Splinter Sees Weak Order Period Looming for Equipment Vendors
David Lammers, News Editor -- Semiconductor International, 5/13/2008 4:38:00 PM
Applied Materials Inc. (Santa Clara, Calif.) CEO Michael Splinter said flash memory manufacturers have pushed out silicon equipment orders in the second half of this year, leading Applied to forecast a 40% reduction in its silicon equipment sales for the third fiscal quarter ending in July compared with its second fiscal quarter.
Applied reported financial results Tuesday for the second fiscal quarter ending April 27, 2008, that were surprisingly healthy because of an emphasis on cost reductions as silicon equipment sales remained flat, compared with the first quarter. Applied earned a net profit of $303M on net sales of $2.15B, with revenues bolstered by continued strong sales in the display business.
However, Splinter said the company expects that the third quarter will see silicon orders “down significantly,” marking a bottom to the current cycle before an expected rebound in the fourth fiscal quarter.
DRAM manufacturers accounted for ~40% of Applied’s silicon business, and they are cutting investments roughly in half. Flash equipment sales, which accounted for 14% in the quarter and which were expected to be relatively strong in 2008, has instead turned into a disappointment. “There was a big shift during the quarter in our view of flash expectations. In the second half of the fiscal year, flash may be down 15%,” Splinter said, adding that, “We will have to see a return to profitability by the memory companies in order for them to invest” in significant new capacity. One scenario calls for solid-state drives to gain traction, which could result in flash demand equivalent to 3-4 million 300 mm wafers. For DRAM vendors, an upturn in demand and pricing may come as DDR3 earns a larger share of DRAM sales.
Overall, 10 fabs have pushed out orders or lowered purchase goals. Only one foundry is ordering equipment, and that is on an “incremental and low-level basis,” he said. With logic vendors “cautious,” Splinter said the net result is a very weak order book for the third quarter.
“We are seeing a major change in demand and orders quarter by quarter,” Splinter said, arguing that other equipment companies are experiencing a similar order pattern. Applied saw disappointing results in its chemical mechanical polishing (CMP) unit, with a failure to capture the CMP business at “one major flash manufacturer,” he said. One bright spot is the mask inspection unit, where Splinter said Applied now has four customers for its new Aera2 system. Sales for the third quarter overall may drop 10-18% compared with the second quarter, said chief financial officer George Davis.
Applied’s backlog for its solar equipment is 6-9 months for most types of equipment and even longer for the thin-film “SunFabs,” which use the large 5.7 m2 glass substrates. The company’s backlog for the first time is evenly distributed among its display, solar and silicon business units.
The energy and environmental solutions unit is a potential game-saver for Applied, with strong orders for the second half. If a few large customers decide to build thin-film megafabs using Applied's SunFab turnkey solution, it could make “a huge difference” to Applied’s orders, one analyst noted on the financial results conference call. Asked to be specific about the cost-per-Watt of its SunFab customers, Splinter said groups of manufacturing engineers around the world are building thin-film solar factories now. “There will be very fast learning as these engineers learn to run factories in production,” he said.
“We have our [cost reduction] numbers for the gigawatt factories, but they are theoretical, though we have confidence in them. When we get into real production, when we do it for real, then we will see the real learning curve take hold. For these gigawatt factories, it may take a couple of years before they reach very high volumes,” Splinter said.
