breaking ground
worldwide. One should keep in mind that the peak of the
last semiconductor boom cycle coincided with that of the
U.S. macroeconomic boom cycle with the Fed Funds rate at
an eight-year high of 6.5 percent in the year 2000. This year,
however, the Fed Funds rate was recently raised from 1.0 to 1.25 percent and
the current estimated GDP is only at 4 percent.
Under the assumptions that corporate IT spending continues to
improve in the second half of 2004 and beyond, along
with the strong demand for consumer electronics driven by low-priced flat
panel televisions and portable electronic devices, growth
should be sustainable in the semiconductor industry
sector. Unlike other basic
industrial materials such as steel and aluminum,
investment in the semiconductor materials sector may require a broader
understanding in capital spending and R&D
investments involved in the manufacturing process as well as
the rapid change in the
IC chip manufacturing requirements imposed on the
materials.
Silicon Business Fundamentals: During the past eight
years, the price of silicon, the starting raw material for
the manufacturing of IC chips, has steadily
declined from ~ $2
per square inch in 1996 to ~ $1 last year. This trend
is expected to continue as Chinese silicon suppliers,
such as Beijing, China-based Grinm Semiconductor Materials Co. Ltd,
begin to increase production capacity to meet demand from
high-growth domestic IC foundry businesses
and eventually, export its products to the U.S. and
abroad.
Grinm, which
went through an initial public offering (IPO) in 1999,
is traded on the China Stock Exchange A Share
market.
St. Peters,
Mo-based MEMC Electronic Materials Inc. (NYSE:WFR) is the
only major silicon
supplier in the U.S. with a worldwide market share of
approximately 7.4 percent. MEMC is ranked fourth
worldwide, behind Germany-based Siltronic, a spin-off
from Wacker Chemie GmbH; Japan-based SUMCO, a Sumitomo Mitsubishi
Silicon Group; and Shin-Etsu Handotai (SEH), the
world's largest silicon supplier with a market share of approximately 34
percent. SEH is a wholly-owned subsidiary of
Shin-Etsu Chemical Co. Ltd., a Nikkei 225 company on the Tokyo stock exchange.
Increasing Production and Development Costs: One
of the long-standing issues receiving a great deal of attention
as silicon wafer cost increasingly becomes a significant
part of the total wafer fab operating costs, are the defects in silicon
wafers.
Silicon,
manufactured using the present technology, contains
several types of grown-in defects that affect the chip
performance and yield, the number of good chips per
finished wafer. According to Dr. Robert Falster, research
scientist at MEMC, accurate control of these defects is
immensely important to both silicon suppliers and device
makers.
Defect reduction techniques, including silicon epitaxial
layer encapsulation, high-temperature annealing and
nitrogen doping, add costs to silicon wafers and may
also induce
new types of defects into silicon.
With the increasing
demand for low-cost and high-quality wafers, silicon suppliers may
be required to heavily invest in new or innovative
technologies to maintain their leadership and gain
market
share. Billion of dollars may be needed just to develop
and transfer larger-diameter wafers, such as 450mm wafers,
into production.
Another issue that faces silicon suppliers is the rapid
change in device geometry. Last month, Xilinx
(NASDAQ:XLNX) announced that their chip yield from its
state-of-the-art 90nm process fabricated on 300mm wafers
is almost five times more than that using the previous 130nm
process with a 200mm diameter wafer. Based on the recent
SIA revised 2005 forecast for global semiconductor
sales growth from 10 percent to 4 percent, even less silicon
may be needed next year if chip makers can increase
their production yield.
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