Large Semiconductor Equipment Manufacturers Losing Market Share To Smaller Companies

by: Robert Castellano


Hitachi High-Technologies, one-sixth the size of Applied Materials, will outgrow the company by more than two times in 2014 in the plasma etch sector.

Hitachi High-Technologies, nearly one-third the size of KLA-Tencor, will outgrow the company by nearly fifteen times in 2014 in the metrology/inspection sector.

These smaller companies have developed a strategy of aligning with customer needs.

Large semiconductor equipment manufacturers are losing market share in 2014 to much smaller companies as customers focus on technology and customer service rather than size, according to The Information Network's report Applied Materials: Competing for World Dominance.

Hitachi High-Tech continues to impress. In the plasma etch sector of the semiconductor equipment market, the report estimates that the company will increase its share over competitors, exhibiting a growth of 36% in 2014 over 2013, compared to 20% growth for Lam Research (NASDAQ:LRCX) and 16% for Applied Materials (NASDAQ:AMAT).

The table below shows projected growth in the plasma etch sector for 2014 as well as for 2013.

Hitachi High-Tech shined in 2013 as well, but growth was subdued because of the weak yen. Since market shares are given in dollars instead of yen, this had a negative 20% impact on growth (in dollars). However, if we look at growth in native currency, Hitachi High-Tech exhibited a growth of 19% compared to only 10% for Lam Research and negative 5% for Applied Materials. I discussed this issue in an April 2014 article in Seeking Alpha entitled "The Semiconductor Equipment Market Really Didn't Decrease 14 Percent In 2013, Did It?" (here)

In the metrology/inspection sector, we estimate that Hitachi High-Tech will grow 62% in 2014 over 2013, compared to 5% for KLA-Tencor (NASDAQ:KLAC), 20% for Nanometrics (NASDAQ:NANO), 11% for Nova Measuring Instruments (NASDAQ:NVMI), and 0% for Rudolph Technologies (NASDAQ:RTEC).

In 2013, Hitachi High-Tech dropped 19% from 2012 in yen, while in dollars KLA-Tencor was down 13%, Nanometrics down 25%, and Rudolph Technologies down 52%. The table below shows data for the metrology/inspection sector.

These data fly in the face of Applied Materials' rhetoric over the past year that the merger with Tokyo Electron, which will create a $10 billion company, will gain market share against its competitors. Bigger is not necessarily better.

Hitachi High-Tech's business strategy, as noted in its FY 2014 annual reports, states:

  • To place the customer first, growing with our customers by providing the best solutions, consistently a step ahead of market needs.
  • To contribute to value creation in the global community through synergies between our strengths in cutting-edge technologies and our capabilities as an established trading company.

NVMI in its recent Q3 earnings call echoed Hitachi High-Tech's approach to customers:

This is yet another example that our business strategy is aligned with our customers' decision flow to choose their metrology tools of record well in advance in their early research and development cycle. This partnership adds to other recent investments we had in this area with other research and development centers. This approach allows us to have early engagement with our customers and prospects that are sponsoring this program.

As semiconductor manufacturers move to smaller feature sizes on an integrated circuit, they also are moving to smaller companies to supply them with the equipment to make them. Semiconductor manufacturers focus on technology and customer service, and these smaller companies are able to react better and faster than larger companies.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.