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KLA-Tencor, Camtek, And Veeco Benefiting From A Strong Advanced IC Packaging Market

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Includes: CAJ, KLAC, RTEC, VECO
by: Robert Castellano
Robert Castellano
Chipmakers, solar, research analyst, Expert Witness
Summary

Advanced IC Packages used to house and protect next-generation ICs are growing strongly and will drive the packaging equipment market.

The lithography equipment market is dominated by four companies, controlling 85% of the market.

The metrology/inspection market will benefit from the need to monitor the smaller dimensions and advanced bonding methods on the package.

Advanced IC packaging, such as fan-out WLP (Wafer Level Packaging) and 2.5D TSV (Through Silicon Via) will drive the packaging equipment market, particularly lithography and metrology/inspection. This will help specific equipment manufacturers in 2019, since the WFE (Wafer Front End) market will drop 17%. But the back end, led by companies such as KLA-Tencor (KLAC), Camtek (NASDAQ:CAMT), and Veeco (VECO) will be strong.

Advanced Packages

The IC industry is evolving as new technologies replace old ones. As dimensions on advanced ICs move below 10nm, packages that house and protect them from the environment and aid in bonding to the printed circuit board are also evolving. Traditional wire bonding is being replaced by flip chip (FC) bonding, which, in turn, is being replaced by WLP.

According to our report entitled "Flip Chip/WLP Manufacturing and Market Analysis," the number of ICs packaged in FC will exhibit a CAGR (compound annual growth rate) of 5.0% between 2016 and 2022, while WLP will exhibit a CAGR of 6.8%. In contrast, IC growth in 2019 is forecast to drop 12.1% by industry consortium WSTS.

Chart 1 shows the transition of FC technology replaced by WLP. The transition will occur in 2021. I had previously projected the transition to occur in 2018, but skyrocketing shipments of cryptocurrency chips, ASICs and GPUs in flip chip scale packages, and a slowdown in smartphone shipments using WLP, pushed out the transition point.

Chart 1

Advanced Packaging Equipment

Lithography

Competition in the advanced packaging lithography market comes from various reduction steppers and proximity and projection aligner companies such as: Canon (CAJ), EV Group, Rudolph Technologies (RTEC), Shanghai Micro Electronics Equipment Co., SUSS MicroTec, Veeco, and USHIO.

Chart 2 shows market shares for the advanced packaging lithography market for 2018, according to our report. The top three companies - Canon, Veeco, and EV Group held a 70% share of the market, and if we include SUSS, these companies held an 85% share of the market.

Chart 2

Chart 3 shows the 2018/2017 YoY growth of the advanced packaging lithography companies. VECO grew 35% after a rocky transition following the acquisition of Ultratech. Canon, a strong contender in the WFE and FPD (Flat Panel Display) lithography markets, grew 20.5% YoY. The company is utilizing expertise from a strong installed base of thousands of lithography tools, combined with improved optic resolution, to make reduction steppers a viable technology in advanced packaging.

Chart 3

Metrology/Inspection

Back-end represented just 5% of the overall metrology/inspection but is one of the fastest growing sectors through 2022, according to our report entitled "Metrology, Inspection, and Process Control in VLSI Manufacturing."

Chart 4 shows market shares for 2018. CAMT was the market leader, followed by RTEC and KLAC.

Chart 4

Chart 5 shows that CAMT grew 41.4% YoY to further enhance its market lead in 2018. KLA-Tencor grew 20.3% and moved closer to RTEC, which grew only 10.0% in 2018.

Chart 5

Investor Takeaway

Advanced packaging of ICs is growing strongly, as advanced ICs require smaller packages and faster speeds. Equipment companies will benefit in 2019 with positive revenue growth, mitigating a drop in the overall WFE industry of 17%.

Key equipment markets for advanced packaging and the companies I recommend based on performance are:

  • Lithography, led by public companies CAJ and VECO
  • Metrology/Inspection, let by CAMT and KLAC

These companies exhibited not only a high market share in 2018 but also strong YoY growth in 2018. Why is the latter important? Customers chose multi-million-dollar equipment based on "best of breed." This evaluation process can take up to nine months. Once installed, the equipment supplier will further benefit when the customer orders more equipment to meet capacity growth.

Thus, companies that gained share in 2018 should increase market share in 2019, particularly in a strong market such as advanced packaging. In addition, the growth in the IC packaging market will mitigate revenue losses in WFE for most of these companies.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.