21 October 2010Please read the important disclosures and analyst certifications on pp. 19-24. gl 450mm semiconductor production lines An industry body is promoting standardization for shift to 450mm wafers SPE makers reluctant to move to 450mm But they could see benefits under the right circumstances SPE industry could see some benefits Analysts Tetsuya Wadaki Shigeki Okazaki CW Chung Marcello Ahn Nomura 1 Moves toward 450mm wafers: The first industry roadmap mentioning 450mm wafers was the 2003 International Technology Roadmap for Semiconductors (ITRS), which called for their use in mass production in 2012. Recently, some major semiconductor producers and factory automation equipment manufacturers have been aggressively pushing a shift to 450mm wafers, but the fifth and lower ranked semiconductor companies and the majority of SPE suppliers have not come on board. Among possible motives for moving to 450mm wafers, we highlight (1) the rising amount of wasted space around the edge of wafers as microprocessor die sizes increase; (2) the need to improve operational efficiency at semiconductor plants, as there are not enough engineers available to cope with rising production capacity; and (3) the desire among majors to widen the gap further with smaller producers by raising the minimum capex level. We see major disadvantages for SPE industry: In a previous report on 450mm semiconductor production lines (No 07-25, published in English on 31 January 2007), we took a dim view of the SPE industry gearing up for 450mm wafers. We noted the following reasons (1) companies would likely find it difficult to make a return on increasingly expensive development investments; (2) further consolidation in the semiconductor industry would likely make a buyers market for SPE, damaging margins for SPE producers; (3) higher minimum investment costs would likely reduce the number of new entrants in the semiconductor industry, thereby dampening momentum; and (4) enhanced investment efficiency would likely mean a relative contraction of the SPE market. At that time, we thought that a shift to 450mm wafers could result in SPE manufacturers merely becoming contractors for those few semiconductor companies capable of building 450mm lines themselves. Some benefits for SPE industry under certain circumstances: Conditions have changed since we published that report. The semiconductor sector has rapidly become dominated by a small number of companies irrespective of a shift to 450mm wafers. Moreover, a faster shift to 450mm wafers would likely require changes in how development costs are shouldered and how equipment is priced that are more in SPE manufacturers favor. If the timing is right, the introduction of 450mm wafer equipment could even have benefits for SPE producers. We see a scenario that is beneficial for both the semiconductor and SPE industries. At a time when demand for SPE has fallen sharply, progress toward finer process sizes has stalled, and semiconductor manufacturers are showing no desire for large-scale capex, we think the introduction of 450mm wafer lines by device producers looking to lower semiconductor costs and 450mm semiconductor production lines SPE industry could see some benefits Some companies in the semiconductor industry have started to express their desire to move from the current mainstream 300mm silicon wafers to 450mm wafers, and the International Sematech Manufacturing Initiative (ISMI) consortium has been pushing to standardize 450mm wafers for mass production. To date, semiconductor production equipment (SPE) manufacturers have been opposed to a shift to 450mm wafers as it would be an extremely negative development for them, but we think there could be a change in trend. If the 450mm semiconductor manufacturing process takes hold, companies with plenty of financial muscle such as Samsung Electronics 005930 KS (Buy; KRW745,000, 20 October close) could well drive out competitors within a few years. In the SPE industry, we see potential benefits for inspection equipment manufacturer Hitachi High-Technologies 8036 (Buy; 1,481), as each wafer will likely become more important, and for Disco 6146 (Buy; 4,845), which we expect to see rising demand for wafer-thinning grinders and the need for new types of polishers. 21 October 2010 Japanese full report: 21 Oct Report no. 10-376 Analysts Tetsuya Wadaki +81-3-6703-1184 tetsuya.wadakinomura.com Shigeki Okazaki +81-3-6703-1170 shigeki.okazakinomura.com Financial 1,041) and Disco. We would also expect a widening gap between semiconductor makers taking a lead in investing in 450mm lines and those that do not. We think such a move could be a positive for Samsung Electronics as it seeks to solidify its position in the memory industry, where it is still facing stiff competition for market share with rivals. 1. Pros and cons of shift to 450mm wafers3 2. Reductions in process sizes versus increases in wafer size.6 3. Who will shoulder devel