memory makers also accounted for one-third of the sales of test and related equipment, such as automated test equipment (ATE), material handlers, process diagnostics tools, and computer integrated manufacturing and software. In assembly, memory manufacturers were the second largest consumer of equipment, after the foundry and subcontractors, and accounted for about one-third of sales.

Thus, the data confirm that memory is the primary driver to the growth in the equipment industry. This was not the case just five years ago; back then, SoC IDMs were the largest buyer of equipment. During the 2002–2004 period, SoC IDMs accounted for roughly 40% of equipment sales. The crossover between memory and SoC occurred in 2005, which coincided with a huge demand growth for NAND flash. At the same time, an increasing number of SoC IDMs moved to a fab-lite or fabless strategy, relying on foundries to manufacture their chips. Consequently, their share of the equipment buying has declined somewhat since then (Figure ).

Although there has been some pull back in memory investment in 2007, we do not expect a drastic change in the current customer make-up through 2009. Memory will continue to be the largest investor in new equipment, followed closely by SoC IDMs. These customers will need to keep spending on equipment if they are to stay on their respective technology roadmaps. Foundry/subcontractors will account for close to 20% of equipment sales, and will continue to serve as the swing capacity provider for the entire industry. DAO's share is expected to remain relatively flat at roughly 5% of equipment sales.

There are various ways of segmenting the equipment industry — by manufacturing process (e.g., lithography), region where they are sold, or the types of customers that purchase them. Shifts in the purchasing power of equipment consumers over the past five years have shown an increasing need for segmenting the market by customer type, because customers' needs now rest more on their product applications than their locations. As shown by the memory market's growing share of equipment purchases, customer type can be a good indicator of which market is driving growth in the industry. By taking customer type into account, equipment manufacturers will be better able to suit their customers' needs.