KLA-Tencor And Applied Materials Will Benefit From Yield Problems At Semiconductor Foundries In 2012

by: Robert Castellano

Whether there are indeed yield problems at foundry TSMC (NYSE:TSM) at the 28nm node, as reported by Qualcomm (NASDAQ:QCOM) and Nvidia (NASDAQ:NVDA), or just tight supply on initial roll out of TSMC's 28nm process, chip manufacturers are focusing attention on process control equipment and will be expanding capex at the 28nm and 20nm nodes.

As a result, equipment manufacturers KLA-Tencor (NASDAQ:KLAC), Applied Materials (NASDAQ:AMAT), and Hitachi High Technologies (OTC:HICTF) that lead in the semiconductor Inspection/Metrology/Process Control market will benefit. Not only that, The Information Network projects that the Inspection/Metrology/Process Control market will lead all sectors in the semiconductor equipment space in 2012.

The Information Network recently published its "Metrology, Inspection, and Process Control" report and these are the key findings:

  • KLA-Tencor, Hitachi High Technologies, and Applied Materials led the nearly $5 billion market in 2011 with a combined share of 72.3%, up from 71.2% in 2010.
  • The top 10 suppliers of Process Control equipment grew 27.3% in 2011 and commanded a 92.5% share, up from a 90.6% share in 2010. Companies in the top 10 include FEI (NASDAQ:FEIC), Nanometrics (NASDAQ:NANO), Nova Measuring Instruments (NASDAQ:NVMI), and Rudolph Technologies (NASDAQ:RTEC).
  • The overall Inspection/Metrology/Process Control market grew 26.1%. In contrast, the overall semiconductor equipment market grew 9.3% in 2010.
  • The Overlay sector grew the largest - 69.6% - and KLA-Tencor dominated with a 71.3% share.
  • Not surprisingly, mobile electronics was the driving force for 2011, as NAND customers are investing in leading-edge technology.
  • Semiconductor logic companies are focused on ramping 22-nanometer processors to high-volume and development of at the sub 20-nanometer node.
  • Leading edge foundry capacity remains in tight supply, as mobility markets are driving demand for increasingly complex fabless application processors at the foundries
  • Technology trends driving the market include new transistor and memory technologies, such as high-k in metal gate and thin FET in logic and 3D NAND in memory
  • Moore's Law will propel the Process Control market in 2012 in light of advanced manufacturing problems, particularly at 28nm.
  • To combat low yields semiconductor manufacturers are sampling more wafers during the manufacturing process and making measuring more points on each wafer, thus creating a throughput bottleneck that can only be eliminated by purchasing and utilizing more equipment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.