Most industries experience highs and lows that follow a continuous cycle of emergence, growth maturity, and decline/renewal. That’s not the case for the semiconductor market, which has maintained considerable growth for the past three decades despite weathering recessions, tech bubbles, industry disruption and consolidation, and immense cost pressures as the industry matures. Everybody’s been thinking…how much longer can this growth last?
Semiconductor Trends: 5 year Outlook
In 2016, Frost and Sullivan conducted an extensive survey of major semiconductor manufacturing firms; the results of this survey formed the basis for a recently released report that optimistically projects a combined annual growth rate (CAGR) of 4.5% in materials growth for the next five years. This market consists of all materials sold to manufacturers of semiconductor chips and printed circuit boards (PCBs).
Despite a 3% drop in the market during 2013, followed by a 6% market rebound the year after, the annual growth rate is anticipated to be fairly consistent over the coming period. F&S’s market predictions seem quite reasonable based on the historical trends in pricing and consumption rates, but most significantly anticipates a sharp growth in the Internet of Things (IoT). IoT applies to the network of physical devices embedded with electronics that enable these objects to collect and exchange data. The IoT is smartphones and watches, FitBits, WiFi washing machines, security systems, Nest thermostats, production lines, jet engines, and machine components.
In 2016, the market totals that F&S tracked consisted primarily of semiconductor chips is $22.2 B, though the PCB world is quite substantial on its own at $8.4 B. Most of this market is in Asia-Pacific (ca. 77%), but North America still accounts for a large fraction of the market at 14%. This growth has been largely driven by process improvements such as:
- Transition from 200 to 300mm (and then 450mm) wafers
- Advent of extreme ultra-violet (EUV) exposure technologies
- Increased reliance on ultra-pure gases and chemical mechanical polishing (CMP) process materials – a reliance that is strictly correlated to the size of the wafer
Other materials’ spend rate increases will be caused by the move to EUV, as this new technology will require new materials for photomask pellicles and thicker anti-reflective coatings. New materials will also be required for the back-end (BE) or packaging segments of the semiconductor business. Many BE consumers will be moving to stacked chip modules which will require new and more expensive under-fill and encapsulation materials.
However, F&S also reports that the predicted growth will not be shared by all industry players. . For example, new CMP pad technologies may very well lead to reduced CMP slurry consumption, and thus reduced revenue for slurry manufacturers. Ironically, other changes in pad design may result in longer pad life, which may lead to a reduction in CMP pad consumption.
From a market segment perspective, the big driver for growth in the near future will likely be increased demand for BE encapsulation materials. In 2014, the ratio of semiconductor fabrication materials to encapsulation materials was 61-39%; this is anticipated to drop to 59-41% by 2021, or $16.4B-$11.2B. In fact, between2011-2021 encapsulation materials should show a CAGR of 5.3% versus fabrication materials at 4.1%. This also bodes well for the APAC region, where the majority of BE operations are based. North America, in contrast, will see its share of the semiconductor materials spend rate drop from 2016’s 14% to 10.3% by 2021; in fact, North America’s growth rate as a standalone region will only be 3% over this same period.
Another way to view the market as a whole is to look at who the largest manufacturers are with respect to their percent of the overall customer spend. These Top 3 companies in the semiconductor materials market will come in the next five years from the CMP and gas markets. Historically, this has not been the case, and as such may signal some broad underlying trends in the direction the technology for semiconductor manufacturing will be taking in the near future.