SEMICON Japan 2010

LED Market Entering a Lull?

So, is the red hot LED market about to cool off?

According to DigiTimes, LED chipmakers including Epistar, Formosa Epitaxy and Tekcore expect revenues in September to continue to drop amid dropping demand for TV backlighting, and gross margins for the third quarter of 2010 are expected to drop 4-5 percentage points due to increases in component prices, as well as shortages of such components as sapphire substrates and special gases.

In August, IMS Research estimated that over 300 MOCVD systems were installed in Q2'10 to serve the rapidly growing high brightness (HB) LED market. This segment is benefitting from rapid gains in penetration into the notebook PC, LCD monitor, LCD TV and general lighting markets as well as a healthy subsidy in China. IMS also estimated that LED capacity will need to rise by 352% from 2009 to 2014 to keep up with demand, driving tool shipments throughout the HB LED supply chain.

According to IMS Research SVP Ross Young, "MOCVD is the single hottest category in the semiconductor manufacturing space with shipments expected to rise by nearly 500% in 2010 and to keep growing through 2013. With TVs, monitors and general lighting still early in the adoption cycle and the Chinese government encouraging a healthy LED infrastructure with a generous $1.5M subsidy per tool, this segment should remain hot.

Deutsche Bank and JP Morgan also see the MOCVD market growing through 2011. Canaccord Genuity predicts tool orders to peak in 1H’11.

Part of the reason for the near-term optimism in LED and MOCVD growth was the projected healthy demand from LED TVs. According to DisplaySearch, LCD TV panel makers are targeting aggressive growth for LED panel shipments, with plans to reach 40 percent LED penetration in Q4’10, and to exceed 50 percent in Q2’11. They estimated that Q2’10 vendors have shipped 9.5 million, or 18.5 percent, of the LCD TV panels with LED backlights, which was 110 percent growth quarter-to-quarter.

So what’s with the disappointing LED sales from Taiwan? Accorording to DigiTimes, Epistar indicated that decling September revenues were due to weakening demand for TV backlighting and general lighting, but the company expects revenues to start picking up in October as capacity adjustments for different applications have been completed and production is getting back on track.
Tekcore also believes that its September revenues will drop, while market observers expect the company's revenues to drop by 10-20% sequentially to about NT$200-220 million in September and revenues for the third quarter to increase by 10-12% sequentially to NT$700 million. Furthermore, component supply in the fourth quarter is expected to improve, helping to boost shipments.

Formosa Epitaxy expects its September revenues to drop 10% mainly due to low TV backlighting demand and tight component supply. Although TV backlighting demand may increase due to vendors' launch of new models in the fourth quarter, the small- to medium-size segment will enter the low season.

As the LED market scales to meet higher demand, predicting the point where overcapacity will cause a decline in capital spending and MOCVD tool orders will become an important planning issue for the industry. With over 80 manufacturers of epi wafers, serving increasingly diverse and dynamic markets, capital spending and pricing trends could be volatile for the next few years.

PV Manufacturing in the US and Europe

To fully leverage the economic and environmental benefits of the emerging CleanTech industry, the US and Europe need an aggressive and comprehensive approach to sustain and grow solar photovoltaic manufacturing. Wall Street may prefer the economic efficiency of manufacturing PV products in China with coal-powered electricity for deployment in Germany and California, but a more functional global market for PV would keep manufacturing next to end markets. It’s not the same as ICs; there are good reasons to take aggressive steps to incent manufacturing investments in Europe and the US.

With over 75% of the world’s installed solar PV energy capacity, Europe is the global center of the high-growth solar industry projected to contribute as much 14% of the world’s energy supply by 2030. The US is closing quickly and expected to surpass Germany in PV demand in the next 3 years. But China is now making over 50% of the solar PV cells and modules, creating a dangerous imbalance between supply and demand. It’s dangerous, in my opinion, because it’s not politically sustainable and will contrain technical advancement.

The SEMU PV Group has been advocating for meaningful and effective public policies that support the growth of the global solar industry since its inception. In Asia, we have been focused on advocating demand-side policies to encourage the development of local markets for solar products, primarily in China, Taiwan and India. In 2008, we produced a White Paper entitled, “China’s Solar Future,” a report containing specific recommendations for the accelerated adoption of PV generated electric power. The report stated, “It is important that China occupy a leading position in the demand for solar power, as well as contribute to global supply.” The PV Group made similar appeals in Taiwan and India, also supported by well-documented White Papers. In the US and Europe, however, supply side policies are needed to increase local production of PV products.

Unlike fabless semiconductor development or outsourced discrete electronics manufacturing, PV products are dependent on the continuous improvement of manufacturing process technology and require the close coupling of R&D and manufacturing. New technologies, material sets and recipes identified in the lab, must be developed and validated on high-volume production environments. Long term market success is increasingly defined by the ability to go “from lab to fab.” These requirements compel a strong link between R&D with manufacturing. Loss of the manufacturing base due to poor financial incentives, lack of financing and other policies that discourage plant locations and upgrades in Europe will create powerful incentives for R&D and other key contributors to the value chain to migrate to Asia. That may be good for Asia, but bad for the Europe and US, and bad for fossil fuel reduction.

For Europe and United States, policymakers need to develop programs that seek a balance PV demand with PV supply--and that means policies that retain and grow the local manufacturing base. Building solar cells and modules in one region and shipping them around the world for deployment in another is not an optimal greenhouse gas strategy. Unlike computer chips, there is a meaningful cost advantage to manufacturing solar PV close to where it will be deployed. It makes good economic and environmental sense to leverage this cost advantage through sound public policies that support local manufacturing.

Trade restrictions and reprisals against Asian manufacturers are not the answer and will ultimately harm all manufacturers and global environmental goals. Libertarian rhetoric and calls for “lower taxes and less regulation” aren’t realistic or substantive. The solution lies in recognizing the unique needs and important economic benefits of manufacturing and crafting sound policies that retain and grow manufacturing in the US and Europe.

Photo caption: SolarWorld 500MW Cell and Module fab in Hillsboro, OR

This Rebound is Different

As the semiconductor capital equipment and materials market enjoys nearly unprecedented year-over-year growth, many industry analysts see signs of caution on the horizon. The most recent SEMI Book-to-Bill ratio reached 1.23 (meaning that $123 worth of orders was received for every $100 of product billed for the month) and the three-month average of worldwide bookings jumped 220.4 percent above 2009, but a packed audience of industry leaders heard mixed signals related to 2011-2012 growth at the recent Silicon Valley Lunch Forum.

Bob Johnson of Gartner sees capital spending up over 90% in 2010 and continuing to increase in 2011. He sees, “strength through 2012, then retrenchment.” After reaching $35.4 billion in 2010, Gartner’s current cap spending forecast reaches $37.7 billion in 2011 (6.6% growth) and $40.8 billion in 2012 (8.2% growth). Gartner’s current capex estimate for the 2013 “retrenchment” is $34.9 billion, a decline of 14.6% from 2012 estimates.

Gartner’s current data indicates market strength: IC unit volumes and equipment are surging, driven by strong end user markets, especially PCs and mobile phones. Johnson does acknowledge, however, uncertainty caused by recent company announcements. While global economic recovery is strong, US economic growth is apparently softening and uncertain. He also sees volume declines at the packaging, assembly and test houses, and some indication of inventory increases in the supply chain.

Bill McClean of IC Insights is quick to point out that the current weak US economic recovery is not representative of the overall global market environment. Modest GDP growth in the US, Europe and Japan projected for 2010 should not obscure the robust 7.3% growth elsewhere in the world. China’s GDP is projected to grow 10.6% and India 8.5%, and much of this rising prosperity is driving strong global IC demand.

But McClean does acknowledge, “This rebound is different.” Unlike any other year since 1983, after two down years in capital spending, this year’s capital spending surge will be in the first year of recovery, not the second. Capital spending will increase by a reasonably robust 9% in 2011, but far less than the 93% he projects for 2010. Every year in the modern history of semiconductors the largest increase in capital spending has occurred in year two of the recovery. Does this cap spending trend signal a more modest cyclical decline in 2013, or is the industry entering an era with new spending patterns? Typically capital spending will decline after a 50% increase in capex, but this year’s IC wafer capacity will only increase an estimated 1.6% after an unprecedented 7.6% decline last year (capacity has only declined one year in history). And, 300mm IC fab utilization will reach 98.4%, suggesting the market can easily accommodate the recent increase in capital spending.

Both analysts agree that future cycles will be primarily driven by memory manufacturers. Johnson estimates 41% of 2010 capex will come from memory fabs, versus 21% from foundries/OSATs and 17% from other IDMs. McClean ranks six of the top ten capital spenders in the memory segment, representing 55% of the total spending from these top companies. Memory firms have been most susceptible to the market forces that accelerate super-cyclical swings in capital spending. In addition to the traditional cycles influenced heavily by rising then falling ASPs and fab utilization rates, Johnson suggests that capital spending by memory makers will also not have sufficient net cash flow to fund future capex needs.

The cyclicality—or super-cyclicality—of spending patterns is one of the many challenging and unique attributes of the semiconductor industry. In one of the most demanding R&D industries in the world, the IC supply chain has had to endure radical swings in capital spending while keeping pace with relentless Moore’s Law and stockholder expectations. The rapid rebound from last year’s alarming drop in equipment spending (down to less than $17 billion from a 2007 high of over $44 billion) is a testament to the ingenuity, flexibility and resourcefulness of SEMI members. Whether this PhD-intensive industry can sustain another swift drop in spending remains to be seen, but for the next few quarters, a positive market environment looks certain. Beyond that, well, only time will tell.

Manufacturing and R&D Go Hand in Hand

If you’re making an electronic product with a motherboard than needs stuffing and a final assembly, it doesn’t matter much where you make the product from the company’s perspective. Manufacturing certainly matters when you are talking about national interest and public policy. Here, governments have a strong interest in where large employers put factories, but private interests are just concerned with economic optimization.

For companies, you’re looking for the lowest total cost at guaranteed quality levels and there are plenty of qualified companies around the world capable of performing the function. The long term competitive advantage for most companies is not in manufacturing, but in innovation, design, marketing and other points on the value chain. Manufacturing is a function that can be outsourced, like payroll accounting, communications, insurance and the like.

For most products, there is very little interaction between the factory and product development process so the value of manufacturing location is slight. The calculation is concerned exclusively with the Bill of Materials, assembly costs, shipping costs, quality metrics, and other pure economic considerations.

ICs and solar PV are different. It does matter. R&D and manufacturing are intimately linked and losing one will probably accelerate the loss of the other.

Mike Splinter made this point at the Aspen Ideas Festival when he explained that in our business, “manufacturing isn't just where ideas are put into practice, but a key part of the innovation ecosystem.”

In ICs, how fast you get to the next node, how fast you debug and tape out, how fast you ramp, and how fast to yield will determine your success. Each of these steps requires manufacturing expertise of the highest order. Sure, a lot of chips are made in foundries, but manufacturing remains an enormous chunk of the value chain. There’s not too many fabless companies doing better than TSMC or ASE.

And its not just scaling that is sustaining the value of manufacturing in semiconductors. Since 1975 scaling has delivered around 8000 times improvement in the cost of ICs as transistor feature sizes were reduced from 4 micron to 45 nanometers. Manufacturing efficiencies accounted for another 500 X in cost reduction over this period. Some experts have claimed that technology shrink delivers 30-50% of the yearly cost reduction in chips, productivity improvement brings 10-30%, yield 10-15% yearly (wafer size transition brings another 30-50% cost reduction every 10-15 years.

In this environment, manufacturing capability in inextricably linked to profitability and competitive advantage. You don’t do productivity, yield and cycle time well, you don’t survive. And, if you don’t have R&D deeply engaged in manufacturing, you won’t be competitive.

Same is true for solar. Thin and crystalline solar technologies are similar process technologies to chips. Manufacturing optimization is critical to sustaining long term competitive value. Just a glance at NREL’s tracking of best efficiencies in solar sees a long, steady continuous improvement process. While the NREL data points are from the lab, the process is replicated in the fab; the ability to commercialize incremental efficiency improvements through manufacturing is how, in large part, solar manufacturers’ compete. Having a fab onsite, where R&D engineers can prototype new recipes, troubleshoot new processes, and tweak yield and productivity improvements is an advantage and provides real value.
Large, multi-billion dollar fabs also bring a clustering of best-in-class suppliers to the neighborhood. Specialty gas producers, machine shops, labs, scientific specialties, process technology firms, etcetera, ecetera always spring up around fabs. They innovate too.

So, when Apple builds the iPad at a Foxconn plant in Shenzhen, or HP netbooks in Taipei, is the US at risk of further losing their share of the mobile computing market? Will those companies shift a large portion of their R&D and marketing teams to Asia? Probably not.

But when fabs go up in Asia, PV and IC R&D is probably not too far behind.

Mike Splinter is absolutely right when he says the micro and nano manufacturing is an essential part of the “innovation ecosystem.” The question is whether any of US’s national leaders that flock to the prestigious Aspen Festival really understood him. I know leaders in China, Korea, Taiwan and Japan do.

ASML at SEMICON West

My SEMICON Week

SEMICON West--Intersolar from SEMI on Vimeo.

It’s a Growth Industry…Again

I should be the last person who needs reminding that the semiconductor industry is a growth industry. But then again, I’m not only one who needs reminding.

The chart below from Bill McLean of IC Insights illustrates the underlying, long-term strength of our industry. To use his terminology, “demand never dies, it is only deferred.” From 99-04 (including the dot com crash) chip unit volume increased 9.5%, from 05-07 the market grew 14%, since 2008 a 10% trend line is appearing. Chip revenue growth is also firmly in the growth category. In the 90’s, it grew an average of 14%; from 2001-2007, it grew 9%. This year expectations are that revenue growth will be 28-30%. Industry analyst, Jim Cavello of Goldman Sachs said many times during SEMICON West, “chip growth may go up and down, but it averages 10%.” World GDP growth averages from 2-4%, chip have been more than double that, and will be for as long as we can see.

Rick Hill, CEO of Novellus recently told EETimes, "The way we see the semiconductor industry today is a lot like it was back in the mid-90s," Hill said. "There were fundamental drivers driving the business upward, as opposed to the mid-2000s, where it was more of supply-driven expansion in the industry for semiconductors."

He said that the three main growth drivers in the 90’s were infrastructure, fear uncertainty and doubt (FUD), and the PC and similar forces are at work today. Key forces driving demand today, according to Hill are, Windows 7 and telecom infrastructure, cybersecurity (FUD) and shifting consumer demand (primarily China and India).
My opinion is that there are no longer any dominant growth drivers; there are many growth drivers. There are mobile phones, ipods and ipads, TVs, cameras everywhere, smart autos, smart homes, smart everything . It’s ubiquitous, pervasive demand for all things digital. It’s like food and water—growing with human progress—but a growth industry because chip content in nearly everything that touches our lives is increasing. Its not only about lifestyles, its about life itself as semiconductor technology is embedded in cleantech and climate change mitigation in things like solar panels, smart meters, solid state lighting, and electric cars. We need semiconductor technology not only to live well, but to live period.

Now, the reason we need reminding that we work within an exciting growth industry is because of the mega trends and forces that always seem like they are trying to overwhelm us. One of the trends is super-cyclicalality. It’s hard to enjoy the good times when we’re either recovering from the last slump or anticipating the next one. Another reason is the hyper competiveness of the industry. If you’re not essential—as a person, as a product or company—you’re gonna get optimized out. There’s no room for softness or second best. The industry has been bred to seek and destroy inefficiencies, whether they are costs, process steps or people. We’re a paranoid industry, said Andy Grove, always fearful of the slump, the next cut, the next innovation, or the next big thing.

We may be a growth industry, but sometimes we sure don’t feel like it.

Using SEMICON West to Achieve Member Objectives

The recently-concluded SEMICON West is the center a what seems like a thousand meetings, ten thousand products and hundreds of thousands of exhibitor objectives. Much has been said in press releases, media stories, internal memos and conversations about the show in general, as well in presentations on the record at the Virtual West and in the Powerpoint presentations now posted on the SEMICON west website about the industry, and the technologies and products that comprise our marketplace.

What isn’t so obvious is how much SEMI-- the association, not the exposition organizer—accomplished at SEMICON West. The exposition is not only a platform for exhibitor initiatives and industry news, but also for collective industry interests advanced through SEMI-sponsored events and programs. The list of how much the association does at West to push industry interests demonstrates the difference between a private event organizers and an association event organizer. Our mission is not only to provide exhibitors a great place to build brand, learn about trends and technologies, introduce products, and meet customers, but also to contribute to the collective goals of the industry. We don’t make money from these programs and activities--and they are often hard to do--but they represent the heart of our mission.

I think the list below is an impressive list of activities—all done to support our best understanding of how to meet member needs:

• Advance investor and financial market education through Bulls and Bears presentation, and market data programs
• Held over 80 standards committee and task force meetings—the breadth of industry sectors and subjects are too numerous to count
• Held the annual SEMI Membership Breakfast to introduce new Board Members and publicly discuss SEMI yearly financial results
• Held North American Advisory Board meeting to gain input for SEMI programs and priorities, especially public policy
• Held SEMI LED steering committee meeting to gain input on SEMI global LED activities and priorities
• Conducted first annual PV Fab Managers Forum to bring together solar manufacturers and suppliers to seek common ground and mutual issues
• Hosted the annual Environmental Health and Safety luncheon to reinforce the industries commitment to sustainable business practices
• Updated members on the SEMI public policy programs and lobbying efforts in Washington DC
• Organized and hosted an Import-Export policy discussion with Dept of Commerce at SEMI headquarters in San Jose
• Provided member education through 200 hours of free seminars and workshops
• Held an Energy Conservation Workshop, a Climate Protection Council Meeting, Sustainability Practitioners Seminar, and other activities to assure our industry remains the model for EHS Best Practices worldwide.
• Sponsored industry special interest meeting by the Chemical and Gases Manufacturers Group, Silicon Manufacturers Group, and Collaborative Alliance for Semiconductor Test (CAST).
• Advanced member interests and education on California and Federal energy policy through workshops and meeting attended by government officials, legislators and members
• Helped advance the protection of intellectual property through PAIM III (Product Authentication Information Management) programs and meetings by Secondary Equipment, Services and Technology Group
• Helped improve industry planning and forecasting through the Market Symposium and meetings with SEAJ
• Helped advance science and math education through High Tech University planning and fundraising

I know I missed a few things. Can you help me remember?

Printed Electronics at SEMICON West

Best of West Award

One of the fly-on-the-wall pleasures I get from helping manage SEMICON West is the unique ringside seat I get for the “Best of West” awards. We created the award a few years ago to recognize “important product and technology developments in the microelectronics supply chain.” The judges include some of the brightest minds in the universe and it’s a thrill to hear them to discuss the merits of various submissions.

Join me to announce the winner during a special ceremony on Wednesday, July 14, 2009 at 1:00pm (TechSITE North, North Hall, Moscone Center).

This year’s finalists are:

-JVX7200™ SiGe Metrology Tool from Jordan Valley Semiconductors Ltd. combines advanced high-resolution X-ray diffraction (HRXRD) and X-ray reflectivity (XRR) channels to provide composition, thickness, strain, relaxation characterization and metrology for epitaxial layers such as SiGe and SiC, which are required for strained silicon processes. Additionally, the XRR channel can provide valuable information on other thin-films, such as those found in high-k gate stacks. The tool is capable of providing rapid, in-line measurements and analysis on both blanket and product wafers.

-VHX-1000 Digital Microscope from Keyence Corporation is the first system that integrates the functionality of stereoscopes, metallurgical microscopes, measuring microscopes and scanning electron microscopes into an all-in-one imaging, measuring and report-generating microscope. The VHX-1000 has the ability to quickly and easily capture fully-focused, high-resolution images for analysis, providing solutions for some of the most common difficulties in modern material inspection.

-NSR-S620D Ultra-High Productivity Immersion Scanner from Nikon Corporation incorporates the Streamlign platform and a 1.35 numerical aperture lens to satisfy the aggressive demands of double patterned lithography at 32 nm, with extendibility to 22 nm applications. The S620D targets 200 wafers per hour, maximizes yield with 2 nm overlay and superior CDU, and enables rapid installation.

A disappointing aspect of the Awards is how few exhibitors take advantage of the free opportunity. The only serious requirement is that it must be a new product introduced this year. It amazes me that so many exhibitors--big companies with living, breathing marketing staffs--don't submit an entree. Its not that they don't have new products; I see their press releases, websites, hear from analysts, and see their presentations at other industry events.

Maybe they are just afraid to lose (entrees are confidential)? Maybe they are too busy preparing Powerpoint presentations, going to meetings, and immersed in booth planning details. I don't get it. If I had a new product that people sweat blood and tears to develop, and spent money to promote it at a trade show, I would be livid that no one could take the time to enter it into the Best of West award program.

What Happened to the Future?

For many people, especially those in United States, the future is decidedly less appealing than it once was.

The idea of the future as more bountiful, more peaceful, and more enjoyable than the past has been fundamental to most people’s outlook and perspective. It drove our careers, it gave us confidence to invest in families, in homes and education; and made many of us less cranky and more enjoyable to be around. We would live better than our parents, who lived better than theirs. Progress was inevitable.

Technology was a big part of this expectation. In the US, the mission to the moon gave birth to an entire generation of engineers and scientists who grew up believing nearly anything was possible. We directly and personally experienced technology’s progress in communications, entertainment and industry. We remember big, clunky black and white TVs and expect louder, larger, flatter, thinner, brighter, 3D TV in the coming years. We remember vinyl records and how impossible it was to create a playlist or carry around a thousand songs. We remember Pong and grew up with computers that got better every year. We even saw them turn into phones. We saw the Internet go high def and wireless, and technology become fashion accessories. Not only would our kids live better, easier lives, they would be smarter and cooler too.

Of course, the economic backdrop to all this progress was not entirely good. Japan lost a decade, middle class incomes in the US would stagnate for nearly a generation, and Western Europe GDPs would slow to a trickle. But the advance of technology would at least make it all more enjoyable: better movies, better cars, more friends in better touch. Economic statistics didn’t seem to correlate with obvious, tangible improvements to our quality of life that was as conspicuous as flat screen TVs, smart phones and 3D movies.

Yet today with an oil spill out of control in the Gulf of Mexico and global warming apparently beyond the scope of civilization’s grasp, the future—and the future of technology-- is not looking especially bright. Progress itself seems threatening. While chips sales are booming, it’s Asia that’s prospering. Silicon Valley’s unemployment rate is among the highest in the nation. A recent Department of Labor report estimates that the semiconductor industry will lose one-third of its jobs in the coming decade, the second worst employment sector in the country. We don’t see a next-big-thing on the horizon and jobs in technology are moving overseas faster than you can say CLEANTECH.

Of course, this isn’t really an accurate description of the state of the future. It’s a US perspective and technology doesn’t really care about borders. Silicon Valley remains the epicenter of venture capital funding and no one seems remotely challenging Intel, Apple and Cisco—not to mention Google, Facebook and Twitter. Chip sales are booming not because of Y2K, or Windows 7, or the adoption of smart phones by US road warriors. The technology world today rides on the rising tide of the global consumer, a consumer that’s increasingly from India, China, Russia and a hundred places in between. It’s not about the US anymore.

And, he future’s not about less electronics, its about more. The coming energy crunch is not going to put us in caves, its going to be solved by PV, solid state lighting, thin film batteries, and high tech energy harvesting and other microelectronic innovations. Chips are going to power smart grids, electric cars and other essential components of a cleaner, safer world.

Now, who going to specifically benefit from these products and innovations is another story. It won’t be a factor of where you live. It’s a small world and a flat world--and if you’re not smart enough or clever enough, or industrious enough--it’s going to be a cruel world.

The ebb and flow of the technology industry today is not being driven by Fortune 500 IT spending or the latest high priced gadget for that tiny group of mobile executives, its about hundreds of millions of people leaving poverty and joining the urban workforce. It’s about the ubiquitous place that technology has in the lives of average people in Cairo, Mumbai, Chengdu and Johannesburg.

There’s plenty of things disfunctional in the US political economy today, but it doesn’t have anything to do with technology. There’s no use blaming other companies or other countries for not playing fair or having low wages. The US chooses not to have a robust pro-technology policy. The federal government chooses not compete for fabs or with other countries in various technology sectors. It could, but does not. And I’m not sure it really matters to the vast majority of the human population whose lives are enhanced by microelectronics, or the infinitesimally small percentage of people whose brains and brilliance enable the industry to grow and prosper.

If you have a global perspective, if you have a human perspective, “the future” may never look as promising as today. And chips, solar, LEDs, and other advanced technologies have played and will play an enormously central role in that human progress. And that’s a good thing, no matter where you live.

The Center of Gravity os Changing--PricewaterhouseCoopers

“The center of gravity is changing. The only question is how fast…”

This was the theme of the presentation given to the SEMI Sales and Marketing Council (SSMC) at last Tuesday’s lunch meeting by Raman Chitkara, Sr. Partner at PricewaterhouseCoopers, the world’s largest professional services firm.

As part of our regular monthly networking lunch, SSMC often has outside speakers join the group to share their perspective on important industry issues. This month we were extremely fortunate to welcome Raman Chitkara who has had a ring side seat in the key developments in Silicon Valley, and an insider’s knowledge of many of the leading companies in the semiconductor industry. He’s also leading expert on CleanTech, having been a principal leader in PwC’s informative “CleanTech Comes of Age" report. Raman is also one PwC's experts on China as leader of the "China's Impact on the Global Semiconductor Industry" report.


The center of gravity that Raman refers to is geographic. The move of high tech industries to Asia has been relentless. “As US companies extend globally, they spawn indigenous technology companies,” said Raman. Of the 29 firms that went IPO in the Q1 of this year, 1 was on Germany’s exchange, 3 on NASDAQ, and 24 were in China. The China firms raised over $2.5 billion.

The growing importance of emerging markets is part of this shift in gravity, not just in production, but consumption as well. The growing middle class in BRIC countries is driving world chip demand. Even during the recent semiconductor downturn, electronic systems manufacturers in China continued to increase their consumption of semiconductors at a rate three to five times the worldwide rate. As a result, China is remains the largest consumer of semiconductors for the fourth year in a row. In the past, much of this consumption was from US, Japanese and other global OEMs, now it is increasingly dominated by China electronic manufacturing firms with local sourcing authority. Raman sees China chip manufacturing sector to continue to grow, especially if the success of other international fab ventures continues.

The other major shift in the IC industry discussed by Raman was consumerization—not just in total chip consumption—but the fact that new technologies now appear first in consumer markets, not in business IT. Among the impacts this brings is the decline in vertical integration. “How can you sustain competitive advantage when everyone can get the same chips?” Apple is focusing on software differentiation with emphasis on only a few key components.

Raman sees a convergence of software and hardware services—complete solutions that allow companies to achieve dominant market shares. But he admits, “the rules are still being written…”

Another important impact on SEMI members will be he transition from US GAAP to International Financial Reporting Standards (IFRS). China will make the change to IFRS in 2011, well before the US in 2013. Among this IFRS impact will be on leasing and capital equipment purchasing.

Intel International Science and Engineering Fair

The Intel International Science and Engineering Fair is the world's largest pre-college science fair competition. Each year, more than 6 million young scientists from around the world vie to attend and 1,500 are selected as finalists to share ideas, showcase cutting edge ideas and compete for over USD 4 million in awards and scholarships. To judge the projects, more than 1,000 science, engineering, and industry professionals volunteer at the Intel ISEF.

On May 14, 2010, Amy Cindy Chyao won first prize at the Intel International Science and Engineering Fair when she was awarded the Gordon E. Moore Award and a $75,000 college scholarship. More than 500 Intel ISEF competitors received scholarships and prizes for their innovative research.

Check out their website and prepared to be inspired.

Something for Everyone at SEMICON West

Six years ago, SEMICON West was an exposition with a few keynote speeches. There were some SEMI International Standards meetings, a president’s reception and many non-affiliated, off-site meetings by vendors, magazines and other organizations, but few technical or business programs designed to attract specific constituencies.

Today, there’s about 200 hours of business and technical programs formally held in conjunction with SEMICON West. These include free, on-floor TechXPOT sessions, paid technical conferences, and several programs by partnership organizations that SEMI actively supports and promotes. Some of these new programs address exhibitor demands for more on-floor show traffic, or more technical buyer attendees, but the overarching motivation is to serve specific industry segments with meaningful and practical environments in which to collaborate. Some of these collaborations are focused on selling, some are for learning, and some are to facilitate agreements between industry players.

As show organizers, our goal is first to identify specific constituencies that share common information needs, interests or issues. This isn’t as simple or straightforward as it sounds. Companies, titles, subjects and issues overlap. Perspectives on subjects like 22nm and 3DIC include materials and equipment suppliers, buyers and process developers, engineering specifiers and purchasing/supply chain managers. The deeper and more in-depth you get on a topic the narrower the audience; the broader the coverage of a topic, the less technical. At West, our goal is not to compete with narrow technical conferences, but bring key buyer/seller/specifier communities together in a practical way.

How we do this can be seen is in the programs and how they align to important market segments. Here’s the plan so far:

Advanced wafer processing
http://www.semiconwest.org/Segments/Semiconductor/index.htm

Packaging
http://www.semiconwest.org/Segments/Packaging/index.htm

Test
http://www.semiconwest.org/Segments/Test/index.htm

3DIC
http://www.semiconwest.org/Segments/3DIC/index.htm

MEMS
http://www.semiconwest.org/Segments/MEMS/index.htm

LED
http://www.semiconwest.org/Segments/LEDs/index.htm

Printed/Flexible Electronics
http://www.semiconwest.org/Segments/PFE/index.htm

Have we missed anything? What would you recommend? I'd love to hear your ideas.

SEMI Sales and Marketing Council

SEMI Sales and Marketing Council (SSMC) from SEMI on Vimeo.

Printed Electronics in Europe

I had an interesting speaking opportunity this week at the Printed Electronics Summit in San Jose where I gave an overview of the European landscape for organic and large area printed electronics (with the volcano constricting travel, I got the European slot).

What I knew, but what I was surprised to see so pronounced, was the scale of European excitement and support for printed electronics. The comparison with the US is not complimentary.

Today, Europe enjoys the world’s largest and most well developed collection of companies, research institutions and government programs engaged in printed and organic electronics. The ecosystem is well organized, well connected and well positioned to prosper from current trends or any breakthrough applications that may develop.

First, the R&D infrastructure in Europe is active, comparitively well funded and well established. Three Fraunhofer institutes, The UK’s The Knowledge Network, Belgium’s IMEC, France’s CEA/Liten to name a few all have active research programs in organic and printed. VTT, the Research Centre of Finland is very active in this area. It has a division called Printocent to create business in Printed Intelligence applications with a program budget is in excess of 10MEUR.

InnovationLab is an application-oriented research and transfer platform of business and science in the Rhine-Neckar Metropolitan region of Germany. It was jointly founded by the six globally active companies BASF, Heidelberger (the largest printing press manufacturer), Merck (leader in organic chemicals), Roche Diagnostics, SAP, and the universities of Heidelberg and Mannheim.

There many other R&D institutions and players in printed and large area organic electronics—in Portugal, Poland, Greece, and many other locations. I’m sure there is university research in the US, but not as this scale and not with this level of organization.

Europe’s printed electronics community is also extremely well organized. The Organic Electronics Association (OE-A) is a working group within the German Engineering Federation (VDMA). Members range from R&D institutes, component and material suppliers to producers and end-users. It is currently comprised of about a 120 companies from Europe—with a few from North America, Asia and Australia. They have produced roadmaps and provide industry advocacy and promotion.

The Plastic Electronics Foundation, based in Brussels, is a not-for-profit organization whose main objective is to promote the technology of printable, organic based flexible electronics into marketable applications and products worldwide. They have been key contributors to the development of a Strategic Research Agenda for Europe as well as a key player in EU funding projects.

Concerning current government support and programs, FP7 is the short name for the Seventh Framework Programme for Research and Technological Development. This is the EU's main instrument for funding research in Europe and it will run to 2013. In printed electronics, research funding is concentrated in organic electronics, under the name, The Quadriga Project, though it has about 20 other projects not affiliated with Quadriga. The 4 projects that form Quadriga are OPERA, Polynet, Polymap and Prodi. The main and common objectives of all four collaborative projects are to foster the position of Europe as a leader in research, and to strengthen the position of Europe as a main hub in this area.

And finally, in addition to R&D infrastructure and government support, Europe also understands the power of regional clusters. Regional areas in Oulu, Finland; Basil, Switzerland; Dresden, Germany, Cambridge, UK; and the German states of Hesse and Baden-Württemberg has funded organizations and activities that actively seek to nurture the development of printed and large area electronics within a close municipal region.

Whether this widespread European network of activities can compensate for the presence of large integrated companies in Asia (Panasonic, LG, etc.)and US (GE) remains to be seen. Also, Europe also does not enjoy the advantages of an active venture capital market like the United States.

But it does look like a rational, purposeful and coordinated policy to position Europe as a leader in an emerging technology industry. In the US, unfortunately there is no rational and coordinated policy to support existing and future high technology industries.

In Loving Tribute To Jean LeMoin

I usually don't repost things I recieve, but this was an important notice from the MCA Team that deserves all the honor and respect I can give.

Jean LeMoin
1956 - 2010

Dear Colleagues and Friends,


It is with great regret that we announce the loss of MCA's founder and president Jean LeMoin, who passed away suddenly on May 3, 2010. A true trailblazer in the communications field, Jean founded MCA in 1983 as a one-woman shop and grew it into a highly respected boutique agency specializing in the global semiconductor, flat-panel display and microelectronics industries.

Jean launched MCA with an initial focus on semiconductor equipment and materials - one of the first agencies to do so - drawing on her marketing communications experience in the industry to build her client base. Over nearly three decades, Jean and MCA have influenced the industry outlook on many important subjects, launching game-changing technologies and creating new opportunities for outreach and dialogue. In 1994, VLSI Research Inc named her to its Chip Industry Hall of Fame for "pioneering the concept that a PR agency is a mechanism for managing a company's image across a broad front… creating an image that is cohesive with the media, customers, and the financial community." This vision remains a hallmark of MCA's approach.

A believer in giving back to the community, Jean sat on the boards of several industry associations, as well as such non-profits as Ronald McDonald House, the Support Network for Battered Women and Rubicon - organizations to which she also donated agency time in order to help reach those in need.

Those of us who knew and worked with Jean will remember many things about her - her keen mind and technology savvy, her love of the arts and good books, her affinity for Oprah and chocolate, her humorous stories about her exploits with best friend and life partner Kevin McCoy, how she always drank Diet Coke from a wine glass and never put croutons on her salad… Jean was a unique and fascinating personality, and the mark she has left on the communications profession, and our lives, is indelible.

To honor her memory, the Jean LeMoin Women in PR Scholarship has been created to enable a deserving student seeking a career in public relations or communications to pursue her dream. As a respected mentor to young PR professionals throughout her career, Jean's wish was for this effort to continue on. If you are interested in making a donation, please send your contribution, payable to The Jean LeMoin Women in PR Scholarship Fund, to MCA, 2119 Landings Drive, Mountain View, CA 94043.

On The Disappearing High Tech Trade Press

The demise of Semiconductor International is a major loss for our industry. Our ability to interact and communicate within the supply chain, network and align around key issues and challenges, and just enjoy this fascinating and rewarding business has been seriously damaged. My best wishes go out to all who lost their jobs at SI and I sincerely wish them the best of luck in their future careers.

From a personal point of view, the Reed announcement also hurt since I have had experience placing ads and editorial in several of the discontinued Reed books over my 25 years experience in high tech advertising. I began in the control components and automation industry and placed many ads in Business Design and Construction, Modern Materials Handling and several other of the Reed books to close.

The Reed closures are part of the long-running contraction of business journalism, especially high tech trade journals. There are many reasons for the pervasive decline of the high tech trade press. It’s been my opinion that the one the top reasons—perhaps the top reason—is the incompetence of marketers and their advertising and PR agencies. Especially in high tech, years of ineffectual and amateur work by marketing professionals—and smooth-talking graphic design houses that bill themselves as agencies--has ruined the tech trade media for the handful of professionals who actually know what they are doing.

There was a time when engineers read and valued trade journal advertising. They read ads, just like editorial, looking for solutions and information that would help them in their jobs. Thousands of trade magazines prospered in hundreds of industries because they met the needs of buyers and specifiers. Trade journal advertising could easily be justified by return on investment, proven through cost-per-leads, surveys, and new customer acquisition. Bingo card leads resulted in sales, and products that claimed to be “faster, better, cheaper,” in trade journal ads could steal market share.

That was, of course, before the Internet emerged as a business medium. The bingo card lead system evaporated. The monopoly of trade journals, trade shows and direct mail over mass customer communications was broken. But awful marketing and misuse of the print ads was a powerful factor in the demise of trade journals, especially high tech.

The Internet came about during the go-go nineties when tech was king, business was good, the stock market rising, and young marketers got in control of some serious budgets. With hype fueling the IPO market, so-called image advertising started dominating the tech-rich trade journals. Ad agencies started pushing consumer advertising concepts to inexperienced and ego-driven marketers because they didn’t need to understand the complexity of engineering buying decisions. Complicated technical arguments became reduced to Unique Selling Propositions, communicated through metaphor, similes and graphic design. Word counts were reduced and charts, graphs, and specs were banned in favor of cleverness and attitude. When business was good, agencies refused to do engineering-ads because they didn’t win awards, attract other clients, and appeal to non-technical business people. Marketers who didn’t really understand their products joined forces with savvy, hard selling ad agencies to dumb-down tech advertising, insulting technical buyers who needed substantive, meaningful information from their trade journals to justify their time. Focus groups became obsolete because technical buyers refused to endorse clever creative concepts that were soft on technical why-to-buys and fat on hipster attitude.

During the nineties, the tech trade journal world exploded. Books like Fast Company and Wired became fat with ads from networking gear, chip companies, embedded stuff, and middleware, and other classic high-high tech. Hot shot Internet start-ups and trendy tech brands like Apple set the standard for marketers and agencies, eliminating the complex "techee" engineering ad from the high tech press. No marketer or agency would ever get caught with a specification chart or performance graph in their ads—it was about brand or positioning or Unique Selling Proposition told through metaphor or wordplay. The recession-proof New Economy was running on all cylinders and everyone was riding the wave of historic stock market highs. The best and brightest marketers gravitated to companies with an IPO track or with large advertising budgets to make a name for themselves touting Proctor and Gamble-like brand management concepts, shouted about with big dumb clever ads that captured a position, a mood, or attitude (but not a rational, well reasoned technical argument supported with facts for buying a product). Times were good for agencies and marketers in high tech--you could make good money without knowing anything about technology.

Of course, the dot com bubble burst, scorching the tech advertising landscape like a nuclear winter. Without any rational justification for soft image advertising—without any metrics or case studies of success--the floor dropped out of the print advertising medium. There were no more sophisticated faster-better-cheaper advertising left. Techee ads for engineers by engineers were drummed out of the business. Trade journal readers stopped looking at ads as a source of useful information. Real buyers stopped renewing their subscriptions. An entire generation of marketers and agencies never learned how to use print advertising wisely, spending their time lamenting the emergence of the Internet and hustling their inappropriate, outdated dot-com or consumer creative concepts to the few remaining big egos left with an ad budget. Gen x graphic artists with community college degrees are still calling the creative shots at supposed high tech agencies. The vast majority of people responsible for marketing and selling of products to engineers have moved on from trade journals. See ya, it was good knowing you, fun while it lasted.

From my perspective (without any statistics, just observations)--as part of the fall out from the dot com damaged, tech marketing collapse--high tech B2B marketing seems to have evolved into two career paths: product marketers who manage BOMs and perform project scheduling and management functions; and marketing communications who are younger, lower level positions responsible for web, PR and collateral work. Both paths find it real hard to jump to the VP level and have a big impact on their organizations. VPs of sales and marketing invariably rise up from the sales ranks, further diminishing the role of classic marketing on the high tech industry. The result is a withering of marketing’s influence in high tech industries, further diminishing the role of the high tech press.

The more profound impact, however, on the decline in marketing in high tech has been a rise in product commoditization, killing margins, killing profits and fueling merger and acquisition activity. Commodities emerge from the inability to meaningfully differentiate a product and that’s what marketing is really all about, not big, soft, dumb brand advertising.

A Level Playing Field in SSL?

I had the great opportunity to speak on behalf of SEMI members at last week’s Department of energy (DOE) Solid State Lighting Manufacturing Workshop. The workshop provided information on the first round of DOE-funded manufacturing projects, engaged attendees in technology roadmap priority topics, and provided an update on federal funding opportunities. Last year, the DOE awarded SSL funding to SEMI members Veeco, Applied Materials, KLA-Tencor, and Ultratech for LED manufacturing research funding.

I spoke on the workshop’s final panel to address U.S. manufacturing equipment and infrastructure needs, a public policy discussion. Last year’s $23 million in manufacturing funding was enabled by the stimulus bill; this year the administration has requested a total funding level of only $26.8 million to include basic R&D and manufacturing.

The main objective of my presentation was to recommend a funding level of $20.0 million for SSL Manufacturing Improvements Program to sustain the funding level provided in the 2009 American Recovery and Reinvestment Act (ARRA). The Obama administration has requested a DOE Fiscal Year 2011 budget of $28.4 billion—the idea that less than 2% will go to SSL is a national disgrace. No other goverment activity will probably displace more foreign oil than SSL support over the next decade. Today, 22% of the nation’s electricity is used for lighting. The DOE projects that by 2030, nearly all residential, commercial and outdoor lighting will be replaced by solid state lighting, reducing energy consumption by 50%.

The US funding level is an embarrassment, and reflects the huge gap between political rhetoric (“America can be the 21st century clean energy leader by harnessing the power of alternative and renewable energy…”) and political action. While significant investment is goes to well-connected, 19th century industries like agriculture and banking, the opportunity to meaningfully participate in 21st centuries in being ceded to China and other well-governed, observant countries.

I based my argument for increased manufacturing funding by the DOE on the fact that the US share of capital spending in LEDs is only around 5% and the only way to positively impact manufacturing jobs in LEDs would be to assist US semiconductor equipment and materials manufacturers with a transition to LED manufacturing expertise. I explained that LEDs are based on semiconductor technology and to sustain the current US contribution to global LED manufacturing is to assure the continued strength of equipment and materials companies.

Sustaining, not growing, the US role in the mega-shift to SSL is about the best we can hope for. There are no LED fabs planned for the US. The Department of Labor estimates that semiconductor manufacturing is projected to lose 33.7 percent of the 432,000 jobs it had in 2008, an industry sector decline second only to department stores. Many of these jobs can transfer to LED and solar manufacturing.

China's investment and financing for clean energy rose to $34.6 billion in 2009, out of $162 billion invested globally, according to the report by the nonprofit Pew Charitable Trusts. U.S. spending ranked second, at $18.6 billion, with European nations also recording strong growth. U.S. spending on renewable energy fell 42 percent in 2009 from the year before, constrained by tight credit and the lack of a strong policy framework, the report said. It is likely to rise faster this year, helped by the enactment in 2009 of production tax credits for wind energy and investment tax credits for solar power, but with climate change legislation stalled in the U.S. Congress, the outlook for faster growth remains uncertain.

In terms of clean energy investment relative to the size of its overall economy, China ranks third in the G-20 at 0.39 percent, well behind Spain, which leads at 0.74 percent. The United States, at 0.13 percent, was 11th, the report said.

Don’t assume that just because cleantech manufacturing is moving to China that the US can retain lucrative R&D jobs and spending in the US. ValueNotes, an India-based business intelligence and research provider, stated that "According to the Chinese government statistics, about 750 R&D centers (foreign-funded) exist in China, located primarily around Shanghai, Beijing and Shenzhen." During the last decade, there has been an over 75% growth in employment of research personnel in China to reach close to one million (compared to about 1.3 million total researchers in the U.S.).

During the question and answer session, an audience participant suggested it was an “unlevel playing field.” I replied that the playing field was perfectly level, but unfortunately the US was simply refusing to play.

Africa's First Fab

Congratulations to Nemotek on becoming Africa's first Class 10 clean room semiconductor operation. Looks like a nifty, well-run outfit. Nemotek Technologie, based in Morocco, manufactures customized Wafer-Level Cameras (WLC) for portable applications such as mobile phones and laptop computers.

Nemotek from Nemotek Technologie on Vimeo.

Grace Semiconductor Manufacturing: Marketing Trumps Technology?

Dr. Ulrich Schumacher, CEO and president of Grace Semiconductor Manufacturing, provided a standing-room-only audience with detailed insights and plans into the IC foundry’s strategic priorities and technology mix as part of the keynote address at SEMICON China.

I found the presentation fascinating as a description of some massive marketing challenges for semiconductor firms in an era marked by widely variable manufacturing capabilities.

Dr. Schumacher’s presentation, entitled, “China Foundry’s Opportunities
In a Recovering Market” began with an overview of the China chip gap that underlies the long-term expectations for chip manufacturing in the world’s most populated country. While China became the world’s largest IC consumer in 2007, for the foreseeable future China will be able to produce less than 20% of its total demand. The resulting chip gap underlies what some people think will be continued government support for SMIC, Grace and other companies (the US prefers to “support” the low tech industries of banking and agriculture).

Dr. Schumacher gave the audience a generous overview of Grace’s business operations and history. He said the company has already seen revenues rebound to Q3 2008 levels and forecasts all time quarterly revenue levels in Q1 and Q2 2010. The company’s customers are widely distributed by regions (over 50% of revenues from US, followed by China and Taiwan, each contributing 16%), and by technology: logic (44%) memory (16%) and embedded flash (10%).

Like many semiconductor manufacturing companies today, Grace has no intention keeping pace with Moore Law. They aim to excel with a technology portfolio designed to meet a targeted selection of applications in the consumer, communication, computer, and automotive applications. According to Dr. Schumacher, achieving the low cost position in profitable value-added niches still requires consistent technology innovation and capital investment. It also requires, “highly effective technology transfers based on partnerships and services along the value chain".

To explain the Grace strategy, Dr. Shumacher provided detailed market size, growth and technology trends for key application segments, including microcontrollers, SiGe/RF, SmartCards, touch panel controllers, LED drivers, and power management. The target applications drive a Grace technology portfolio that includes geometries of 0.35µm, 0.25µm, 018µm, 0.15 µm, 0.13 µm, and 90nm. Complimenting the mix of geometries are dedicated technology platforms for NOR, EEPROM, embedded Flash, SiGE, and PowerMos optimized for fast time-to-production, yield and cost.

Like many IDMs and fab-lites, Grace has developed a More than Moore technology strategy that is based on complicated market specialization and segmentation. For companies like Grace—and I think the same situation exists for TI, NXP, Infineon, STMicro and others--financial success with this model will be based not on technology or timing massive capital outlays but on very sophisticated marketing. All the key components in the business strategy are essentially classic marketing problems, such as target market identification and sizing, customer needs analysis, competitive analysis, pricing, etc. The business problem has little to do with technology; many companies have the capability to design and manufacture (through foundry or in-house) mid-tier ICs in top computer, industrial and consumer applications, but few can do so profitably for a sustainable period of time.

Increasingly, companies with semiconductor manufacturing assets will have to target specific niche markets to survive. They will have to make very judicious decisions on capital spending and R&D. Maybe these decisions will take the form of Moore-1 or Moore-2, signifying how far off the pace from leading edge Moore’s Law capabilities a manufacturer prefers to operate. Financial health in the mid and low tier IC markets will be driven by margins and capacity decisions that will change quickly overtime. Challenges will always arise as the niche applications reach volumes that allow next node production enabling steep price declines, or during downturns when other foundries will more aggressively compete on price. With a portfolio of production platforms, companies can compete by selectively adapting their niches to keep ahead of competitors and sustaining healthy margins. To do that well, a gutsy commitment to marketing seems a necessity. And, for an industry that shown a high tolerance for technology risk, a business strategy dependent on smart marketing seems like a healthy step forward.

SEMICON-SOLARCON China 2010

What the LED Industry Can Learn From Semiconductors

I had the great opportunity to talk about SEMI and the LED industry at last week’s SEMICON China (see picture, standing room only). LEDs are the fastest growing semiconductor technology in the world right now (faster than PV). The market is projected to triple to $20 billion by 2013, and that’s just when the mega markets in lighting begin to open up. Currently, lighting consumes about 20% of the world’s electricity and solid state lighting (SSL) can reduce that by 50%. In other words, SSL is the most important energy conservation technology likely to make a big impact on our carbon footprint over the next decade.

The title of my talk was “Moore’s Law and Haitz’s Law and their Importance to Our Energy Future.” Everybody in the chip industry knows Moore’s Law, but Haitz Law is new to many semiconductor folks. Named after Dr. Roland Haitz, a now-retired scientist at Agilent Technologies, Haitz’s Law states that every decade, the cost per lumen falls by a factor of 10 and the amount of light generated per LED package increases by a factor of 20, for a given wavelength (color) of light.

Like Moore’s Law, Haitz's Law is an observation and prediction about the steady improvement over the years for LEDs. It is not based on physical science or natural law that can be observed in nature and proven by experiment, it a mere expectation of a learning curve or process optimization that will take place over time. It is my opinion that for Haitz Law to continue to be realized--like Moore’s Law in semiconductors--effective industry collaboration will be required.

I made my case by comparing semiconductor manufacturing technology of 1975 with LED manufacturing today. Both industries shared the following characteristics:

• Manufacturing was accomplished by highly proprietary processes using customized or highly modified equipment.
• Different wafer sizes and geometries were widespread (no standards)
• Throughput was only 50 wafers per hour
• Yields were low
• And Equipment Productivity was a challenge

In 1975, Moore’s Law had been realized for twenty years by individual companies, each working independently, without the benefit of technology roadmaps and industry standards. But by 1991, technology roadmaps and SEMI International Standards were essential to sustaining Moore’s Law.

The LED industry has been achieving the pace predicted by Haitz Law to the present time without any industry collaboration, such as technology roadmaps and standards. This is about to change. According to many experts, efficiency gains in lumens per watt will be slowing and limited to approximately 2x improvement before reaching their limit. Cost reduction goals according to the Department of Energy to reach large SSL markets, however, will require a 20X improvement. The performance of white LED devices depends on both the correlated color temperature (CCT) of the device and, to a lesser extent, on the color rendering index (CRI). We are beginning to approach what are perceived to be the practical limits of these parameters. Further cost reductions must come from manufacturing improvements in yield, productivity, throughput and other cost reductions.

The conclusion of my talk was that from what we know from the semiconductors and sustaining Moore’s Law, to continue to achieve cost reductions predicted by Haitz Law, highly developed forms of industry collaboration, such as technology roadmaps, industry forums and industry standards will be required.

Currently, no such industry collaboration activities are underway in the industry. Manufacturers of HB-LEDs are often vertically integrated and extremely protective of their intellectual property. Participating in standards activities, roadmaps and organized supplier dialogs are seen as a threat to the highly proprietary processes that enabled today’s market positions. In addition, everybody in the industry is dealing with enormous demand—including reported shortages in MOCVD tools—to meet today’s demand driven by LCD displays. No one has time.

The PV industry was similarly skeptical of organized industry collaboration 2 years ago, yet today discussions on industry roadmaps are beginning to take shape and standards activities are well underway (there are now 22 SEMI International Standards committees, working groups and task forces established with over 400 participants).

We are only at the beginning of a massive SSL market explosion expected to burst in around 4-5 years. To reach the cost reduction targets for commercial and residential lighting markets some of these issues will have to be addressed. And the social benefits and goals are hugely important and go beyond the interests of any one company. Large scale penetration of SSL in the US alone can replace up to 200 coal fired power plants, spewing tons of CO2 emissions.

To begin the process of industry collaboration and break down the walls of secrecy and suspicion, SEMI has organized a HB-LED Steering Committee to search for ways of achieving meaningful, effective collaboration. For more information on the Committee and what SEMI is doing in HB-LEDs, email me.

Winner Take All

I had the great opportunity to see the induction of Mr. Richard Elkus into Silicon Valley Engineering Hall of Fame of last week. He currently serves on the Boards of KLA-Tencor and Lam Research. The award celebrates the accomplishments of engineers in Silicon Valley who have demonstrated outstanding professional achievement and have made significant contributions to the Silicon Valley community. Past nominees included William Hewlett, David Packard, Gordon Moore, Steve Wozniak, Ken Levy and TJ Rodgers. Stan Myers was recognized in 2008 and another former boss, Bob Frankenberg, was selected to the group in 2001.

Previously, Elkus was Co-Founder, Chairman and CEO of Prometrix Corporation, which revolutionized the concept of computerized wafer mapping that is now fundamental to the analysis of wafer development and production in the semiconductor manufacturing process. Prometrix merged with Tencor and later with KLA, becoming KLA-Tencor. He spent his first 10 professional years at Ampex Corporation, where he headed the team that introduced the VCR in September 1970.

In preparation for the evening, I quickly read his book, Winner Take All, which thoughtfully explains how industries develop and how nations, not just companies, compete. Over the past thirty years, the United States has basically surrendered entire industries to Asia. Americans no longer make cameras, TVs, MP3 players, computers, cell phones, or DVD players, and increasingly semiconductors. The conventional wisdom behind this loss of industries is cheap labor costs, but the real reason is American economic policy. While Asian leaders develop and nurture high technology industries because of the spillover benefits to the economy and society, US policy makers disregard and ignore it. “Economic planning” is treated as an anathema by US policy makers, somehow akin to the failed Communist economic planners of half a century ago. Rather than ensure the growth of productive and healthy industries like high tech, US policy makers campaign on “free markets” while rigging favors for political insiders and campaign contributors.

The US has an economic plan, it’s just not rational. We spend trillions on nineteenth century industries like agriculture and banking, and let high-paying jobs in high growth industries leave for Asia. Unfortunately, high tech innovation may just follow high manufacturing overseas, forcing the US try to sustain itself on service industries alone. Unless you’re a banker huddled in well-financed bunker in NYC, this isn’t a policy that’s going to do most folks much good. Many of my Republican friends are quick to claim that jobs leave the US because high taxes and government regulation. I think it’s more complicated than that. Innovative, high technology industries require thoughtful public private partnerships to thrive. There is no free market nirvana where taxes are low and jobs are good, health care is cheap, and opportunity is unbounded. There are only well run and poorly run countries. Richard Elkus knows this well.

Outboarding is Wrong

Great article in the New York Times today about the practice known as “outboarding” where companies set-up shop in hotel meeting rooms during industry trade shows, avoiding the costs of formally exhibiting, but benefiting from the huge efforts by show managers and exhibitors who bring the crowd to the city. I’m sure no one is surprised that outboarding is common at SEMI expositions, especially SEMICON West.

What I enjoyed about the article was its insistence in bringing up the clear ethical issues involved in the practice. The article states:

The industry sees the vendors as parasites who latch onto the host convention and reap the advantages of the often-considerable resources spent on organizing the show and drawing a crowd — without paying their share of the costs.
The vendors, on the other hand, argue that they are suffering in the weak economy and that the rock-bottom rates offered by some hotels help them stretch their marketing budgets.

In the semiconductor industry, some people have been outboarding for so long they don’t even realize the ethical implications of their behavior. They think there is nothing wrong with setting up shop in the Marriott, W or Yuerba Buena for private customer meetings, drawing people away from the exhibitors who are bankrolling the customer draw. Most of these outboarders even congratulate themselves on being so wise and so clever with their marketing dollars, how they don’t have to waste time and effort on exhibiting when they can cherry pick the top buyers to come to their hotel suite or hotel exhibit site. They are often the loudest critics of trade shows, claiming how times have changed, how the industry has matured and how the need to differentiate through exhibits and live marketing has passed.

The fact is these outboarders are trying to reap of the benefits of SEMICON West without paying any of the costs. That’s not ethical in my mind, it’s not what honorable companies and marketers do. And customers know it. They might meet these outboarders and listen to their PowerPoint presentations, but they understand the context. It frames their perspective and reinforces their commodity bias. Cusomers know your freeloading on West. Start-ups may outboard, but leaders don’t. Commodity suppliers might outboard, but not companies serious about extracting the full differentiated value of unique technologies and products.

We try to limit outboarding by trying to reserve as much of the local hotel space as possible. We do this to protect our franchise—our IP if you will—but also to protect our exhibitors who are undermined by the outboarders. We are not as powerful as the CES show and do not have the tools or authority to police outboarders as much as we’d like (hotels hold the cards here).

And we try to give companies ways to participate in West other than exhibiting. We have low cost meeting rooms that can be built to in Moscone, we have had underwriting programs that enable participation with exhibiting, and we think a small booth with a sponsorship for high quality visibility could be a great compliment to a private meeting room. And, we are open to new ideas on how best to make West work for any company.

I certainly sympathize with companies who have survived the recent industry depression and can’t waste any marketing dollars on ineffective programs. At the same time, I can’t sympathize with people who claim trade shows don’t work anymore, yet spend a ton of money on boozy parties and gutless meeting rooms. Just because you can benefit from West without paying for it—just like you can benefit from SEMI without being a member—doesn’t make it the right thing to do.

SEMICON Korea 2010

Tien Wu Enjoys Life in the Jungle

One of the best speakers in the semiconductor industry is Tien Wu, COO of ASE, the assembly and test leader. His day 2 keynote at SEMICON Korea was an inspirational mix of insight and intellect. We’ve heard many of the concepts (the chip life cycle, the next big wave, etc.) but rarely packaged and delivered so articulately.

Wu began his talk with claiming that “2009 was a great year…we will always remember it,” and with that contrary perspective he began to ask why anyone would choose to remain in this crazy business. A look at the boom and bust cycles over the last 20 years—basically delivering a long term growth rate of 4-5%, about the same at the global GDP—confirms the industry is in chaos. The only growth comes at your competitor’s expense. Price is used inappropriately; sustained profit is elusive. It’s a 0-sum game; value isn’t created by innovation, it come from someone’s loss.

“It’s a jungle out there,” says Wu. Survival goes to the fittest. The laws of natural selection are more important than Moore’s Law. Not just company’s fight for survival, but countries: we fight against Japan, Japan against Taiwan, Europe against everyone, and everyone against China. Why would smart people and smart money choose to enter this primitive battlefield where long term returns are elusive and survival threatened?

But Tien Wu, like the rest of us, enjoys life in the jungle. He’s not a banker or day trader comfortable moving his money from winter wheat to pharma, from one good bet to another. He sees the bright side. “World PC penetration is only 17%.” Every wave from innovation from computers, to the internet, and now information is bigger than the next. He is excited and challenged by the “long tail.” He’s not afraid of consolidation because its part of the long tail process he’s seen unfold in PCs, communications and information. A few giants dominate those industries, but Apple and Samsung have proven that companies can move from one wave to another.

So what’s next? Life sciences, bio med, green energy, intelligent appliances? Tien Wu doesn’t know or he won’t say. He will point out, however, that with a logo like ASE’s (Sun-Moon-Light) “we are destined to do solar cells.”

The future of the industry will be characterized by the long tail and who can survive serving the increasingly hard-to-reach customers entering the market. It will go to those that can make “the hyper jump” into the new wave, such as solar, robotics, and solid state lighting. It will also go to those who leverage the new regions of China, India and other countries. Semiconductors are only 0.5% of the world’s GDP. Is this where the industry stops? Hardly, it’s where it begins.

Wu concluded his presentation with pointed criticism of the semiconductor industry. “Too nationalistic,” “too functionally limited,” “too insulated.” The industry suffers from the “curse of IT.” Successful companies must break out of the boundaries of IT and find new frameworks to understand and serve the world. The new domains will be understood through the perspectives of art, medicine, energy, culture. His populates his own staff with multiple disciplines and he has strong opinions about maintaining truly global perspectives.

For someone who saw 2009 as a “great year,” it’s no surprise that Wu sees a bright future with a long tail, an evitable hyper jump, and the emergence of immense of new markets in an ever-prospering world. At only 0.5% of GDP, semiconductors “remain the most exciting, dynamic, and yes, chaotic industry.” And out of this chaos, heroes will emerge.