ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

North American Semiconductor Equipment Industry Posts February 2013 Book-to-Bill Ratio of 1.10

A book-to-bill ratio of above 1 indicates that more orders were received than filled, and hence a strong market where demand outpaces supply. Similarly, a book-to-bill ratio of below 1 points to weaker demand.

http://www.semi.org/en/node/45161?id=highlights

(Vested)

Tablets fueling surge in smart devices: study
Posted: 27 March 2013 0201 hrs

WASHINGTON: Tablet computers fueled growth in 2012 in the market for "smart connected devices," which crossed the threshold of one billion units for the first time, a study showed Tuesday.

A report by the research firm IDC said worldwide shipments of these devices -- personal computers, tablets and smartphones -- grew 29.1 percent in 2012 to 1.2 billion units with a value of $576.9 billion.

The expansion was largely driven by 78.4 percent growth in tablet shipments, which hit 128 million in 2012.

IDC said sales of desktop and portable personal computers fell 4.1 percent and 3.4 percent, respectively, for the year, while smartphones were up 46 percent.

Looking ahead, IDC forecast tablet shipments will surpass desktop PCs in 2013 and portable PCs in 2014. It predicted tablet sales would grow another 48.7 percent this year to 190 million units.

The smartphone market is expected to grow 27.2 percent to 918.5 million units, IDC said, and sales of traditional PCs will struggle again, especially in emerging economies.

"In emerging markets, consumer spending typically starts with mobile phones and, in many cases, moves to tablets before PCs," said IDC analyst Megha Saini.

"The pressure on the PC market is significantly increasing and we can see longer replacement cycles coming into effect very soon and that, too, will put downward pressure on PC sales."

IDC said Apple closed the gap with market leader Samsung in the fourth quarter, as the combination of Apple's iPhone 5 and iPad Mini brought Apple up to 20.3 percent market share versus 21.2 percent for Samsung for these devices.

However, the US firm had 30.7 percent of revenues to 20.4 percent for Samsung as Apple devices are pricier.

IDC predicts the worldwide smart connected device space will continue to surge with shipments hitting 2.2 billion units and revenues of $814.3 billion in 2017.

The top three customers of Applied Materials namely Intel, Samsung and TSMC, have all retained their worldwide ranking as the top 3 semiconductor suppliers for 2012.

See Top 25 Ranking : http://evertiq.com/news/24112

According to AR2012 of Applied Materials: “Applied’s semiconductor customer base historically has been, and is becoming even more, highly concentrated as a result of economic and industry conditions. In fiscal 2012, three semiconductor manufacturers accounted for 60 percent of Silicon Systems Group net sales.”

(Comment: Applied Materials is exposed to increasing risks of high concentration customers base – is this good or bad ? Anyway, it is MUCH better (less concentrated) compared to that of UMS – haha !
----------------------------------------------------------------------------------------------------

Intel, Samsung to dominate chip capex in 2013:
Peter Clarke
3/27/2013 2:20 PM EDT

“Intel and Samsung will spend $25 billion on increasing their manufacturing capacity in 2013 as this sector of the industry continues to consolidate round very few leading-edge manufacturers, according to IC Insights.

Five companies that are expected to spend at least $3.0 billion in 2013, the same as in 2012 and 2011 and the top-10 capital spenders in 2013 are forecast to increase their spending by 5 percent as compared to 2012, while non-top-10 companies are expected to cut spending by 8 percent.

Over the four-year period 2010 to 2013 Samsung is forecast to spend $46.9 billion, with about 60 percent on its memory production and 40 percent on its break into logic and foundry services. Over the same period Intel is forecast to make $40.0 billion in capital expenditure. "Notably, the combined spending by Samsung and Intel represented 40 percent of the world's semiconductor capital outlays in 2012, with this percentage expected to rise to 42 percent of total capital spending in 2013," IC Insights observed………………………..”

http://www.eetimes.com/design/eda-design...ex-in-2013

(Comment: The projected combined spending by Samsung and Intel is expected to rise to 42% of total capital spending in 2013. If capital spending of TSMC is included as well, the combined capital spending of the three companies would represent 57% of total capital spending in 2013.)

-----------------------------------------------------------------------------

Five IC Suppliers to Hold One-Third of 300mm Wafer Capacity in 2013: by IC Insights

““Samsung tops list; IC foundries expected to show biggest capacity gains through 2017. It is a fact that semiconductor industry capital spending is becoming more concentrated with a greater percentage of spending coming from a shrinking number of companies. As a result, IC industry capacity is also becoming more concentrated and this trend is especially prevalent in 300mm wafer technology……………………………

IC Insights believes that the top seven or eight companies—Samsung, “Micron-Elpida,” TSMC, SK Hynix, Intel, Toshiba/SanDisk, and GlobalFoundries—can be considered an “elite” group that is just about guaranteed to be a driving force in 300mm capacity additions……………………

Meanwhile, there is still much uncertainty as to when the industry will make the next wafer-size transition—from 300mm to 450mm—and how much it will cost to do so, but momentum continues to build and the transition can now be considered certain to happen. IC manufacturers have yet to fully optimize the high-volume manufacturing cost structure for the 300mm wafer size. However, the potential per-die cost savings that the larger wafer can provide is enough of a motivating factor to make the transition happen.

http://www.icinsights.com/data/articles/...ts/516.pdf

(Comment: when it comes to 450mm wafer size, the size of the “elite” group would probably shrink further)
------------------------------------------------------------------------------------------------

Intel Agrees To Serve As Foundry For Altera FPGAs

Interestingly, Intel, the world's largest and highest valued semiconductor chip maker - that used to use its facilities for the production of its own processors only, has recently signed up Altera (Fabless) as its first foundry customer – allowing it to grow its foundry chip business and make a successful strategic shift in its business model

http://www.forbes.com/sites/ericsavitz/2...tera-fpgas

(Comment: another foundry choice for the increasing number of fabless players. New foundry business for Intel could potentially mean more semi-tools business for Applied Materials).

-------------------------------------------------------------------------------

Final Thoughts:

It is a fact that semiconductor industry capital spending is becoming more concentrated with a greater percentage of spending coming from a shrinking number of companies – due to economic and market conditions – as Applied Materials puts it.

On one hand, more companies are moving into FABLESS, de-emphasizing building FABs for their own products and thus not building FABs for projected demand.

On the other, fewer semiconductor manufacturing companies (be it pure-play foundries such as TSMC, GlobalFoundries and UMC, or companies who FAB the majority of their own chips but also have foundry customers such as Samsung and would be new player Intel) are increasing their capex spending in larger wafer and more advanced process node to upgrade or maintain their leading edge production capabilities. – The “elite” group is getting smaller and trending towards an oligopolistic situation, if this trend continues.

The increasing number of FABLESS are increasingly DEPENDENT on a decreasingly fewer top “elite” semiconductor manufacturing companies for the production of their new chips - a trend which if continues, would shift the pricing power away from the FABLESS towards the foundry players.

Applied’s semiconductor customer base historically has been, and is becoming even more, highly concentrated as a result of these economic and industry conditions. Is this good or bad?

More good than bad I supposed – it appears that the semiconductor industry landscape is trending towards one in which many FABLESS companies are being served by a few oligopolistic semiconductor manufacturing players – who are in turn served by a few oligopolistic semiconductor EQUIPMENT manufacturers.

(Vested)

I wonder will the concentration of customers lead to pricing power to the companies at the top of the value chain which would translate to diminishing value at the bottom of the chain ? Perhaps AMAT is being squeezed upwards and so they are squeezing downwards to mitigate margin erosion ie discounts from UMS ?

(Vested)

(31-03-2013, 07:13 PM)Nick Wrote: [ -> ]I wonder will the concentration of customers lead to pricing power to the companies at the top of the value chain which would translate to diminishing value at the bottom of the chain ? Perhaps AMAT is being squeezed upwards and so they are squeezing downwards to mitigate margin erosion ie discounts from UMS ?

(Vested)

This is not beneficial to UMS. Is UMS developing any new capabilities to entrench its competitive advantage?

(Vested)

UMS proposes its 13th consecutive quarterly dividend of 2 cents per share, achieving an annual dividend yield of 10.9% in FY2012

http://www.btinvest.com.sg/system/assets/12564/UMS.pdf [Article]

ST featured a short article on UMS as part of Shares Investor series on dividends play today. It may explain why there was sudden pick up in trading volume. UMS closed at 46.0 cents with 2.0 cents 4Q 2012 dividend CD.

(Vested)

I was going through the annual reports of Intel, Samsung and TSMC to see if they talk about their equipment suppliers – only TSMC did.

Here is the whole section on Equipment from AR2012 of TSMC:

Equipment
“The quality and technology of the equipment used in the semiconductor manufacturing process are important in that they effectively define the limits of our process technologies. Advances in process technologies cannot be brought about without commensurate advances in equipment technology. To accelerate the development of next-generation lithographic technology, in August 2012 TSMC joined the ASML Holding N.V. Customer Co-Investment Program. The program’s scope includes development of extreme ultraviolet (EUV) lithography technology and 450-millimeter (450mm) lithography tools. Under the agreement with ASML, TSMC made an investment of EUR838 million to acquire 5% of ASML’s equity, and has committed EUR277 million, to be spread over five years, to ASML’s research and development program.

The principal pieces of equipment used by us to manufacture semiconductors are scanners, cleaners and track equipment, inspection equipment, etchers, furnaces, wet stations, strippers, implanters, sputterers, CVD equipment, testers and probers. Other than certain equipment under leases located at testing areas, we own all of the equipment used at our fabs.

In implementing our capacity management and technology advancement plans, we expect to make significant purchases of equipment required for semiconductor manufacturing. Some of the equipment is available from a limited number of vendors and/or is manufactured in relatively limited quantities, and certain equipment has only recently been developed.

We believe that our relationships with our equipment suppliers are good and that we have enjoyed the advantages of being a major purchaser of semiconductor fabrication equipment. We work closely with manufacturers to provide equipment customized to our needs for certain advanced technologies.”
----------------------------------------------------------------------------------------------------------------------------------------------------------

TSMC to install 20nm fab equipment ahead of schedule, says report
Jessie Shen, DIGITIMES, Taipei [Tuesday 2 April 2013]

Taiwan Semiconductor Manufacturing Company (TSMC) plans to begin installing production equipment at its 20nm-capable facilities on April 20, about two months ahead of schedule, according to a Chinese-language Economic Dailys News (EDN) report.

Following the equipment move-in, TSMC is expected to tape out SoC products at 20nm around the end of the second quarter with initial capacity of 5,000 12-inch wafer starts per month, the report cited unnamed fab tool suppliers as indicating. The new technology node is set to enter volume production in the third quarter with monthly capacity reaching more than 10,000 wafer starts, the report said. TSMC internally set a target of growing its capacity for 20nm products to 30,000-40,000 wafer starts monthly by the end of the first quarter, 2014, the report noted.

TSMC in April 2012 disclosed that its 20nm technology would begin volume production at Phase 6 of its Fab 12 wafer fab (Hsinchu, northern Taiwan) in 2013, and Phase 5 of Fab 14 (Tainan, southern Taiwan) will be the foundry's second 20nm-capable fab, which is scheduled to enter volume production in early 2014.

TSMC also began construction on Phase 3 of Fab 15 (Taichung, central Taiwan) in September 2011. The module will be TSMC's second gigafab equipped for 20nm process technology. The foundry has not provided a timeframe to volume produce 20nm products at Phase 3 of Fab 15, but already set the initial capacity at 40,000 wafer starts per month.

http://www.digitimes.com/news/a20130402VL201.html

Here is the Annual Report for 2012

http://info.sgx.com/listprosp.nsf/AllAnn...endocument

(09-04-2013, 10:31 PM)Boon Wrote: [ -> ]Here is the Annual Report for 2012

http://info.sgx.com/listprosp.nsf/AllAnn...endocument

I like the forward prospective outlook indicated in the AR -
"Additionally, our major customer had also indicated that
2013 will be a better year as major investment programs
by foundries will likely be announced and performed
on the back of increasing demand for personal mobile
products such as tablets and smart phones. For instance,
a major global foundry had reportedly demanded
advance delivery of the front-end equipment needed for
its 28nm process, which had seen brisk demand. The key
customer of UMS is one of the fab-tool makers that will
benefit from this early delivery."

(Vested)

From AR 2012

page 6:

“In mid-2012, UMS inked a long-term agreement with its major customer to continue delivering and supporting the customer’s semiconductor systems for the subsequent 5
years. This move provided UMS with a level of certainty and stability as it seeks to streamline the Group’s manufacturing operations and raise its productivity

page 8 :

“For FY2012, UMS’ gross material margin declined to 49% from 56% in FY2011 mainly due to lower margin in 4Q2012, which was partly due to UMS extending price discounts on some product lines. ………………….

Page 9 :

“Nonetheless, a near term upturn in sentiment has been noted for the first few months of 2013. The Group’s key customer had revised their forecast upwards, with revenue growth in the region of 15-25% sequentially for the first few months of 2013. For the rest of the year, the semiconductor market is expected to be driven by demand for mobile products such as smart phones and tablets, spurring investments in semiconductor equipment.

Comments:
Interestingly, the 5 years contract extension was inked in mid-2012 but the lower margin (due to discount given) happened in 4Q2012 – still couldn’t tell if the discount was one-off or permanent. Nonetheless, the management is upbeat on prospect for 2013.

(Vested)