Chip Makers and Suppliers Face Shifting Markets
July 12 2016 - 5:45PM
Dow Jones News
By Don Clark
SAN FRANCISCO -- Semiconductor makers and their suppliers are
scrambling as smartphones and personal computers ebb as dependable
drivers of sales growth. Their traditional response -- making chips
that can do more, thanks to ever-smaller circuitry -- isn't
expected to be sufficient to turn the tide.
The pressures, which have driven a broad wave of consolidation
in the sector, are hot topics this week at the big annual gathering
in San Francisco of companies that sell tools and materials to make
chips. An industry group that represents makers of manufacturing
gear on Tuesday projected that their global revenue will grow only
1% to $36.94 billion in 2016, following a decline of nearly 3% last
year.
Another industry group had previously projected total revenue
from chip sales to decline 2.4% in 2016, largely due to slowing
growth in smartphone sales and ongoing shrinkage in the PC
market.
"The question is, what will drive the growth?" said Sanjay Jha,
chief executive of Globalfoundries Inc., which manufactures chips
to order for other companies.
Mr. Jha and others executives say they are responding by
adopting new materials and manufacturing techniques, inspired
partly by the possibility of new demand for a widening array of
connected devices, which may need chips with different capabilities
than they have developed in the past. That emerging market, known
as the Internet of Things, may require chips that cost less than $1
and operate for years without a battery change.
Globalfoundries and rival Samsung Electronics Co. have adopted a
technology called FD-SOI that offers power consumption and cost
benefits even in chips that don't use the smallest circuitry
available today. The technology, which stands for fully depleted
silicon-on-insulator, relies on specially prepared semiconductor
wafers supplied by the French company Soitec.
Paul Boudre, Soitec's chief executive, said one example of the
benefits has come from Sony Corp. The Japanese tech company
recently designed a GPS chip for smartphones based on FD-SOI that
uses one-tenth the energy of prior chips, allowing the
location-tracking technology to be used more often without sapping
a smartphone's battery, he said.
At the same time, giants like Intel Corp., Taiwan Semiconductor
Co., Samsung and Globalfoundries continue to try to pack more
transistors on each small square of silicon. The pace of
miniaturization has lengthened lately from the established two-year
cadence known as Moore's Law, after Intel's co-founder, because of
technical and financial challenges.
But smaller transistors are seen as essential in some
high-volume chip markets and fields where high performance is
necessary, such as data center gear and machine-learning
applications such as autonomous cars, Mr. Jha said.
Some companies are beginning to squeeze more out of chips
without manufacturing smaller transistors. Makers of NAND flash
memory, used to store data in most mobile devices, instead have
begun boosting capacity by stacking many layers of circuitry in an
approach called 3-D NAND.
The technology shift requires spending on different
manufacturing tools, producing benefits for some suppliers. One of
them is Applied Materials Inc., which recently attributed a surge
in orders to three factors: 3-D NAND, demand for displays and
China's efforts to boost domestic chip manufacturing -- all of
which it expects to continue to gather momentum.
Applied's stock is up 35% since the beginning of the year. "I
think we are in the early innings of these big waves," said Gary
Dickerson, Applied's chief executive officer.
SEMI, which is hosting the annual Semicon West trade show this
week, is predicting that spending on equipment will rebound to rise
11% in 2017 as some technology trends accelerate. Another factor is
that companies continuing the race to shrink chip circuitry will
need to buy new tools.
One long-awaited development is a successor to current
lithography equipment that uses photographic processes to define
features on chips. ASML Holding NV, the biggest maker of those
tools, estimates it has spent $7 billion to develop equipment
capable of fabricating smaller circuitry by using a technology
called EUV, for extreme ultraviolet.
ASML Chief Executive Peter Wennink said Monday that, after many
delays, he expects chip makers to be using the technology by the
end of 2018. But it remains unclear whether EUV will pave the way
for what may be the next major leap in production technology: the
ability to manufacture chips with circuitry as small as 7
nanometers, or billionths of a meter, compared with 14 nanometers
for today's most advanced chips.
"The jury is still out," said Luc Van den hove, chief executive
of the Belgium-based chip research center Imec. "It is a pretty hot
topic at the moment."
Write to Don Clark at don.clark@wsj.com
(END) Dow Jones Newswires
July 12, 2016 17:30 ET (21:30 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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