Industry Surveys

Semiconductor Equipment
Angelo Zino, CFA, Semiconductor Equipment Analyst November 11, 2010

Current Environment ............................................................................................ 1 Industry Profile ...................................................................................................... 9 Industry Trends ................................................................................................... 11 How the Industry Operates ............................................................................... 18 Key Industry Ratios and Statistics................................................................... 26 How to Analyze a Semiconductor Equipment Company ............................. 28 Glossary................................................................................................................ 33 Industry References........................................................................................... 36 Comparative Company Analysis ......................................................... Appendix
This issue updates the one dated May 13, 2010. The next update of this Survey is scheduled for May 2011.

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CURRENT ENVIRONMENT
Cyclical pressures slowing semiconductor equipment growth
Standard & Poors believes the semiconductor equipment industry is experiencing a sharp rebound in sales this year, following an extended period of under-investing by semiconductor manufacturers. However, we forecast growth to slow going forward, as companies digest their recent capital expenditure purchases. We expect most demand for semiconductor equipment to be focused on more advanced technology nodes and primarily driven by larger memory customers and foundries expanding capacity. As of September 2010, Gartner Inc., an information technology market research and WORLDWIDE SEMICONDUCTOR EQUIPMENT SALES consulting firm, was forecasting worldwide semiconductor capital equipment spending of 90 $36.9 billion in 2010, which would represent a 75 122% increase from the $16.6 billion posted 60 in 2009. The research firm sees growth 47.7 40.5 42.8 45 slowing to 4.9% in 2011. 37.1 32.9 29.5 25.5
30 1 5
28.0 28.0

Gartner projects significant growth in capital outlays by chipmakers, a major market for 0 semiconductor equipment. Their total (1 5) spending is forecast to rise 95.9% to $50.7 (30) billion in 2010 and an additional 10.1% to (45) $55.8 billion in 2011, according to Gartner, as the dramatic recovery in the semiconductor (60) 1 997 98 99 00 01 02 03 04 05 06 07 08 2009 industry since the middle of 2009 is likely to Expenditures (Bil. $) Year-to-year % change spur growth in equipment spending. Memory companies that make DRAM (dynamic Source: Semiconductor Equipment and Materials International. random access memory) and NAND flash memory (a type of nonvolatile memory capable of fast data writing) are expected to spend on copper implementation and double patterning at lower technology nodes. Although demand in 2010 appears to be driven by DRAM and foundry makers, Standard & Poors anticipates that NAND flash manufacturers will drive future capacity expansion, as we expect unit demand for flash memory to grow faster than in other categories. We expect equipment purchases to be concentrated more on capacity expansion than advanced technology buys going forward. In its September 2010 forecast, Gartner warns companies to prepare for the next down cycle, which it believes will occur in 2012, at which point the research firm thinks that memory companies will have overinvested. According to Gartners forecast, the wafer fabrication equipment (WFE) segment is projected to rise 119.9% this year, with estimated sales of nearly $28.03 billion, following a decline of 47.4% in 2009. It sees this segment rising 3.9% to $29.1 billion in 2011. Sales of packaging and assembly equipment are projected to increase 123.4% in 2010 to $6.05 billion (following a decline of 32.3% in 2009), while the automated test equipment segment is seen rising 144.0% to $2.81 billion (versus 53.0% last year), according to Gartner. Looking further out, the research firm anticipates that sales of packaging and assembly equipment will grow 6.2% in 2011 and that automated test equipment sales will increase 12.5%, driven by increased demand for electronic devices. Standard & Poors projects that total semiconductor sales will rise 29% in 2010 and then slow to 9% in 2011. As a result, we anticipate that semiconductor equipment sales will slow to a low single-digit pace next year. We continue to believe that the industry is experiencing a secular decline and that peak revenues in this cycle will not surpass previous peaks witnessed in 2007 and 2000.

21.8

Chart H13:19.7 WORLDWIDE SEMICONDUCTOR EQUIPMENT SALES

22.2

15.9

INDUSTRY SURVEYS

SEMICONDUCTOR EQUIPMENT / NOVEMBER 11, 2010

Bookings nearing a peak Orders and sales figures for North Americabased manufacturers of semiconductor equipment suggest an increase in capital spending by many device manufacturers. In August 2010, equipment companies reported $1.82 billion (preliminary results) in worldwide orders for North Americanmade chip equipment (based on a three-month average), slightly below the July 2010 bookings figure of $1.84 billion, according to Semiconductor Equipment and Materials International (SEMI), a trade association. In August 2010, the bookto-bill was 1.17 (preliminary), meaning that $117 worth of orders was received for every $100 of product billed during the month. The book-to-bill ratio has now remained above 1.0 for 14 consecutive months, the longest such streak since early 2000, according to our analysis. Book-to-bill readings above 1.0 usually point to an expanding industry, while those below 1.0 signal a contracting industry. Bookings for the most recent cycle appear to have hit a trough in March 2009, reaching a monthly low of $245.6 million. Since then, monthly bookings have risen more than six-fold. Monthly bookings in the most recently completed downturn declined 85% SEMICONDUCTOR EQUIPMENT DEMAND CYCLE from the May 2007 peak of $1.64 billion. Historically, semiconductor makers have 3,200 1.60 completed the bulk of their equipment 2,700 1.40 purchases in the first half of the year. (For further explanation of the book-to-bill ratio, 2,200 1.20 see the Key Industry Ratios and Statistics Chart H12: section of this Survey.) 1,700 1.00 SEMICONDUCTOR EQUIPMENT 1,200 0.80 Despite the improving trends, we believe DEMAND CYCLE orders are likely to reach a near-term peak 700 0.60 within the next two to three quarters, and we do not think robust growth trends currently in 200 0.40 evidence will be sustainable through 2011. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Although capital intensity for foundry Book-to-bill ratio (right scale) customers has been rising, we expect orders to Shipments (Mil. $, left scale) begin slowing, as the largest participants will Orders (Mil. $, left scale) likely see utilization rates drop following recent purchases, in our view. We also see less Source: Semiconductor Equipment and Materials International. DRAM memory spending relative to that seen in recent quarters, as most of the purchases tied to next-generation technology tools and DDR3 (described below) are now complete. We also see slowing PC growth contributing to the lower projected sales. However, we expect higher NAND flash memory orders to partially offset the lower anticipated DRAM and foundry spending, as unit demand remains robust and customers still need to expand capacity.

CAPACITY UTILIZATION LEVELS ARE LIKELY UNSUSTAINABLE

Customer utilization levels rebounded sharply over the last 12 months, as companies across the supply chain restocked depleted inventory levels and prepared for anticipated higher demand going forward. Wafer fab capacity utilization rose to 95.6% (preliminary) in the second quarter of 2010 (from 93.5% in the first quarter), compared with 77.0% in the second quarter of 2009, according to the Semiconductor Industry Association (SIA), an industry trade group. (Fab is the informal name for a chip manufacturers wafer fabrication plant.) Foundriesfabrication plants that make chips on a contract basis for other companies saw a more significant rebound: to 98.8% in the second quarter of 2010, from 50.1% in the first quarter of 2009. We believe the utilization rate in the first quarter of 2009 was the lowest ever recorded by the semiconductor industry. Standard & Poors projects that the overall utilization rate for wafer fab capacity in the third quarter of 2010 was above 90%, but we anticipate utilization rates falling in the fourth quarter and in early 2011. As a result, we would expect that some chipmakers might look to temporarily halt major capital purchases in the intermediate term until demand catches up and once again drives utilization rates higher. Utilization rates for leading-edge technology [below 60 nanometers (nm)] were 98.6% in the second quarter of 2010, up from 97.2% in the first quarter. (Leading-edge capacity refers to wafer plants operating at the
2 SEMICONDUCTOR EQUIPMENT / NOVEMBER 11, 2010 INDUSTRY SURVEYS

newest technology nodes; i.e., the narrowest circuit linewidths.) A majority of the current leading-edge volume production has been between 65nm and 45nm nodes for 300-millimeter (mm) wafer size, but is now being eclipsed by 45nm and 32nm nodes for WAFER-FAB CAPACITY UTILIZATION 300mm wafers.
(In percent) 1 00 95 90 85 80 75 70 65 60 55 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201 0
MOS <0.3m MOS <0.16m MOS<0.12m MOS<0.08m MOS<0.06m

MOS <0.2m

Chart H11: WAFER-FAB CAPACITY UTILIZATION

The utilization rate for technology nodes between 120nm and 80nm was 94.6% in the second quarter of 2010, slightly below the 94.8% posted in the first quarter. Typically, high utilization rates imply the need to increase capacity. Although we expect capacity utilization rates to decline and fall below 90% by early 2011, we expect some customers to continue slowly adding capacity; any such additions, however, will be at the more advanced technology levels, in our view.

DRAM capital spending on the decline We believe the biggest growth catalyst for Total ICs Smallest line-width category tracked by SIA the DRAM industry over the last several IC-Integrated circuit. MOS-Metal oxide semiconductor. m-Micron. quarters has been the transition from DDR2 Source: Semiconductor International Capacity Statistics. (double data rate) technology to DDR3. (Both DDR2 and DDR3 are types of DRAM chips that are found in personal computers.) DDR3 technology is the successor to DDR2 and offers advantages such as lower operating temperatures, greater speed, and reduced power consumption. We estimate that DDR3 became the mainstream DRAM specification in the first half of 2010. Standard & Poors is forecasting that DRAM capital spending will more than double in 2010 and rise an additional 12% in 2011, following declines in excess of 50% in both 2009 and 2008. According to our data, DRAM spending in 2009 was less than a quarter of that in 2007. We estimate that DRAM will account about 60% of memory sales and more than 34% of overall semiconductor equipment sales in both 2010 and 2011. We expect Samsung Corp. to once again be the biggest spender, and anticipate the companys capital expenditures at more than $9 billion (combination of DRAM and NAND flash) this year and maintaining that level next year. We are forecasting that the top three manufacturers (Samsung, Hynix Semiconductor Inc., and Elpida Memory Inc.) will comprise nearly 67% and 65% of total spending for the segment in 2010 and 2011, respectively. However, we think DRAM spending peaked in the third quarter of 2010 and see related orders softening. This is due to our thesis that most chipmakers have already transitioned to more advanced technology nodes, thus making major capacity expansion in the near term unlikely and resulting in lower expected technology purchases. During the third quarter of 2010, the head of Samsungs chip division stressed that the market for DRAM was likely entering a state of oversupply due to weakening PC sales. He notes that DRAM output will continue to grow near term, as suppliers ramp up their production using processes that are more advanced. He also believes that if PC sales continue to slow, the DRAM sector will see a more extreme oversupply scenario through the first quarter of 2011. In a September 2010 report, independent research firm IDC estimated an 86% rise in total DRAM memory revenues for 2010, reflecting 53% bit growth and a 21% price increase. However, for 2011, the research firm estimates a 14% drop in DRAM revenues, as a 55% rise in unit demand is more than offset by a 45% drop in selling prices. IDC expects supply to exceed demand in the second half of 2010 and in 2011, which we feel is due to the lower pricing environment. Standard & Poors believes that bit growth for DRAM will continue to increase, but we see near-term supply exceeding demand. We believe the trends likely to develop within the DRAM segment over the next few quartersfalling memory prices, declining profitability of memory customers, and utilization rates that are lower than current elevated levelswill lead to a pause in growth for equipment spending.
INDUSTRY SURVEYS SEMICONDUCTOR EQUIPMENT / NOVEMBER 11, 2010 3

Flash memory remains a potentially bright spot Unlike DRAM, which relies heavily on PC demand, the NAND flash memory market depends on a number of different applications and looks in better shape than DRAM on a comparative basis. The flash memory industry has emerging technologies such as solid-state drives (SSDs) capable of driving new NAND demand. In a September 2010 report, IDC estimated a 48% increase in total NAND flash memory revenues for 2010, reflecting 70% bit growth and a 13% price decline. For 2011, the research firm estimates an additional 34% rise in revenues on a 55% increase in unit demand, partly offset by a 32% drop in selling prices. Demand for flash memory chips is improving with the launch of new smart phones, tablet personal computers, and electronic readers. Also in a September report, market research firm iSuppli expected the use of NAND flash memory in Apple Inc.s iPad and other tablet devices to nearly quadruple in 2011 to 1.7 billion gigabytes from 428 million gigabytes in 2010. The firm sees shipments climbing to 8.8 billion gigabytes by 2014. Tablet PCs will have average storage density of 28 gigabytes in 2010 and that figure will rise to 65 gigabytes by 2014, according to iSuppli. However, it remains to be seen whether demand for these devices will reach the high expectations that many manufacturers are forecasting. On its August 2010 earnings call, Applied Materials Inc. stated that it sees NAND investments continuing well into 2011 as demand for flash storage outpaces supply. The company is currently monitoring 15 fabs and fab expansion projects that it believes could add $50 billion in new spending over the next eight to 12 quarters. Of the potential fabs that could come online in 2011 and 2012, we think a majority will likely be memory-related, with the larger share of that coming from flash makers. While we agree that NAND customers are likely to increase capital investments, we expect most manufacturers to add capacity conservatively in an effort to avoid a scenario where a severe oversupply could develop. Nevertheless, we anticipate flash memory providing the greatest growth potential for semiconductor equipment makers in 2011 and beyond.

CHIPMAKERS CAPITAL EXPENDITURES VARY

For more than 20 years, the semiconductor industry has grown rapidly because of rising demand for personal computers, the expansion of the Internet and the telecommunications industry, and the emergence of new high-technology products for the consumer. Growth has moderated in recent years, however, and there are signs that the industry has matured. In 2009, unit demand for semiconductors fell for the first time since 2001, leading to an overall decline in semiconductor revenues. This created pressure on semiconductor manufacturers to carefully match capacity with demand, which in turn lowered spending on capital equipment. Although we expect unit growth rates for chip sales in 2010 to be above historical rates and result in a dramatic increase in spending for semiconductor equipment, we see growth rates slowing in 2011 as inventories across the supply chain become more normalized. Semiconductor equipment spending can be primarily broken down into three types of customers: memory, logic, and foundries. The following discussion addresses each of these markets. Memory equipment: still the biggest market Historically, memory customers have accounted for the largest percentage of equipment spendingas much as 70%80% of total wafer equipment sales, according to our estimates. We expect memory spending to comprise 53% of overall revenues in 2010 and 58% in 2011, acting as the primary growth catalyst for the industry. We think manufacturers are likely to spend heavily on capacity expansion through at least 2011. We see memory customers more than doubling total capital expenditures this year, mainly driven by DRAM companies transitioning to DDR3 technology. However, with DDR3 now mainstream, we see spending waning over the next several quarters. Although we think NAND flash manufacturers have kept a relatively tight rein on capacity expansion this year, we believe robust purchases from these customers are likely going forward, given the tight supply situation and robust unit growth forecast for this segment. Despite our belief that DRAM makers have been spending more heavily than NAND customers this year, we project NAND spending to be the key growth catalyst for semiconductor equipment makers in 2011 and beyond. Overall, we see NAND unit demand experiencing robust growth, as consumers shift to next-generation products such as tablets and smartphones.
4 SEMICONDUCTOR EQUIPMENT / NOVEMBER 11, 2010 INDUSTRY SURVEYS

In recent years, Samsung Corp. has been the largest spender on memory equipment, followed by peers such as Hynix Semiconductor, Toshiba, Elpida Memory, and Micron Technology Inc. We estimate that these five manufacturers will account for more than 80% of total memory capital spending and over 40% of total equipment sales in 2010 and 2011. In August 2010, Applied Materials Inc. reported that 45% of its total orders from the semiconductor equipment segment in the third quarter of fiscal 2010 (fiscal year ends in October) came from memoryrelated customers (32% DRAM and 13% flash memory). However, DRAM-related orders actually dropped 16%, while flash memory orders jumped 41%. Thus, it appears that DRAM capital spending is already slowing, while flash memory makers are looking to quickly ramp up capacity. Logic equipment: slower growth than other segments Standard & Poors anticipates a 20% increase in logic equipment spending this year, well below growth trends of the memory and foundry segments. Capital investment from this segment is concentrated on one large North American customer: Intel Corp. We expect the company to raise planned capital expenditures to $5.2 billion in 2010, up 16% from $4.5 billion in 2009. We forecast a modest 12% rise in logic equipment spending in 2011. Although we believe Intel alone accounted for about 35% of total wafer equipment spending in 2009, we project that the company will represent only about 15% of wafer equipment spending this year and in 2011. This has more to do with other semiconductor manufacturers increasing capital expenditures as profitability improves, rather than Intel being conservative with spending. Historically, Intel has had much more stable spending practices than its peers have. We believe Intel will continue to use Moores Law as a roadmap moving to more advanced technology every few years, regardless of the economic landscapeas it has the scale and financial ability to do so. We expect Intel to sustain its high level of capital equipment spending. Foundry equipment: big spending gains in 2010 Foundries are companies that serve chipmakers looking to outsource their manufacturing operations. Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) is the largest participant in this highly concentrated segment. Other foundries include GlobalFoundries Inc., United Microelectronics Corp. (UMC), and Semiconductor Manufacturing International Corp. (SMI). While these companies significantly cut capital spending plans during the economic downturn and employed a number of cost-cutting efforts to preserve cash, foundries began to witness an abrupt pickup in business in mid-2009. However, we do not think the recent momentum in orders from foundry manufacturers can continue, given that their utilization rates are now well above 95% and likely to drop. Although we estimate that foundry manufacturers will raise spending plans by more than 150% in 2010, we project that sales from this category will drop between 15% and 20% next year. We expect most of the spending to be concentrated on more capacity expansion than on purchases of advanced technology, with foundry powerhouse TSMC leading the way. We expect TSMC to increase capital expenditures to $5.9 billion in 2010, from $2.7 billion in 2009. We model TSMC to spend $6 billion in 2011, about flat with 2010s projected level. GlobalFoundriesformed in 2009 as a merger of the manufacturing capabilities of Advanced Micro Devices Inc. and foundry Chartered Semiconductor Manufacturing Ltd.is planning to spend $2.5 billion to increase its 300mm wafer manufacturing capacity. We expect GlobalFoundries to rank second among foundry customers in 2010 in terms of capital expenditures.

LINEWIDTHS CONTINUE TO SHRINK

As part of the industry obsession with shrinking semiconductor size, chips are being manufactured in increasingly smaller linewidths (i.e., the physical dimensions of the smallest features in a circuit pattern). According to Moores Law, the number of transistors per chip doubles approximately every two yearswith the boost in density made possible largely by smaller linewidths. Since smaller linewidths require increasingly sophisticated equipment that sells at higher prices, the linewidth shifts are considered mostly positive for the equipment industry, though the benefits are mitigated somewhat due to higher production rates for chips at smaller linewidths, as well as increased research and development costs for equipment makers.
INDUSTRY SURVEYS SEMICONDUCTOR EQUIPMENT / NOVEMBER 11, 2010 5

Leading chipmakers are making the transition from 45nm to 32nm and below. In addition to reducing linewidths, semiconductor manufacturers are constantly developing new conceptual designs and prototypes. Over the last 12 months, Intel, TSMC, and others announced many new designs and processes. As production ramps up for these new products in the future, demand for new semiconductor equipment should rise. Intel. Most of Intels microprocessors are manufactured using either its 45nm (or its second-generation 32nm) high-k metal gate silicon process technology. These technologies are the first to use high-k metal gate transistors, which increase performance while simultaneously reducing the leakage of current. As of the end of December 2009, the substantial majority of Intels microprocessors were manufactured on 300mm wafers using its 45nm process technology. In the second half of 2009, it began manufacturing microprocessors using 32nm process technology. Intel is currently developing 22nm process technology, its next-generation process technology, and expects to begin manufacturing products using that technology in 2011. TSMC. TSMC is spending on more advanced equipment to ramp up its 28nm process technology and add capacity in 2010. We believe that TSMC is scheduled to enter trial production on its 22nm process in 2012, advancing to the lower technology node in 2013. Others. Taiwan Semiconductor unveiled its 40nm process in 2008 and subsequently moved toward the 32nm process in 2009. Samsung, Hynix Semiconductor, Elpida, and Micron all began migrating to 40nm production and below in 2010, as DDR3 technology became the mainstream DRAM specification. In 2009, Micron manufactured the majority of its NAND flash memory products using its 34nm linewidth process technology and manufactured most of its high-volume memory products on 300mm wafers. In 2010, the company transitioned to the lower 25nm linewidth process technology for the manufacture of its NAND flash memory products.

FLAT PANEL DISPLAY ORDERS INCREASING

According to display supply chain market researcher DisplaySearch, global shipments of large-area thin film transistor liquid crystal display (TFT-LCD) panels reached a quarterly record high of 170 million units during the second quarter of 2010. DisplaySearch estimates that Samsung Electronics led second-quarter 2010 shipments with a 26.3% revenue share, followed by LG Display Co. Ltd. (23.4%) and AU Optronics Corp. (16.2%). We believe applications such TFT LCD* MANUFACTURING EQUIPMENT MARKET as tablet and notebook computers, mobile (Billions of dollars) (%) applications, and flat panel TVs will likely 1 25 1 6 drive long-term demand.
1 4 1 2 1 0 8 6 4 2 0 2000 2002 2004 2006 2008 201 0 201 2 Revenues (left scale)
*Thin-film transistor liquid crystal display. Source: Displaysearch.

1 00 75 50

Chart H02: TFT LCD* MANUFACTURING EQUIPMENT MARKET

25 0 (25) (50) (75)

% Growth (right scale)

The flat panel display equipment industry has historically been highly cyclical due to abrupt changes in customers manufacturing capacity requirements and spending, which reflect capacity utilization, demand for customers products, and inventory levels relative to demand. Following what we viewed as a relatively tight supply/demand environment at the start of 2010, we think rising supply has caught up with demand once again and expect this to translate into slower growth for equipment orders next year.

We see supply conditions loosening in the immediate future. With fab utilization rates running at peak levels, flat panel manufacturers need to continue to invest. However, if demand does not keep up with the higher anticipated capacity next year, it could result in another oversupply scenario. In fact, we believe that demand has already begun to slow, which could result in panel prices starting to fall near the end of the year. China is quickly becoming the largest consumer of LCDs, and while the region accounts for less than 10% of total TFT-LCD capacity, this is expected to grow considerably over the next few years, as several panel makers are planning Gen 7 and 8 fabs.
6 SEMICONDUCTOR EQUIPMENT / NOVEMBER 11, 2010 INDUSTRY SURVEYS

According to the most recent DisplaySearch report on expected manufacturing equipment spending for the TFT-LCD market (dated April 2010), the research firm anticipated that industry sales will rise 89% in 2010 (following a decline of 49% in 2009), but then decline 18% in 2011. During an August 2010 conference call, Applied Materials stated that it expects display equipment spending to grow by 75%80% over the next 12 months. We see Applieds flat panel display orders as being aided by higher investments in Gen 8.5 capacity over the cycle, as well as by rising demand in China. We believe that some of the better-capitalized customers are transitioning toward the larger Gen 10 systems, which should aid overall spending for flat panel display equipment. Applieds Gen 8.5 systems can process substrates sized at 2.2x2.5 meters, which enables the production of up to six 55-inch LCD TV screens. A Gen 8 plant manufactures LCD TV panels from 40 inches to 55 inches in size, while a Gen 10 plant will be capable of mass-producing panels between 57 and 65 inches.

SPENDING FOR SOLAR EQUIPMENT REMAINS ROBUST

The semiconductor equipment industry is creating its own opportunities in the growing solar energy market by applying chip equipment technology to the production of solar cells and panels. Traditionally, solar product manufacturers have developed or modified their own manufacturing equipment, but as technology grows more complex, they will turn to companies such as Applied Materials to produce this equipment. Although we forecast supply to exceed demand next year, solar manufacturers continue to increase capacity and production of solar cells, we think, to help sustain market share. We think that recent announcements by China-based solar manufacturers to expand capacity ahead of anticipated higher demand will result in higher capital equipment spending plans. China-based manufacturers continue to expand capacity On the supply side, world solar cell production reached a consolidated figure of 9.34 gigawatts (GW) in 2009, up from 6.85 GW a year earlier, according to market research firm Solarbuzz, with thin film production accounting for 18% of that total. China and Taiwan continued to increase their share of global solar cell production, rising to 49% in 2009 from 44% in 2008. Solarbuzz estimates that solar cell production exceeded market demand, causing the weighted average crystalline cell price to decline 38% in 2009. This drop also hurt prices of thin film panels. That said, the near-term supply and demand picture appears much more favorable, with demand currently exceeding supply, in our view. We believe module and inverter manufacturers are seeing robust orders, with visibility for 2011 improving as well. As a result, solar producers are seeing pricing stabilize and even inch up in some cases for the first time since 2008. However, we do not anticipate that this trend is sustainable and see selling prices declining at least 10% to 15% in 2011. We think China-based manufacturers will be the biggest beneficiaries, given their ability to rapidly expand capacity and significantly reduce costs. Applied Materials, the largest manufacturer of solar equipment, stated on its fiscal 2010 third-quarter earnings call (fiscal year ends in October) that it expects 11 to 13 GW of incremental solar capacity additions this year, with China accounting for 60% of the worlds capacity. Solar capital expenditures should exceed $8 billion in calendar 2010, with crystalline silicon capacity additions likely doubling. However, while the current aggressive capacity additions should benefit equipment manufacturers such as Applied, it could lead to greater oversupply and an eventual reduction in investment plans. We believe the company is also likely to benefit in an environment of flattening (or at least a slower decline in) polysilicon prices, as well as falling module prices. Polysilicon demand improving and pricing stabilizing The top seven manufacturers of polycrystalline silicon (polysilicon) had 114,500 tons of annual capacity in 2009, a 92% increase from the prior year, according to Solarbuzz. Polysilicon is an essential material for making both semiconductors and solar panels. Rising demand in both the semiconductor and solar industries should help polysilicon manufacturers going forward. Nevertheless, we project supply to exceed demand in the immediate future, and the longer-term pricing trend remains down, in our view. We expect manufacturers to continue to increase capacity faster than end-demand is growing. As a result, we look for
INDUSTRY SURVEYS SEMICONDUCTOR EQUIPMENT / NOVEMBER 11, 2010 7

polysilicon prices to drop to under $45/kilogram (kg) by the end of 2011, but we see the rate of decline slowing considerably from that experienced during the previous two years. Applied Materials exits thin-film equipment business In July 2010, Applied Materials announced plans to restructure its Energy and Environmental Solutions (EES) segment. Applied will discontinue sales to new customers of its SunFab Thin Film Line (for manufacturing thin film solar panels), but will offer to sell thin film solar manufacturers individual tools, including chemical vapor deposition (CVD) and physical vapor deposition (PVD) equipment. The company will also divest its low emissivity architectural glass coating products. Applied stated that its decision to exit the thin-film segment is tied more to market conditions than its dedication to the business. CEO Mike Splinter said that the thin film market has been hurt by several factors, including delays in utility-scale solar adoption, solar panel manufacturers challenges in obtaining affordable capital, changes and uncertainty in global governmental renewable energy policies, and competitive pressure from crystalline silicon technologies. We believe Applieds moves will allow the company to focus on higher-potential solar growth opportunities in crystalline silicon and light emitting diode (LED) technology.

NEUTRAL OUTLOOK FOR SEMICONDUCTOR EQUIPMENT

As of October 2010, Standard & Poors fundamental outlook for the semiconductor equipment industry was neutral. Despite industry sales falling 46% in 2009, we see semiconductor equipment sales rebounding strongly in 2010. We think that sales will more than double this year, but we project a modest 3% growth rate in 2011. We believe that semiconductor equipment orders continue to trend upward since bottoming in early 2009, as memory prices remain healthy, wafer demand improves, and customer utilization rates are at elevated levels. However, should end-market demand remain weak, we note that these trends may not be sustainable. We expect demand for semiconductors to rise more than 20% in 2010 and an additional 9% in 2011, reflecting improving end-market demand for next-generation consumer products, such as the iPad, as well as for mobile devices. We see this trend resulting in the addition of capacity and greater demand from semiconductor manufacturers. However, we forecast that semiconductor equipment orders will slow in the near future, as we anticipate a period of digestion following significant capital spending by customers in recent quarters. In addition, we believe customers elevated capacity utilization levels could be an indication that bookings may be nearing a peak. We think customers are placing orders on advanced machinery at lower technology nodes and see higher investment in capacity heading into 2011. We note, however, that while we are encouraged by recent data, if end-market demand begins to slow substantially, these trends may not be sustainable. For the three-month period through August 2010, the North American semiconductor equipment industry's book-to-bill ratio was 1.17, above the ratio of 1.0 that typically indicates a period of industry expansion. While we find increased capital expenditures by large memory customers encouraging, we remain cautious of uncertain end-market PC demand. As a result, we see potential for some inventory build across the supply chain as growth rates for electronic devices begin to slow. We believe higher NAND flash memory spending will be the next catalyst for the semiconductor equipment industry, given our outlook for robust unit demand in this category over the next several years. We also see increased expansion into the highergrowth solar market offering significant growth opportunities for equipment makers.

SEMICONDUCTOR EQUIPMENT / NOVEMBER 11, 2010

INDUSTRY SURVEYS

INDUSTRY PROFILE
Changeable industry lacking long-term growth
Despite its reputation for volatility, the semiconductor equipment industry has expanded overall in the past couple of decades. In 1992, worldwide sales were $7.5 billion; growth in subsequent year led to a record high of $47.7 billion in 2000, according to trade association Semiconductor Equipment and Materials International (SEMI). In the dismal market of 2001, global sales took a nosedive, falling 41% to $28.0 billion, followed by an additional 30% decline to $19.7 billion in 2002. By 2007, the research firm reported that worldwide sales of semiconductor manufacturing equipment totaled $42.77 billion, up 5.7% from $40.47 billion in 2006. Although the semiconductor equipment industry experienced substantial growth in 2006, an excess in capacity of memory chips and signs of a slowing global economy by the middle of 2007 resulted in drastic equipment spending reduction plans from semiconductor makers. In 2008, SEMI reported that worldwide sales of semiconductor manufacturing equipment totaled $29.52 billion, representing a year-over-year decline of 31%. The downturn continued in 2009, with sales falling an additional 46% to $15.92 billion. The geographic region that saw the steepest decline in 2009 was Japan, falling 68%, due to severe cutbacks in spending by memory makers. Taiwan surpassed Japan as the region with the highest amount of spending, with $4.35 billion in equipment sales. The global wafer processing equipment market segment fell 46%, assembly and packaging decreased 31%, test equipment sales plunged 55%, and other front-end equipment sales declined 44%. However, industry conditions rebounded by the second half of 2009, and all indications point to the trend continuing in the near term, as long as enddemand for electronic devices continues to improve. On a geographic basis, the five largest spenders on semiconductor equipment in 2009 were Taiwan (27% of capital equipment spending), North America (21%), South Korea (16%), Japan (14%), and Europe (6%).

INDUSTRY LEADERS CONTINUE TO DOMINATE

The top 10 semiconductor equipment makers recorded combined 2009 revenues of $14.8 billion, down 38.2% from the previous year, reports industry research firm VLSI Research Inc. The top suppliers declined less than the total integrated circuit (IC) manufacturing equipment industry. The top 15 suppliers continued to represent the core of the industry, in our view. Within this group, 11 are wafer processing suppliers, three supply test equipment, and one supplies both wafer processing and assembly equipment. VLSIs sales analysis includes sales of systems used to manufacture semiconductors, thin-film heads, micro-electromechanical systems LEADING SEMICONDUCTOR EQUIPMENT MANUFACTURERS (MEMS), as well as service, support, and (Ranked by 2009 sales) refurbished systems.
COMPANY COUNTRY SALES ----- (MIL. $) ----2008 2009

Applied Materials B04: LEADING US Table Tokyo Electron Japan SEMICONDUCTOR ASML Holding NV Netherlands EQUIPMENT Nikon Japan MANUFACTURERS KLA-Tencor US Lam Research US Dainippon Screen Mfg. Japan ASM International Netherlands Novellus Systems US Teradyne US Total Top 10 revenues Source: VLSI Research.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

5,668 4,353 4,367 1,742 2,112 1,904 1,040 961 884 925 23,956

3,597 2,324 2,268 1,547 1,321 1,198 805 690 582 552 14,883

In 2009, there was a considerable sales decline in every geographic region, with North America falling 36.9%, Japan down 35.6%, and European equipment manufacturers posting a 44.5% drop in revenues. However, VLSI notes that every top 10 supplier in 2008 survived the industry downturn during 2009, which illustrates the staying power, technology, superior products, and management skills of each of these firms. Commanding a large lead over its competitors, Applied Materials Inc. reacted quickly to the start of the upturn in 2009, reflecting its strength in
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deposition, chemical mechanical planarization (CMP), and etch systems. Japan-based Tokyo Electron Inc. reclaimed its No. 2 position, surpassing ASML Holding NV, which slipped to the No. 3 spot. Nikon Corp. jumped two spots to No. 4, while KLA-Tencor Corp. and Lam Research each fell one rank to No. 5 and No. 6, respectively. Dainippon Screen Manufacturing rose two positions to No. 7. Climbing into the top 10 list in 2009 were ASM International NV and Teradyne Inc., landing at No. 8 and No. 10, respectively. Dropping from the list were Hitachi High-Technologies, which fell to 11th from 8th in 2008, and Canon, which slipped to 18th from 7th. Rounding out the top 10, Novellus Systems Inc. jumped one spot to No. 9. Following are profiles of the top 10 semiconductor equipment manufacturers of 2009, ranked by revenue. Applied Materials. Industry leader Applied Materials provides the most extensive range of wafer fabrication products, including systems for deposition and etch, ion implantation, CMP, defect inspection, photomask patterning, and flat panel display deposition. The company has made four acquisitions since 2006 to become a major participant in the solar equipment market. Tokyo Electron. This Japanese company manufactures a broad line of wafer processing equipment, including coaters/developers, etch equipment, thermal processing systems, deposition systems, surface preparation systems, test systems, and metrology software. Tokyo Electron also supplies flat panel display production equipment, which is used to manufacture displays for personal computers, LCD televisions, and other electronic devices, to panel manufacturers. ASML Holding. Netherlands-based ASML Holding has held the No. 1 position in photolithography systems (or steppers) since 2002. (Photolithography is used to print complex circuit patterns onto silicon wafers, a primary material in chip production.) The company believes its share of the lithography market was 68% in 2009 (based on net sales), with Japan-based Nikon Corp. and Canon Inc. as its primary competitors. Nikon. Perhaps best known for its cameras, Japan-based Nikon is the second largest maker of lithography projection systems, behind ASML Holding. Nikon also makes lithography equipment for flat panel displays and magnetic heads for hard disk drives. Along with ASML, Nikon is a market and technology leader in immersion lithography, which enhances the photolithography process. (See the How the Industry Operates section of this Survey for more information on immersion lithography.) KLA-Tencor. This company is the leading supplier of yield management and process monitoring systems to the semiconductor industry worldwide. Its products help chipmakers find defects or process problems and improve productivity. Products include defect inspection, review, and analysis systems; metrology systems; and lithography, simulation, and analysis systems. KLA-Tencor is benefiting from chip manufacturing challenges, such as smaller linewidths, larger wafer sizes, and more complex circuitry, which have led to a greater need for sophisticated management of production processes. Lam Research. US-based Lam Research is the worlds largest maker of etch products, which are used to selectively etch away parts of films to create an integrated circuit. Its etch systems delineate linewidths and other features that define the function of integrated circuits. The company is also a leading provider of wet clean machinery. Dainippon Screen Manufacturing. This Japan-based firm (known familiarly as Screen) manufactures lithography process equipment for cleaning chip wafers, coating them with chemicals, and etching circuit details into the wafers. Its primary areas of business include semiconductor equipment, flat panel display equipment, and printing hardware and software for the graphic arts and publishing industries. ASM International NV. This Netherlands-based company designs and manufactures equipment used by both the front-end and back-end segments of the semiconductor manufacturing industry. ASMs products in the front-end market segment primarily relate to deposition and are used by customers to grow or deposit thin films onto wafers using a process called chemical vapor deposition. The back-end business is conducted through the majority-owned ASM Pacific Technology Ltd. subsidiary.

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 Novellus Systems Inc. This US-based company is the second largest manufacturer of deposition equipment used to deposit conductive and insulating layers on chip wafers to create integrated circuits. In 2001, Novellus Systems expanded its business by acquiring GaSonics International Corp., a manufacturer of systems used to clean and prepare wafer surfaces. Surface preparation products have become increasingly important as the industry migrates from aluminum to copper interconnects (which are used to link transistors). Teradyne Inc. This US-based company is the largest manufacturer of automatic test equipment and is a market-share leader in the system-on-chip (SOC) back-end test equipment market. In recent years, it has expanded into the memory market (both DRAM and NAND flash), as well as in the high disk drive (HDD) test market. The company also has tools used in certain industrial markets and the flat panel display industry. The next five companies in market share, according to VLSI Research, were Hitachi High-Technologies (No. 11), Advantest (No. 12), Aixtron AG (No. 13), Varian Semiconductor Equipment Associates Inc. (No. 14), and Verigy Ltd. (No. 15). Aixtron made its first-ever appearance in the top 15 in 2009, aided by its exposure to the high-brightness LED market.

INDUSTRY TRENDS
Semiconductors are growing smaller, faster, and more complex. Chip equipment makers play a key role in making these advances possible. This section presents the major business trends and technological advances that are shaping this industry.

IS SEMICONDUCTOR EQUIPMENT IN A LONG-TERM SECULAR DECLINE?

The semiconductor equipment industry has a reputation of having extremely volatile sales, among other metrics. While the industry saw substantial sales growth in the late 1990s and in the earlier part of this century, we think sales for the industry have likely peaked and are currently undergoing a secular decline. Although we will continue to see boom and bust periods for the semiconductor equipment industry in the future, we believe semiconductor capital equipment sales will trend downward longer-term (from peak to peak) as technological advances slow and semiconductor customers change their approach to spending. We believe total semiconductor capital spending WORLDWIDE SEMICONDUCTOR EQUIPMENT SALES is likely to decline to the mid-single-digit level AS A PERCENTAGE OF SEMICONDUCTOR SALES 10 years from now.
25 23.3 20.2 1 7.1 1 5 1 7.4

20

1 0 5

Chart H16: WORLDWIDE 1 4.5 1 4.0 1 3.3 SEMICONDUCTOR EQUIPMENT SALES AS A % OF SEMICONDUCTOR SALES

1 6.3

1 6.7 1 .9 1 7.0

0 1 999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sources: Semiconductor Equipment and Materials International; Semiconductor Industry Association.

Semiconductor equipment makers have historically seen significant capital spending during periods when chipmakers moved to larger silicon wafers. In the late 1990s, chipmakers started to invest in and expand production of capacity using 300-millimeter (mm) (12-inch) wafers, which are capable of producing more than twice as many chips per wafer than a 200mm (8-inch) process. The move to 300mm was an important driver for the equipment industry over the last decade. However, with 300mm technology now mainstream, we think the industry has already seen much of the sales benefit of retooling to this format.

We believe the migration to larger semiconductor wafers (450mm) is the only way of meeting the cost reduction and cycle improvement levels to maintain the Moores Law productivity curve over the next 10 years. However, can we count on 450mm to drive equipment sales? Were not so sure. Many manufacturers may have difficulty meeting the initial large investment to start up a 450mm manufacturing plant. A leadingedge 300mm manufacturing plant costs $3 billion to $5 billion, according to our estimates, and we assume
INDUSTRY SURVEYS SEMICONDUCTOR EQUIPMENT / NOVEMBER 11, 2010 11

that the minimal cost of a 450mm manufacturing plant would be much larger. In our view, only a handful of semiconductor companies have the financial resources to move toward larger sizes within the next several years. Additionally, we believe the lack of profitability for most memory manufacturers and recent consolidation among customers will cause any technological advances in the future to occur at a very slow pace, so that equipment makers will have to share a much smaller piece of the revenue pie going forward. When we compare the semiconductor industrys capital expendituresto-sales ratio over the last decade, we see a notable drop-off in recent years. We believe the decline was due to a combination of factors, including more realistic long-term growth and rational capacity projections, the proliferation and saturation of 300mm equipment capacity, increasing costs to develop chips on smaller linewidths, a tighter focus on return on investment (ROI) and other related metrics, and a steep drop in industry sales in 2001. As the industry matures, we think chipmakers will continue to scrutinize their capital expenditures. Barring a new killer application in the electronics industry that could drive the industry into much higher spending, we expect the industrys average capital spending ratio to fall as time goes by. Despite substantial growth in the 1990sworldwide sales of semiconductor equipment rose from $7.5 billion in 1992 to a high of $47.7 billion in 2000, according to trade association Semiconductor Equipment and Materials International (SEMI)we think sales for the semiconductor equipment industry are undergoing a secular decline. In 2007, SEMI reported that worldwide sales of semiconductor manufacturing equipment reached $42.77 billion, and in 2008, such sales totaled $29.52 billion, representing a year-overyear decline of 31%. Industry sales declined an additional 46% in 2009, to $15.92 billion. While we will continue to see boom-and-bust periods for the semiconductor equipment industry in the future, we anticipate a downward slope in peak sales in future cycles. We think this will be a result of the slower transition to smaller linewidths and reduced capital spending as a percentage of semiconductor revenues over the long term.

SEMICONDUCTOR EQUIPMENT MANUFACTURERS LOOK TO SOLAR FOR GROWTH

We see, as a longer-term trend, the expansion by semiconductor equipment manufacturers into the solar industry. We believe this makes sense because of the similar processes and technology used within both industries. In addition, the solar industry has higher growth opportunities compared with the more mature semiconductor industry. We believe companies, both small and large, will be looking to enter this area, whether organically or through merger and acquisition (M&A) activity. In this field, Applied Materials Inc. leads the way. The companys Energy and Environmental Solutions (EES) group, which consists primarily of solar products, has evolved through four acquisitions since 2006 (Applied Films Corp., HCT Shaping Systems SA, Baccini SpA, and Advent Solar Inc.). Applied entered the solar photovoltaic (PV) market in 2006 and announced its objective to lower the overall cost per watt of solar electricity to parity that of electricity generated by other sources, such as the burning of fossil fuels. (Photovoltaic is a method for creating solar power by using solar cells contained in photovoltaic modules.) Applied provides manufacturing solutions for both wafer-based crystalline silicon (c-Si) and glass-based thin film applications to enable customers to increase the conversion efficiency and yields of PV devices. Products include large-area platforms, such as the ATON in-line sputtering system for high-quality deposition and high-throughput in both c-Si and thin film PV cell manufacturing, as well as processes, materials-handling technologies, and fabrication services. (Deposition is the process by which a layer of electrically insulating or conductive material is deposited on the surface of a wafer.) During the fourth quarter of its fiscal 2007 (ended October 31, 2007), Applied launched the SunFab Thin Film Line; at the time, it was the worlds only integrated production line for manufacturing thin film silicon solar modules using 5.7 square meter (m2) glass substrates. These ultra-large panels (four times larger than any thin-film solar panel offered by competitors) were intended for large-scale applications such as solar farms and building-integrated PV system installations. However, in July 2010, the company announced plans to discontinue sales to new customers of its SunFab Thin Film Line, citing adverse market conditions.
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During fiscal 2007, Applied expanded its capabilities and opportunities in the c-Si technology sector through its acquisition of HCT Shaping Systems, the worlds leading supplier of precision wafering systems used to make c-Si substrates. These systems reduce silicon consumption and cost by sectioning silicon ingots into ultra-thin wafers used to fabricate c-Si solar cells. In early fiscal 2008, Applied completed its acquisition of Baccini, which supplies the automated metallization, edge insulation, inspection and test, and integrated handling systems required for the back-end manufacturing of the c-Si photovoltaic cells. In November 2009, Applied acquired substantially all of the assets of Advent Solar, a developer of advanced technology for crystalline silicon photovoltaics, for an undisclosed cash amount. Other semiconductor equipment manufacturers have also begun to follow Applied Materials, expanding their presence in the alternative energy industry. For instance, MKS Instruments Inc. manufactures component products used in crystalline silicon and emerging thin film processes to manufacture photovoltaic cells. Of the companys total sales in 2009 and 2008, solar-related revenue represented 5.7% and 7.6%, respectively. MKS Instruments is a major supplier to Applied Materials. Advanced Energy Industries Inc. is another example of an equipment supplier increasing its exposure to the solar market. Part of the companys business includes selling solar inverters, which convert the DC power produced by the solar panels into AC power for consumption on-site or for sale through the public utility grid. MEMC Electronic Materials Inc., a global leader in the manufacturing of semiconductor silicon wafers, has also become a major participant in the solar industry. The company entered the solar industry in 2006 and now derives about 50% of its sales from solar customers. In November 2009, the company acquired privately held SunEdison LLC, a developer of solar power projects and North Americas largest solar energy services provider, for $200 million. We view this vertical integration strategy positively and believe the deal will help drive growth in the companys wafer business.

CORPORATE STRATEGIES SPUR DEALS

Corporate strategies have driven consolidation, divestitures, and partnering in the semiconductor equipment industry for many years. These moves have helped companies to focus on core strengths and to share resources in order to remain competitive. We expect semiconductor equipment manufacturers to experience consolidation in the foreseeable future due to declining revenue growth and pricing pressure throughout the industry. After many years of speculation regarding consolidation in this industry, we expect companies to become more receptive to mergers and acquisitions, partnerships, and collaborations that help them to expand market share and boost profitability. The primary catalysts for recent announcements, in our view, have been the desire to boost market share in their respective markets, grow through mergers and acquisitions during a period of slow organic growth, and enter into new markets with higher growth opportunities. Applied Materials acquires Semitool In November 2009, Applied Materials announced the acquisition of Semitool Inc., a supplier of electrochemical plating and wafer surface preparation equipment, for $364 million in cash. We think the timing of this acquisition by Applied Materials, the largest manufacturer among its peers, illustrated the companys confidence in the start of a new semiconductor equipment upturn. We believe the deal will give the company greater exposure to high-growth areas such as advanced packaging and new products related to the memory industrys conversion to copper. We also believe the acquisition illustrates Applied Materials desire to continue growing its semiconductor equipment business, despite the greater focus on growing its solar business in recent years. Back-end equipment manufacturers consolidating We expect the back-end equipment industry (packaging and automatic test equipment) to experience more pressure to consolidate over the next several years than the front-end (materials preparation) due to the segments higher concentration of small participants and lower growth rates. Major issues for test equipment companies are competitive pressures, declining margins, high research and development costs, and a shift to lower-cost testers. High fixed costs heighten pricing competition in softer environments.
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We believe further consolidation of test equipment companies would facilitate cost savings through economies of scale and more effective factory utilization. Two of the bigger back-end players, Teradyne Inc. and Verigy Ltd. (a spin-off from measurement company Agilent Technologies Inc. in 2006), have made acquisitions in this segment. Teradyne. In January 2008, Teradyne acquired Nextest Systems Corp., a low-cost provider in the design and manufacture of automatic test equipment for flash memory and system-on-chip semiconductors. We believe Teradynes acquisition of Nextest brings the company into higher-growth adjacent markets, creating opportunities for the company to expand above the long-term 3%5% growth rate expected for the systemon-chip test market. In November 2008, Teradyne acquired Eagle Test Systems Inc., which designs, manufactures, and sells systems used to test analog, mixed-signal, and radio frequency (RF) semiconductor devices. In our view, Eagle Test Systemss power management and analog test applications complement many of Teradynes system-on-chip test products. We believe the company utilized cash in a meaningful way through opportunistic acquisitions amid the economic downturn, which we think better positions Teradyne amid the current industry upturn. Verigy. In June 2009, Verigy acquired Touchdown Technologies Inc., a developer, manufacturer, and seller of advanced MEMS (micro electro-mechanical switch) based probe cards used in wafer-sort testing of memory devices. Probe cards are used in conjunction with memory testers, and establish the final physical and electrical connection between the tester and the wafer being tested. Verigy completed its acquisition of Inovys Corp., a privately held company, in January 2008. Inovys provides solutions for design debug, failure analysis, and yield acceleration for complex semiconductor devices and processes. LTXCredence. In August 2008, LTX Corp. and Credence Systems Corp. completed an all-stock tax-free merger, whereby Credence became a wholly owned subsidiary of LTX. Following the merger, LTX changed its name to LTX-Credence Corp. In the longer term, we believe the merger will provide LTX-Credence with the scale and financial ability to better compete with larger peers in a highly competitive test-equipment industry. Industry analysts have been calling for consolidation among industry players for the last few years, especially for smaller players such as Credence Systems Corp. and LTX Corp.

TRENDS IN TECHNOLOGY
The semiconductor equipment industry has been instrumental in advancing chipmaking technology and materials. To stay current, chipmakers must periodically upgrade their process equipment. The present cycle is unusual in that several major process changes are occurring more or less simultaneously. The shift to 300mm wafer sizes is spurring the increasing use of automation. A transition from aluminum to copper interconnects has a number of important implications for chip equipment makers. Transition to larger wafers Chipmakers have historically moved to larger wafer sizes once every seven to eight years. With 300mm technology having become mainstream, there has been discussion in the industry about the use of 450mm wafers. According to the International SEMATECH Manufacturing Initiative (ISMI), a global alliance of the worlds major semiconductor manufacturers, in order to maintain the Moores Law productivity curve, the semiconductor industry needs to achieve 30% cost reduction and 50% cycle time improvement in manufacturing by 2012; in ISMIs opinion, this would only be possible through the migration to 450mm. While the cost savings during production can be significant, many manufacturers may have difficulty with the initial large investment required to start up a 450mm manufacturing plant. The International Technology Roadmap for Semiconductors (ITRS) provides assessments of the semiconductor industrys technology requirements. According to the most recent ITRS (2009; the next edition will be released in late 2011), the most prestigious chip manufacturersIntel, Samsung, and Taiwan Semiconductor Manufacturing Co.plan to work together with suppliers, other semiconductor players, and the ISMI to develop 450mm, with the goal of a test manufacturing line in 2012. Full production could occur two to three years after that.

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A 300mm plant costs approximately $4 billion, and one could assume that the minimal cost of a 450mm facility will be much larger, putting it beyond the reach of many companies. Although the ISMI concluded that 2012 is the right time for the industry as a whole to transition to 450mm, decisions of individual companies may differ, given the potential cost of producing a 450mm plant. As a result, this could bring into question the potential growth and size of the market, which could lead to some equipment manufacturers delaying their investment in the development of the new-generation technology. The ability of chip manufacturers to ramp up production of 450mm facilities will depend not only on the mastering of all technical issues associated with this transition to a new diameter, but also on the preparedness of the entire supply chain. This includes semiconductor equipment manufacturers, which may need to spend heavily on research and development to create the prototype tools. The readiness of wafer manufacturers is also unclear. In conclusion, the ITRS expects manufacturing tools to be available between 2012 and 2014 for initial manufacturing lines, with possible production ramping up from 201416 and beyond, subject to 450mm wafer high-volume availability at that time. The ITRS further estimates that wafer diameter should not be tied to technology generations because leading-edge technologies will, for a limited period, be running both in 300mm and 450mm technologies, as happened with the 300mm wafer generation ramp-up on two succeeding technology cycles (180nm130nm) in the 200103 timeframe. Lithography to lead the way to lower technology nodes Lithography equipment is used to print complex circuit patterns onto silicon wafers, which are the primary raw materials for integrated circuits. The printing process is one of the most critical and expensive steps in wafer fabrication. Lithography equipment is, therefore, a significant focus of the integrated circuit (IC) industrys demand for cost-efficient enhancements to production technology. The costs to develop new lithography equipment are high. The lithography equipment industry is characterized by the presence of only a few participants such as ASML Holding NV, Nikon, and Canon. A lithography tool projects light from the light source through an image of the circuitry pattern on a photomask or reticle. The image of the circuitry is transferred by the light being projected through a reduction lens onto a small portion of the surface of the silicon wafer. Depending on the kind of chip being made, a total of 30 to 50 layers are patterned precisely over the first to complete the circuit fabrication, at which time the wafer is fully processed. The ability to pattern smaller circuits depends, to a great degree, on the wavelength of the light used in the photolithography process. A shorter wavelength of light can pattern circuitry with smaller critical dimensions, which in turn allows the transistors that serve as circuit switches to be smaller and the resulting chips to provide higher levels of functionality. The short wavelength of deep ultraviolet (DUV) light enables the required resolution, depth of focus and critical dimensions control required to pattern semiconductor circuits. The light from these DUV sources is generated by mixing two gaseseither krypton and fluorine (KrF), or argon and fluorine (ArF)inside a discharge chamber within the light source system. It is becoming increasingly more difficult to extend optical lithography. The newest flash devices are currently being manufactured using double patterning as a way of extending the half-pitch. This approach will be pushed harder as chip manufacturers begin to test the limits at the 22nm node. However, it is at this point that alternative next-generation lithography must be introduced into manufacturing to ensure a smooth transition as the lithography extends beyond 22nm. Extreme ultraviolet (EUV) lithography is expected to be the next critical dimension imaging solution after ArF immersion lithography and double patterning extensions because of its lower cost of ownership. The availability of a high power source for 13.5nm radiation is one of the technologies requiring significant developments to enable the realization of EUV lithography. Other technologies that are needed to enable EUV photolithography include photoresist and mask. Photoresist performance parameters needing the greatest amount of development include sensitivity or speed, line-edge-roughness, and line-width-roughness. Photoresist sensitivity and scanner optical transmission are the basis to derive EUV source power requirements within a usable bandwidth.
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Move to copper from aluminum creates opportunities The industry continues to be revolutionized by the transformation from aluminum wiring to copper wiring in advanced semiconductor chips. Copper wiring requires that many new materials be developed, such as barriers and insulators, planarization materials, pre- and post-deposition cleaners, pre- and post-chemical mechanical planarization (CMP) cleaners, and post-etch photoresist and post-strip residue removers. Each new layer of copper generates a need for additional new materials. As the migration to copper continues, many in the industry are predicting that the number of steps required to produce a chip will increase, driving the need for as many as 50 to 60 new materials to be developed in support of this change. While some device manufacturers are still using aluminum as the main conducting material for building interconnect structures, most have transitioned to copper. Coppers lower electrical resistance means that chips made with copper interconnects need fewer metal layers compared with those made with aluminum, which reduces costs. Because copper conducts electricity with about 40% less resistance than aluminum, using copper increases performance, raising microprocessor speed by as much as 15%, and reduces power needs, extending battery life. In addition, aluminum is unable to conduct electricity well at very small linewidths; using copper enables designers to layer 100 million to 200 million transistors on a chip. Overall, the use of copper allows for smaller circuits because copper greatly reduces power consumption while increasing IC speed. Although copper has advantages, it also presents a number of difficulties. Unlike aluminum, copper cannot be etched. To overcome this hurdle, IBM developed a process called Damascene, in which a circuit pattern is etched into a dielectric (insulating) layer; then, a layer of copper that overfills the trenches is deposited on the etched dielectric. Finally, the excess copper is removed by a polishing step called chemical mechanical planarization (CMP, the use of an abrasive compound to polish a wafers surface to eliminate imperfections that would otherwise interfere with the photolithography process and chip yields). Electrochemical deposition (ECD) is growing rapidly as a result of the industrys desire to use copper as the conducting layer in certain devices. Nature favors copper over aluminum wiring because of its higher conductivity and greater resistance to thermally and electrically induced short circuits. In ECD, the wafer is placed in a bath of copper electroplating solution. A power supply is connected from the wafer substrate to a solid copper anode. When current is applied, the wafer acts as a cathode where copper is reduced from a solution and deposited onto the wafer resulting in a thin film of copper on the wafer. CMP is used to prepare a wafer for patterning photolithography. As wafers are processed, thin film thicknesses vary across the surface of the wafer. Because of the fine linewidths used in photolithography, wafers need to have more consistent topography. CMP planarizes the processed wafer by polishing the wafer using a mechanical polishing pad and slurry, an abrasive solution containing abrasive particles and liquids and chemicals that selectively erode away the appropriate excess materials. Given the migration to copper, precision surface preparation and cleaning materials become more critical in the fabrication of advanced interconnect devices. In conjunction with the switch to copper, semiconductor manufacturers are moving from traditional silicon oxide insulating films to insulators that have a low dielectric constant, or low-k. Low-k dielectric materials provide more effective insulation between metal layers that are packed increasingly closer together. Equipment makers that focus on deposition, etch, CMP, metrology, and defect inspection have developed new tools designed specifically for copper processes. Major participants include Applied Materials, ASM International NV, Novellus Systems Inc., FEI Company, KLA-Tencor Corp., Lam Research, and Rudolph Technologies Inc. Applied is the leading supplier of systems for manufacturing copper-based chips, including equipment for depositing, etching and planarizing copper interconnect layers. In addition, companies such as ATMI Inc. and Cabot Microelectronics Corp. provide specialty materials, such as gases and CMP slurries, used in the copper Damascene process.

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INDUSTRY SURVEYS

ASIA-PACIFIC STIRS UP CHIP AND EQUIPMENT SALES

A major reason for the growth of the Asia-Pacific chip market is the shift of electronics manufacturing to that region. Many electronics makers have set up shop in countries such as China, Malaysia, and Singapore to take advantage of low-cost skilled labor. Hewlett-Packard Co., Motorola Inc., and Dell Inc. all have facilities in Asia, and many contract electronics makers have expanded their operations in the region in recent years. People in Japan, South Korea, and Taiwan have been technology enthusiasts for many years. With rising prosperity in other Asian-Pacific nations, a growing number of residents can now afford the latest electronic devices. Living standards have risen dramatically in China, South Korea, Malaysia, Singapore, and India in the past decade. One result of this change has been a marked increase in Internet and computer use: over 700 million Internet usersor more than 42% of total world usersresided in Asia at year-end 2009, according to Internet World Stats, which tracks Internet usage. GLOBAL CHIP CONSUMPTION, BY REGION
(Percentage of total) 60 55 50 45 40 35 30 25 20 1 5 1 0

Chart H05 : GLOBAL CHIP CONSUMPTION, BY REGION

2000 2001 2002 2003 Americas Europe

2004 2005 2006 Japan

2007 2008 2009 Other Asia/Pacific

Flextronics International Ltd., a contract manufacturer that makes products for companies such as Dell, Motorola, and Xerox Corp., reported that 20% of its sales for its fiscal year ended March 2001 were in Asia. For its fiscal year ended March 2010, that percentage had risen to 48%. The region has also become more important for Jabil Circuit Inc., another leading electronics contract manufacturer, which has seen sales to this region rise, as a percentage of sales, over the last decade.

Source: Semiconductor Industry Association.

With the concentration of electronics manufacturing in Asia, semiconductor companies are following suit in order to collaborate more closely with their customers, reduce shipping costs, and take advantage of the regions significantly lower operating, property, construction, material, and labor costs. With the cost of building a new fab over $3 billion, semiconductor companies are attracted to regions that can provide savings on land and building costs. (Fab is the informal name for a chip manufacturers wafer fabrication plant.) In addition, wages for skilled labor are considerably less than what they are in the West, and raw materials that are heavily used during the fabrication process, such as water and industrial gases, are also much less expensive. Chip manufacturing and design are moving to Asia More and more chip manufacturing has moved to Asian countries. Taiwan and other Pacific Rim countries have seen their chip foundry businesses grow significantly in the past fifteen years. (A foundry manufactures chips for other companies.) Three of the four largest foundry manufacturers are Asian companies: Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and United Microelectronics Corp., both of Taiwan, as well as Semiconductor Manufacturing International Corp. (China). Although Chinese tech companies used to focus on low-end assembly and manufacturing, they are now making more advanced technology products. China has also succeeded in drawing eager international investors by providing low labor and land costs, efficient ports and transportation systems, and a skilled labor force. While other countries in Asia, such as the Philippines, may offer cheaper labor, China appeals to chipmakers because it already has the factories that make computers and cellphones, which use vast quantities of chips. The landscape for fab capacity has dramatically changed since 2000, with countries such as South Korea and Taiwan gaining significant market share, while others such as Japan and the US losing sizeable share. We expect this trend to continue over the long term, as companies can enhance cost efficiencies and gain competitive advantages by moving closer to customers.
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Semiconductor equipment makers have followed their customerschipmakers and foundriesto Asia; the majority of new chipmaking plants are now being built in the region. The increasing amount of new foundries in Asia, especially in Taiwan and China, means that Asia is becoming increasingly important to semiconductor equipment makers. Industry leader Applied Materials has seen sales to Asia rise from 30% of its revenues in fiscal 1997 (ended October 1997) to 66% in fiscal 2009. This included 21% of its sales in Taiwan, Japan (14%), Korea (13%), and Asia-Pacific (18%, including China).
SEMICONDUCTOR EQUIPMENT SPENDING BY REGION 2008 Rest of World 9% China 6% Europe 8% Taiwan 1 7% 2009 Rest of World 9% China 6% Europe 6% Japan 1 4% South Korea 1 6% Total: $15.9 billion North America 21 %

Taiwan 28%

CHART H15: SEMICONDUCTOR EQUIPMENT SPENDING BY North America REGION 1 9%

Japan 24%

South Korea 1 7% Total: $29.5 billion

Source: Semiconductor Equipment and Materials International.

End markets fuel growth Key end markets have driven growth in both the semiconductor and chip equipment industries. Having multiple end markets has helped reduce cyclicality and increased stability in these industries. Consumers account for a growing share of end-demand for chips in PCs and electronic products, which has also helped mitigate industry volatility. PCs have historically accounted for the largest proportion of chip demand, and this trend continues. In recent years, chips used in PCs and other computer equipment accounted for roughly 40% of worldwide chip demand. The remaining global chip demand is driven by consumer spending on products for mobile communications, entertainment, and transportation. In August 2010, Gartner Inc., an information technology market research and consulting firm, forecast that the PC industry would experience a 19% rise in total shipments to 367.8 million in 2010. Gartner expects the PC market to remain robust over the next several years, as home PC demand and professional replacements rise. The research firm believes that the impact of mini-notebooks on the PC market has peaked and is now waning. Following a peak of 20% in late 2009, mini-notebooks share of mobile PC shipments declined in the first two quarters of 2010, falling under 18% in the second quarter, according to Gartner, which expects this figure to drop until it reaches around 10% by late 2014. This drop is due partly to rising interest in new ultra-low-voltage ultra-portables and next-generation tablets.

HOW THE INDUSTRY OPERATES

Although the semiconductor capital equipment industry is unfamiliar to the average person, it is a key part of the present technological revolution. Advanced devicessuch as lithography and etch systemsfacilitate the production of faster, cheaper, and more powerful chips, which in turn power the personal computers (PCs), networks, and communications systems that are now integral to the global economy. As late as the 1980s, semiconductor companies built much of their own production equipment. As manufacturing became more complex, stand-alone equipment suppliers emerged as a reliable source of

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hardware capable of meeting semiconductor manufacturers exacting standards. Today, large equipment suppliers are not only selling process tools but are also integrating them and guaranteeing process results. Since the invention of the integrated circuit (IC) in 1959, the size of circuits on semiconductor chips has diminished at a fairly steady rate. Until about 1975, semiconductor transistor densityand hence, performancedoubled roughly every year; since then, circuit density has doubled about every 18 months. To achieve this constant advance in circuit density and performance, chipmakers have increasingly turned to equipment suppliers to provide process solutions, not just nuts-and-bolts equipment.

MOORES LAW CHARTS TECHNOLOGICAL PROGRESS

In 1965, Dr. Gordon Moore observed that the number of transistors per chip had doubled roughly every year since the IC was invented. Dr. Moore, who cofounded Intel in 1968, predicted that this rate of advance would hold over the next 10 years, and he was proven correct. Dr. Moore revised his prediction in 1975, foreseeing a doubling every 18 months, which he changed again in 1995 to every two years. His observation, now known as Moores Law, has become an industry benchmark. In accordance with Dr. Moores observation, advancing technology has led to the production of smaller, faster chips with more functionality and greater memory capacity. Simply put, Moores Law means that, for the same price, a person can purchase twice the processing power and twice the amount of memory every couple of years. As a result, a laptop computer costing less than $1,000 today contains more processing power than a million-dollar mainframe computer of 20 years ago. These advances in semiconductor capability have been achieved by decreasing the feature size, or linewidth, of chips, and by increasing the number of layers of material deposited on them. Todays most advanced chips contain more than one billion transistors and up to 12 layers of metal wiring. These layers can be divided into two groups: the lower section, which is usually made of tungsten or aluminum and is comprised of three or four layers holding the transistors; and the upper section, which has six to eight interconnect layers that provide the connection to the transistors below. In logic chips, the interconnect layers are increasingly being made from copper. The benefits of moving to next generation technology can include using less space per transistor, reducing heat output from each transistor, and/or increasing the number of integrated features on each chip. This can result in microprocessors that are higher performing, consume less power, and/or cost less to manufacture. As chips continue to shrink, there has been some doubt about the industrys ability to keep up with Moores Law. Intel and others have been working with new materials, such as hafnium, to overcome some of the physical barriers of making ever-smaller chips. Now, as always, the need to innovate to keep up with the pace of progress in linewidth size creates both challenges and opportunities for semiconductor equipment makers. The driver of this perpetual growth is the pursuit of profits and margins. Chipmakers can demand a high premium for chips that are a step ahead of peers due to the resulting exponential performance benefits. This pushes up pricing and demand for leadingedge equipment technology and drives perpetual innovation by the semiconductor equipment companies.

HOW CHIPS ARE MADE

Before describing the different types of semiconductor equipment, it is necessary to explain the steps in the chip manufacturing process. Semiconductors are produced through what is perhaps the most advanced and complex manufacturing process in the world, involving an average of 500 individual process steps. The two basic stages in chip production are known as the front end and the back end. The front end involves materials preparation (circuit design, photomask making, and the manufacture of raw wafers) and wafer processing (repeated cycles of deposition, etch, doping, planarization, and in-process testing). The back end consists of assembly, packaging, and final test operations.

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An outline of the major semiconductor manufacturing processes follows. For illustrations of the chipmaking process and descriptions with workflow diagrams, see the following websites: http://www.sematech.org/corporate/news/mfgproc/mfgproc.htm http://www.intel.com/pressroom/kits/chipmaking/?iid=SEARCH The wafer: a slice of silicon The basic component in the manufacture of semiconductor devices is a thin, circular crystalline silicon wafer. Wafers are cut from a silicon column fashioned from melted sand to which a seed crystal was added. Wafers today typically have a diameter of 300 millimeters (mm; 12 inches) or 200mm (eight inches). The wafer is cleaned throughout the manufacturing process. As device geometries on wafers shrink further, reducing contamination becomes increasingly important. To ensure that microscopic particles do not interfere with fabrication, semiconductors are manufactured in a clean rooma small windowless space fitted with superfine air filters. Human presence is minimized in the clean room, and production workers wear bunny suits that cover the entire body. Wafer processing After the cut wafer receives its initial cleaning, a primary layer of ultrapure crystalline silicon is grown on the wafers surface, in a process called epitaxy. This epitaxial layer (or epilayer) performs better than the bare surface of the raw, bulk wafer in subsequent fabrication steps. Following epitaxy, the wafer is cycled through each of the major wafer process steps about 16 to 24 times, in order to create up to 25 layers of materials and as many as 12 wiring levels. The four basic types of operations in wafer processing are layering, patterning, doping, and heat treatments. (The process description that follows draws on Peter Van Zants textbook, Microchip Fabrication: A Practical Guide to Semiconductor Processing, listed in the Industry References section of this Survey.) Layering. In layering operations, also referred to as deposition, thin films of insulating (dielectric) or conductive (metal) materials are either grown or deposited on the wafer. Layers may be grown, in a manner akin to rusting, through oxidation or nitridation. Deposition techniques include chemical vapor deposition (CVD), evaporation, and sputtering. In CVDthe most common thin film deposition methodhigh heat and low pressure are applied to gaseous mixtures to facilitate the deposition of a thin film layer. Evaporation involves melting a conductive metal, often aluminum, to a liquid state so that the atoms or molecules can evaporate into the chambers atmosphere. Sputtering (also called physical vapor deposition, or PVD) is a physical, rather than a chemical, process. Positively charged argon gas atoms strike the atoms of a target material, scattering them throughout the chamber, with some moving to the wafers surface. Patterning. Patterning involves the transfer of a circuit design to the wafer surface. This process, also known as photolithography or photomasking, is very similar to the photographic process. Microscopic images of electronic circuits are imprinted in chrome on a clear quartz plate known as a photomask, or reticle. The photomask is placed together with the wafer in a piece of equipment called a step-and-repeat projection aligner, or stepper, which operates like a photographic enlarger except that it typically reduces the projected image. Inside the stepper, a light source is used to project the images from the photomask onto the wafers surface, which is coated with a layer of light-sensitive liquid called photoresist. When light hits the photoresist layer, the exposed photoresist is rendered insoluble and hardens. The stepper then repositions the wafer so that the process can be repeated on a different section of the wafer to imprint another die with the circuit. In a step called etching, or simply etch, solvents are introduced that remove the portion of the wafer layer not protected by the hardened photoresist. This leaves a pattern on the wafer that exactly matches the circuit pattern on the mask after doping (deposition). The hardened photoresist is later removed with another chemical, in a step known as strip. Both etch and strip may be performed using wet techniques (using liquid chemicals) or dry techniques (using reactive gases).

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 Doping. In doping operations, specific amounts of impurities (called dopant atoms) are introduced through exposed portions of the wafer to create electrically active areas. The two doping techniques are thermal diffusion (a chemical process) and ion implantation (a physical process). In thermal diffusion, a solid, liquid, or gaseous mixture containing the desired dopants is vaporized and allowed to contact the wafer in a heated environment. When the wafer is heated to about 1,000 degrees Celsius, the dopants are driven into the wafer and redistributed both vertically and horizontally throughout the wafers depth. In ion implantation, a magnetically focused beam of charged particles (ions) is used to shoot dopants into the wafer surface in a process similar to a pistol firing bullets into a wall. Implantation is more precise than diffusion. Heat treatments. In heat treatment operations, wafers are heated or cooled to achieve certain results; no materials are introduced or removed. One example is the anneal step, in which damage to the wafers crystal structure (resulting from ion implantation) is repaired by heating the wafer above 700 degrees Celsius. Heat treatments also are used to alloy deposited stripes of metal to the wafer to ensure proper electrical conduction. Cooling treatments are used to freeze and control water vapor, oils, gases, and other contaminants in wafer process chambers. In-process testing and smoothing Inspection and measurement of the wafer and its individual ICs is performed throughout the wafer fabrication process. Electrical parameters are measured to verify the reliability of the entire process, and wafers are examined for unwanted particles. In-line monitoring is becoming increasingly popular (and necessary) as a way of detecting defects at the moment of production, as opposed to waiting for final test results of the finished products to discover problems. These activities are part of yield management efforts to discover, analyze, and correct inefficiencies in processing procedures. The process step known as chemical mechanical planarization (CMP) uses a polishing procedure involving abrasive slurries to smooth the surface of a wafer after each metal interconnect layer is created. CMP began to be widely used in the 1990s. As linewidth geometries have shrunk, CMP has grown in importance. The smoothing is necessary to correct irregularities on the wafers surface that can impede the photolithographic process and reduce the yield. The back end: assembly... The steps of wafer dicing, die bonding, and wire bonding are known collectively as assembly. The back end of the chip manufacturing process begins when the finished wafer is cut into individual devices with a dicing saw that uses diamond-embedded saw blades. Depending on the size of the devices (which varies widely), more than 2,400 ICs can fit on a 300mm wafer, while only 1,000 ICs can fit on a 200mm wafer. The actual yield, or percentage of usable finished devices produced per wafer, depends on the number of defects. A die bonder takes each good IC (also known as a chip or a die) and bonds it to a package that is typically a stamped metal or ceramic leadframe. The package is then moved to a wire bonder. In order to create the electrical connection necessary for the device to function, very fine gold or aluminum wire is bonded between specific bond pads on the die and corresponding leads on the package. In an emerging alternative technology known as flip chip, bumps on the die make the connections to the package, thus eliminating the need for wire bonding. ...packaging... Next comes packaging, which commonly involves encapsulation of the die and lead frame in molded plastic packages that protect the chips and help to dissipate heat. For chips that will operate in harsh environments, a hermetic seal can be achieved with metal and ceramic enclosures. ...and testing Finished packages are subjected to a final test process. Environmental tests check the packages resistance to temperature change and leakage; if air can get in, it can contaminate the chip with particles and moisture. Electrical tests ensure that the chip functions within required parametric specifications.
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Test equipment includes computer-controlled mainframe testers, test heads connected to the testers, and handlers that insert the packages into the test heads sockets. An optional burn-in test often is used to evaluate the chips in operation at various temperatures; it seeks to stress the chip and package connections to eliminate chips prone to failure early in their lifetime. Wafers: bigger is better Historically, semiconductor manufacturers have moved to a larger wafer size every seven or eight years. In the early 1970s, the standard wafer size was one and one-half to two inches. Today, standard wafer sizes are eight and 12 inches (200mm and 300mm, respectively). To process 300mm wafers, chipmakers have had to purchase new equipment, which on average costs 1.3 times as much as equipment for making 200mm wafers. Initial margins on 300mm tools were lower than those for 200mm tools, until manufacturing volumes increased and efficiencies developed. However, as the technologies matured and sales increased, 300mm sales have helped equipment makers revenues and margins. Lithography: smaller is better Another critical technology for the production of devices with ever-smaller transistor sizes is imaging (or lithography) equipment. In a process similar to making prints from photographic negatives, lithography projects visible light (optical lithography), or x-rays or electron beams (non-optical lithography), through circuit patterns onto silicon wafers. Photolithography is used to print complex circuit patterns onto the wafers that are the primary raw material for ICs. As it is one of the most expensiveand the most critical steps in the manufacturing process of the semiconductorthere is a need for cost-efficient enhancements to production technology. ASML Holding NV is a major participant in the photolithography equipment industry, with its Step-andScan systems, which combine stepper technology with a photo-scanning method. As the size of the electronic features of semiconductors has shrunk, advanced chips features are now smaller than the shortest wavelength of light used in the photolithography process. The problem is analogous to that of trying to draw a one-eighth inch line with a quarter inch pen. One way of dealing with the light wave problem is through special photomask techniques that trick light into resolving very fine features. However, such tricks have caused sharp increases in the complexity (and hence the price) of photomasks. The result is that the cost of masks, and of developing new mask technologies, is spiraling out of control. There are several ways to try to reduce photomask costs. Foundries sometimes offer multiproject wafers in which several chips share the same set of photomasks, to reduce costs. As another cost reduction method, chipmakers will sometimes use programmable logic chips, which are offthe-shelf chips that allow for some customization, especially when they design a chip for low volume production. This eliminates the high fixed costs of manufacturing custom designed chips and the need for a unique set of photomasks. Photomask makers continue to aggressively pursue technology to reduce their costs of manufacturing photomasks. With the photomask market fairly competitive, lower costs enable photomask makers to increase their margins and/or gain market share through more competitive pricing. ASML has been performing research on maskless lithography (a mask contains the pattern that is imaged onto the wafer). Maskless lithography is one of the possible solutions for managing rising mask costs and it increases the flexibility of the imaging. Designs resulting in small quantities of wafers, designs with many changes, or designs that require a fast time-to-market will particularly benefit from maskless technology. In December 2004, Micronic Laser Systems AB and ASML agreed to a license agreement concerning the development of optical maskless lithography technology for semiconductor manufacturing. Deep ultraviolet (DUV) lithography tools in production today are either krypton and fluorine (with a 248nm wavelength) or argon and fluorine (193nm wavelength). The bandwidth of the light selected can be further narrowed through a number of optical techniques. Depending on the kind of chip being manufactured, krypton and fluorine light sources are used to pattern features from 250nm to as small as approximately 90nm. Argon and fluorine sources are used to pattern features of approximately 120nm, and are expected to be used until extreme ultraviolet (EUV) sources are adopted in production at approximately 22nm.
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Immersion lithographywhereby a layer of water is inserted between the final lens element and the wafer to reduce the wavelength of the light to enable the patterning of even smaller critical dimensionsis expected to enable the extension of argon and fluorine technology to approximately 32nm. At that point, an additional technique called argon and fluorine immersion double patterning will be used to extend argon and fluorine lithography to pattern features to 25nm or smaller. In double patterning applications, using one of several potential approaches, the most critical layers on the wafer will be patterned twice in order to reduce feature sizes beyond those achievable using immersion alone. When double patterning reaches its critical dimension limit, the next wavelength will involve the use of extreme ultraviolet illumination sources, which are expected to be needed in production sometime between 2011 and 2012.

TOOLS OF THE TRADE

Semiconductor equipment is typically categorized according to the two stages in chip production: front-end or back-end. In the long term, growth in front-end equipment is expected to outpace that of the back-end segment. This reflects prospects for significant technology upgrades of front-end tools, which will enable the production of devices with smaller linewidths on larger wafers. Front-end tools Front-end tools perform manufacturing steps from the creation of the silicon wafer to the production of ICs on the wafer. Wafer process equipment typically accounts for about 75% of total industry revenues from equipment sales. Other front-end equipment (including masks, wafer manufacture, and facility automation and equipment) accounts for another 5%. The broad front-end category comprises photolithography equipment, deposition equipment, and etching and cleaning tools. Process diagnostics, ion implantation, and chemical mechanical polishing tools are other types of front-end manufacturing equipment. Back-end tools Back-end tools comprise equipment used in the latter stages of manufacturing, after ICs have been produced on the wafer, and typically account for about 20% of total industry revenues from equipment sales. These steps include assembly, packaging, handling, and testing of individual chips. Historically, the market leaders in this segment have been Advantest Corp. and Teradyne Inc.

KEY SALES DRIVERS

There are several key sales drivers for semiconductor equipment. These include global gross domestic product, global chip demand, and chipmaker capacity and utilization. Demand for semiconductors is influenced by conditions in the global economy. For example, businesses tend to cut capital spending during a recession, leading to slower growth in semiconductor-rich applications, such as computers and communications infrastructure. Likewise, demand for consumer products with high semiconductor content, such as PCs, cellular phones, video games, and so on, declines during periods of economic weakness. While the ups and downs of the economy strongly affect the chip market, so do internal industry conditions, the foremost of which is available manufacturing capacity. Excess capacity leads to lower chip pricing, less profits at chipmakers, and a sharp drop in spending on chip equipment. As a result, changes in manufacturing capacity strongly accentuate economic cycles. Future demand for semiconductors is notoriously hard to predict. Since it takes one to two years to complete a new semiconductor fabrication plant, industry executives must make decisions on whether or not to add capacity long before the capacity will actually be needed. Often, the largest amount of capacity is added just when it is needed the least, at the top of a cycle, when demand is about to swing lower. To reduce the impact of declines, chipmakers seek to reduce their fixed costs by outsourcing manufacturing to semiconductor foundries. (Fixed costs include overhead and other costs that do not vary directly with
INDUSTRY SURVEYS SEMICONDUCTOR EQUIPMENT / NOVEMBER 11, 2010 23

changes in sales volume.) When chipmakers outsource their manufacturing, it can soften the blow to profitability when demand slows and capacity is idle. It may also lessen volatility in chip industry profits by essentially transferring the risk of idle plants to the foundries. Similarly, equipment makers outsource part or all of their tool manufacturing. Chipmakers do risk losing some business during market upturns, when foundries are running at capacity and may have to turn away orders. This risk affects smaller chip companies, in particular. In addition, chipmakers must pay a premium to compensate foundries for the costs of shouldering idle capacity during downturns. While this arrangement can allow chipmakers to better control expenses during downturns, it also means that profits may be more limited than in the past, during boom times, due to the shift from fixed costs to more variable costs. Long lead times magnify swings Market volatility for chip equipment companies is exacerbated by the long lead times inherent in the electronics supply chain, which includes electronics manufacturers, chipmakers, materials suppliers, and chip equipment makers. Because of the time needed to produce electronic goods, manufacturers must forecast demand for their products and share these forecasts with chipmakers, which must in turn forecast demand for their chips, in order to maintain adequate inventories. If actual demand falls short of forecasts, chip inventories can pile up among end users, manufacturers, and distributors. Since equipment makers are at the bottom of the electronics food chain, the downturn caused by such an inventory glut can have a severe effect on equipment purchases. Indeed, market volatility is even more severe for semiconductor equipment companies than for chipmakers because of the long lead times needed to fill equipment orders. Typically, equipment is delivered five to six months after an order is placed; even during industry slowdowns, the wait may still be as long as three months.

LONG-TERM RELATIONSHIPS SUSTAIN GROWTH

Semiconductor equipment is marketed primarily through direct sales forces rather than through agents or distributors, especially in the US. However, distributors are often used in foreign markets. Equipment manufacturers focus their marketing efforts on building long-term relationships with customers. To that end, equipment companies employ sales and engineering personnel that work closely with chip manufacturers. In addition, they provide ongoing product support services to customers. To carry out these services, larger equipment companies maintain sales and support offices in major equipment markets around the world, including locations in Europe, North America, Japan, South Korea, Taiwan, and, increasingly, China. Chipmakers are typically resistant to switching from one equipment vendor to another unless doing so results in substantial benefits. The rationale for this is the sensitivity of the manufacturing process and the costly and time-consuming process of qualifying a new tool. The rule of thumb is that a 25% benefit is needed to get a chipmaker to consider a new tool. This forced loyalty means that equipment makers and chipmakers must work together to solve problems and emerging needs. Chip equipment companies also commonly enter into joint ventures or alliances with each other in order to penetrate new markets. For example, Applied Materials and Brooks Automation Inc. operate a partnership to help grow Applied Materials service business and provide new customers for Brooks equipment. An equipment manufacturers installed basethe total amount of software and machinery in service at customer sitesindicates the degree to which its products have been accepted in the marketplace and is thus an important measure of the companys stature in the industry. Furthermore, since all active equipment must eventually be replaced with the latest technology (or at least serviced or updated), a formidable installed base provides additional revenue opportunities.

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R&D IS CRITICAL
Although the number of participants in a market segment can vary greatly, the industry is highly competitive on a global basis. Price, overall cost of ownership, product quality and reliability, and customer service are among the critical competitive factors. To keep up with the competition amid rapid technological change, equipment makers must invest significant sums in product and process research and development (R&D). Although smaller companies often have the advantage of being innovative, they are usually at a disadvantage in terms of total dollars available for R&D and the number of engineers and other technical workers available. Because of high R&D costs and the time needed to develop and ready new equipment for market, several years are usually required for a new semiconductor equipment product to generate initial sales, and, if successful, to eventually produce profits. Throughout the process, the semiconductor equipment company shoulders considerable risks. It may spend millions of dollars on designing a new product without any guarantee that the product will sell.

REDUCING COSTS THROUGH OUTSOURCING

The severe industry downturn of 2000 to 2001, and again in 2007 to 2009, forced both chipmakers and semiconductor equipment companies to address their high cost structures. Cost-saving measures have continued even as industry conditions have improved. Some companies have consolidated manufacturing plants or moved manufacturing and/or parts sourcing overseas to lower-cost areasChina, in particular. Taken together, these cost reductions should provide the industry with significant operating leverage; that is, as industry revenues begin to increase, profits should rise at a faster pace than revenues. Semiconductor manufacturers and chip equipment companies are now focusing on reducing fixed costs rather than total costs by outsourcing more of their noncore business functions to achieve lower break-even levels. Some chipmakers go fabless In the 1950s and 1960s, semiconductor manufacturers such as International Business Machines Corp. (IBM) built their own fabrication equipment to design and manufacture their chips. With the PC boom of the 1980s, these firms began to focus on designing and building chips and began buying manufacturing equipment from others. Established suppliers, such as Applied Materials and Teradyne Inc., grew much larger as the chipmaking equipment market expanded. Further specialization among equipment makers has accompanied the proliferation of semiconductors, which are now incorporated in a variety of manufactured goods, from automobiles to computers to cellphones. The cost to build a semiconductor fab is enormous. Building a new, leading-edge 300mm fab at the 45nm node requires an investment of $3 billion to $5 billion. Cost issues have led many semiconductor companies to outsource their chip production to contract manufacturers, or foundries. Semiconductor companies that design and market their own chips, but rely on others to manufacture them, are called fabless. Top fabless semiconductor companies include Qualcomm Inc., Broadcom Corp., and Nvidia Corp. Short of going fabless, most chipmakers outsource at least some of their functions, including back-end processes such as testing, assembly, and packaging. With rising complexity, capital demands, and research required to maintain leading-edge packaging facilities, chipmakers are increasingly outsourcing these services. (Packaging must protect semiconductors from the environment, and, at the same time, allow electricity to circulate between the chip and the printed circuit board, or PCB). Leading back-end service providers include Advanced Semiconductor Engineering, and Siliconware Precision Industries Co. Ltd. (both based in Taiwan), Singapore-based STATS ChipPAC, and US-headquartered Amkor Technology Inc. Foundries gain in importance As more chipmakers outsource portions of their manufacturing, or decide to go entirely fabless, foundries are becoming more important. The foundry model goes back to 1980, when United Microelectronics Corp. (UMC) was established in Taiwan. UMC produced chips under its own brand as well as under contract for other companies. In 1987, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) emerged as the first chipmaker dedicated exclusively to contract manufacturing. Also established in 1987 was Chartered Semiconductor Manufacturing Ltd. in Singapore. TSMC now dominates the foundry business.
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Foundries are helping to reduce cyclicality in the semiconductor industry. Instead of chipmakers running their own equipment, foundries are able to schedule manufacturing more efficiently, with less wasted capacity. Foundries such as TSMC and UMC are excellent sources of production and sales information, issuing reports monthly instead of quarterly. This frequently updated information helps the industry to manage volatility. For semiconductor equipment makers, however, the rise in use of foundries may not be entirely positive. Chipmakers that rely more on foundries will purchase less equipment. In addition, increased industry efficiency resulting from the use of foundries may reduce the growth in equipment sales. Outsourcers move down the supply chain In the 1970s and 1980s, makers of chip equipment (original equipment manufacturers, or OEMs) typically supplied tools and all subsystem parts directly to fabrication plants. In time, this relationship evolved so that OEMs supplied tools to the fabs, while other players manufactured some of the subsystems for the OEMs. Outsourcing these parts reduces research, development, and manufacturing costs for the OEMs. At the same time, it enables the subsystem manufacturer to concentrate its engineering talents on increasing the parts functionality and efficiency. The subsystems contain significant added value, so participation in this market can raise parts makers profit margins. Semiconductor equipment companies outsource a variety of functions. LTX-Credence Corp., for example, outsources its assembly, system integration, and testing operations to electronics vendor Jabil Circuit. Applied Materials outsources many functions, including some of its engineering, manufacturing, customer support, software development, and administrative activities, to third parties in India, China, and other countries. Lam Research has implemented a companywide outsourcing program encompassing manufacturing, warehousing, facilities management, and information technology. Novellus Systems continues to perform all system design, assembly, and testing in-house, but outsources the manufacturing of major subassemblies. It believes that this strategy helps reduce overhead costs and capital expenditures, adds flexibility to increase capacity as needed, and ensures that subsystems include the newest third-party technologies.

KEY INDUSTRY RATIOS AND STATISTICS

Semiconductor equipment book-to-bill ratio. The semiconductor equipment book-to-bill ratio, compiled by trade association Semiconductor Equipment and Materials International (SEMI), is a useful indicator of the industrys short-term economic direction. However, the book-to-bill ratio signals only near-term trends in the industry; it is not a reliable measure of relative strength in and of itself. The book-to-bill ratio is calculated as the value of three-month average global orders divided by threemonth average global sales for North American semiconductor equipment companies. When the book-tobill ratio is above parity (over 1.00), orders exceed sales, and sales are likely to trend higher in the near term; when the ratio is below 1.00, the opposite holds true. In August 2010, the book-to-bill ratio was 1.17 (preliminary), meaning that $117 of orders were received for every $100 of products billed for the month. This compares with a 1.23 book-to-bill in July 2010 and 1.18 in June 2010. Global Billings Report. Released monthly by the Semiconductor Industry Association (SIA), an industry trade group, the Global Billings Report (GBR) provides total sales data for each major chip market: the Americas, Japan, the Asia-Pacific region, and Europe. As such, it presents valuable information regarding business trends in important worldwide chip markets. Debuting in January 1997, the GBR replaced the SIAs book-to-bill statistical program, which had been in existence for 20 years. The book-to-bill ratio, which measured semiconductor orders relative to sales in a given period, was a more forward-looking indicator, but it was limited in geographic scope to the Americas
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region. The new GBR reflects the industrys expanding focus on worldwide markets and allows analysts to determine how chip sales trends are developing relative to historical trends. In July 2010, the SIA reported worldwide chip sales of $25.24 billion for the month. Approximately 54% of these sales were in Asia-Pacific, followed by the Americas (19%), Japan (15%), and Europe (12%). Wafer fabrication plant utilization rates. The SIA maintains quarterly statistics on the extent to which integrated circuit wafer fabs are operating as opposed to remaining idle. (Fab is the informal name for a chip manufacturers wafer fabrication plant.) These capacity utilization rates track chip production levels relative to capacity. Analysts monitor trends in these rates to understand where the industry is in its cycle. In boom times, utilization rates can rise above 95%; during mild busts, they dip toward 80%. We believe capacity utilization bottomed during the first quarter of 2009 at 56.8%the lowest quarterly level ever recorded. However, by the second quarter of 2010, utilization rates had rebounded sharply to 94%. We believe the most recent semiconductor equipment downturn was the worst ever on record. In the third quarter of 2000, the overall capacity utilization rate was 96.4%, compared with 80.8% in the third quarter of 1998, the cyclical bottom in the prior recession. Individual semiconductor companies often release and discuss their own fab utilization rates, and analysts make use of this information in addition to the SIA numbers. Monitoring the utilization rates of a major chip foundry, such as Taiwan Semiconductor Manufacturing Co.as well as the rates of major integrated device manufacturers (IDMs), such as Intel Corp., STMicroelectronics NV, or Texas Instruments Inc. provides a more detailed fix on the industrys position. Utilization rates tend to swing more widely for foundries than for IDMs. Real growth in gross domestic product (GDP). Gross domestic product, the broadest measure of aggregate economic activity, is the market value of goods and services produced by labor and capital in the US. Growth in the economy is measured by changes in inflation-adjusted (or real) GDP, which can be analyzed by examining the expenditure side of national income accounts. As the electronics industry has grown in size relative to the economy, changes in economic demand have begun to significantly affect demand for semiconductors and semiconductor equipment. To arrive at GDP, four major expenditure categories are added: consumption, investment, government purchases of goods and services, and net exports of goods and services. Consumption, or spending by domestic households on final goods and services, is the largest component of expenditures, accounting for approximately two-thirds of GDP. A change in GDP is an excellent measure of the health of the economy. Real US GDP growth was up a meager 1.1% in 2008 and down 2.4% in 2009, reflecting a downturn in the housing sector, turmoil in credit markets, and a general slowdown in consumer spending. As of October 2010, Standard & Poors was projecting real GDP increases of 2.7% in 2010 and 2.5% in 2011. Interest rates. Prevailing interest rate levels can have a material impact on the behavior of both producers and consumers. Since interest rates have a direct bearing on companies cost of capital, decisions regarding capital expenditures, share repurchases, and acquisition policies are directly related to interest rate levels and expectations for changes in interest rates. From an investment standpoint, it is important to consider current and projected interest rate levels in calculating the value of future earnings flows from growth companies, such as the leading semiconductor equipment manufacturers. Simply put, if interest rates are expected to rise, investors will apply lower price/earnings multiples when valuing a growth stock. However, if lower interest rates are forecast, they can justify higher stock valuations. In December 2008, the Federal Reserve lowered the federal funds rate, the short-term interest rate at which banks lend excess funds to 0%0.25%, reflecting the turmoil in the financial markets and the weakening of economic activity. The rate remained at that level as of this writing.
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More important is the yield on the longer-term 10-year bond. This yield has been less than 5% since mid2002, with only brief exceptions in 2006 and 2007. We expect this trend to continue in the foreseeable future, as we see a weak housing market, turmoil in the stock market, credit market woes, and a slow economic growth outweighing inflationary concerns.

HOW TO ANALYZE A SEMICONDUCTOR EQUIPMENT COMPANY

The global semiconductor equipment industry is highly competitive and subject to rapid technological change. This environment forces companies to be extremely responsive to evolving industry trends or they risk losing market share. Of the top 10 equipment companies by sales in 1982, only two (Applied Materials Inc. and Nikon Corp.) remained in the top 10 in 2009. A good first step in evaluating the management of a semiconductor equipment company is to look at its past performance. Sustaining leadership in the equipment industry poses significant challenges, including maintaining technological leadership, meeting production demand efficiently during upturns, and managing costs effectively through downturns. Standard & Poors believes that the best method of evaluating a management team is to look at its long-term financial performance, with particular attention given to gross and operating margins relative to peers in both up cycles and down cycles.

ANTICIPATING THE UPS AND DOWNS

It is important to appreciate that the industry has been highly cyclical, historically, and to analyze a companys performance and valuation within that context. Cycles typically last for three to seven years, and industry revenues have fluctuated by 30% or more in either direction. In an extreme example, industry revenues fell by about 60% from 2000 to 2002 and declined more than that in the 2007 to 2009 downturn. Semiconductor equipment stocks tend to move in concert plus in anticipation of shifting trends in revenues. Due to the industrys cyclicality (especially following the 2000 to 2002 cyclical decline and the years of losses that followed), both companies and investors place a strong emphasis on total profitability across the cycle. In recent years, both semiconductor and equipment companies have been reducing the high fixed costs of their business by outsourcing noncore functions. Some examples of this outsourcing include chip fabrication (to foundries), testing (to subcontractors that offer chip testing and package services), photomask manufacturing, and the manufacture of subassemblies, to varying degrees, by equipment makers. Looking forward, we see a decline in the degree of cyclicality, as a more diversified spectrum of geographic and end-product markets lead to less volatility in demand for chips. We believe that, as more and better information is shared across the industry, through tighter supply chains, the severity of the divergences from the natural supply-demand equilibrium will decline, leading to softer cycles. Characteristics of down cycles... Down cycles are typically characterized by high levels of excess capacity among semiconductor manufacturers, which lead to sharp declines in equipment orders and sales. Typically, orders hit bottom four to six months before sales. A careful examination of the North America Capital Equipment book-tobill ratio, released monthly by industry trade group Semiconductor Equipment and Materials International (SEMI), can help the analyst evaluate the trend in orders and sales. Semiconductor sales are a leading indicator of impending turns in the equipment industry. With foundries (contract manufacturers) now playing a central role in chip production, a sustained sales trend at the large foundries can indicate underlying chip demand. Taiwan Semiconductor Mfg. Co. Ltd. and United Microelectronics Corp., the two largest foundries, are good indicators of foundry spending. In addition, news from the large chipmaking companiessuch as Intel Corp., NEC Electronics Corp., Samsung Corp., Texas Instruments Inc., STMicroelectronics NV, Infineon Technologies AG, and Motorola Inc.can help analysts evaluate changes in industry demand. The companies websites can be visited for

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recent news. Finally, there are several market research firms that monitor and project industry statistics; among the most often cited in this industry are Gartner Inc. and VLSI Research Inc. ...and up cycles The growth phase of the chip business cycle is characterized by rapidly rising chip sales and capacity utilization, as well as increasing demand for semiconductor equipment. One historical indicator of an impending cycle peak is a high level of capacity utilization among chipmakers. (Capacity utilization data are released quarterly by Semiconductor INVESTMENT IN EQUIPMENT & SOFTWARE VS. GDP GROWTH International Capacity Statistics and are (Year-to-year percent change) available from the Semiconductor Industry Association, an industry trade association.) 20 Total wafer fab capacity utilization rates of 15 90% and higher are typically unsustainable 10 CHART H04: for extended periods and usually lead to 5 INVESTMENT IN overbuilding among chipmakers. 0 EQUIPMENT & (5) SOFTWARE VS. GDP The one instance when utilization remained (10) GROWTH above 90% for six consecutive quarters (third (15) quarter of 1999 through the fourth quarter of (20) 2000, inclusive) led to extreme overbuilding 1989 91 93 95 97 99 01 03 05 07 09 E2011 of capacity, and, subsequently, to a severe decline. Capacity utilization that declines GDP Equipment & software below 85% typically indicates that the E-Estimate. industry is in the lower part of the cycle. Sources: US Department of Commerce; Standard & Poor's estimates. Order lead times for semiconductor equipmentthe length of time needed between the receipt of an order and the delivery of the machinerycan be another gauge of industry conditions and potentially too much optimism. Long lead times indicate that chipmakers are ordering more equipment than equipment makers presently have the capacity to build. This usually occurs during a rapid expansion of semiconductor manufacturing capacity. At such times, chipmakers may inflate their orders (called doubled ordering) to ensure that they receive adequate equipment for their needs. When the industry growth spurt ends, equipment makers and chipmakers are often left with more equipment than they needresulting in order cancellations and a period of softness, until demand eventually catches up with the extra capacity. While average lead times vary by product and company, trends can be useful. Lead times often are discussed on company conference calls. Technological strength wins orders Purchasers of semiconductor equipmentthe chipmakersdesperately want tools that will allow them to produce smaller, faster chips that can command the highest possible price, and they are willing to pay top dollar for leading-edge technology. For this reason, equipment makers with effective solutions for leadingedge technologies often see the fastest growth and the greatest profit margins. Technological shifts in semiconductor manufacturing are ongoing. Three significant changes this decade have been the switch from aluminum to copper interconnects (and the related need for low-k dielectric or insulating materials), the shift from 200-millimeter (mm) diameter silicon wafers to 300mm, and the reduction of feature sizes (linewidths) on chips to 90 nanometers (nm) and 65nm and smaller. Companies with strong offerings at the leading edge of these and other technologies typically experience better margins and less price pressure than their peers do. Market share matters Technological success of an individual firmand its financial fortuneoften can be gauged by gains or losses in market share. Because the semiconductor equipment market is highly cyclical, a rise or decline in revenues may reflect a broad industry trend, or a shift in sales to a company from its competitors due to technological superiority or other customer preferences.

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An analysis of market share trends can be very revealing. Firms that successfully improve market share during industry downturns often see disproportionately higher growth rates when market conditions improve. Conversely, firms that lose market share may perform poorly even in the midst of an industry upturn. Market share gains are difficult to achieve and are highly valued by investors, as chipmakers are generally quite resistant to switching from one equipment vendor to another unless doing so results in substantial benefits. Nevertheless, care should be taken not to simply extrapolate further market share gains without deliberation; each successive gain in market share becomes more difficult to achieve, as competitors that are losing market share intensify their efforts to prevent and reverse their market share losses. Chipmakers often prefer to support more than one supplier of equipmentto maintain competition between suppliers and to ensure adequate alternatives should one supplier face technological or other difficulties. This further limits gains in market share. Research firms such as Gartner Inc. and VLSI Research provide market share data on semiconductor equipment companies. In addition, individual companies often release their own views on market share, but the independent research generally is considered more reliable. Understanding the source of demand Semiconductor equipment makers control their destinies through investing in areas where they expect demand to be strongbut expectations for demand frequently change. As part of a thorough analysis, an investor needs to consider the companys largest customers, to which submarkets (e.g., memory, logic, etc.) is the company most exposed, and in which geographic areas are sales concentrated.

LOOKING AT THE INCOME STATEMENT

A review of a semiconductor equipment manufacturers income statement should begin with recent trends in sales and orders. These items should be analyzed on a year-to-year basis and a quarter-to-quarter (sequential) basis. In this dynamic business, sequential comparisons often give a more relevant picture of current trends. It is often more useful to examine trends in orders than in sales, since orders are indicative of future prospects, whereas reported sales reflect the past. Nonetheless, the analyst should be aware that companies recognize revenue only upon shipment, and orders are vulnerable to delays and cancellationsusually without any penalty on the part of the firm requesting the cancellation. Cancellations often have a strong depressing effect on order rates during an industry down cycle. Gross profit marginsthe percentage of sales remaining after subtracting the cost of goods sold, which includes material, labor, and overheadgenerally move in the same direction as sales. This is due to the relatively high level of fixed charges in the cost of goods sold, which does not fluctuate with higher output. One useful exercise is to compare a companys gross margins with those of its competitors, at both the peaks and the troughs of cycle. The best companies in the industry have peak gross margins in the range of 50% to 60%. A companys expense line itemstypically research and development (R&D) and selling, general, and administrative (SG&A) costsshould be evaluated against industry norms. (SG&A costs are sometimes broken down into two categories: marketing and selling, and general and administrative.) Its preferable for these expenses to increase more slowly than sales, but thats not always possible, especially for R&D. This is particularly true during downturns, when stronger companies invest heavily in R&D to gain market share. R&D expenses at larger companies range from 10% of sales during upturns to 20% or more during downturns. SG&A expense ratios also vary widelyfrom 9%20% for industry leader Applied Materials to 17%26% for KLA-Tencor Corp. Smaller companies generally have higher expense ratios. Financial statement analysis would be incomplete without some discussion of return on investment (ROI), of which the most popular measure is return on equity (ROE), or net income divided by average common shareholders equity. Again, a comparison with industry norms should prove useful, making sure to compensate for differences in operating and financial leverage and net cash positions, which can affect ROE. The best equipment companies generate an ROE in excess of 25% during cycle peaks.
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Looking at the balance sheet Despite the industrys cyclical and capital-intensive nature, semiconductor equipment companies generally have strong balance sheets. Because many industry participants have negative cash flows during downturns, long-term debt is typically not a significant portion of total capitalization. When examining small niche players in the industry, the analyst should keep in mind that cash and investments make up a significant portion of total assets for many companies. Companies with large cash balances have the flexibility to make acquisitions, share repurchases, and capital expenditures as they see fit, and they are able to fund operating needs during extended downturns. In addition, a strong cash balance may make a company more attractive as a takeover target. The inventory turnover ratio, calculated by dividing costs of goods sold by average inventory, can alert an analyst to impending problems. When this ratio falls, it may be a signal of weaker-than-expected revenues and an oversupply of inventory. On one hand, a company could be building inventory in anticipation of a future increase in sales. On the other hand, it simply may be carrying obsolete inventory that can no longer be sold and must be written off eventually. Therefore, an analyst should look at industry trends and discuss the situation with management before drawing conclusions. Accounts receivable turnover, derived by dividing sales by average accounts receivable, traditionally has been used to determine if a company is facing problems collecting payments from weak customers. A declining ratio could indicate that customers are not paying invoices as quickly as in the past, or that certain customers are experiencing cash flow problems. Alternatively, it could be the result of a rapid increase in sales near the end of a quarter. Again, the analyst should examine industry trends, speak to management, and compare a companys accounts receivable turnover with that of its competitors. Considering cash flow US accounting methods allow some degree of latitude in how companies can present certain aspects of their financial condition on financial statements, affording management the opportunity to manage reported income. For example, managers can massage the companys bottom line by the way they depreciate assets and account for inventory. To obtain a more accurate assessment of a companys overall health than is indicated by reported income alone, analysts often look to the statement of cash flows. Quite simply, it is cash, not net income, that is needed to repay loans, invest in new manufacturing capacity and inventory, and fund research and development efforts. The statement of cash flow reports a firms sources and uses of cash by category: operating, investing, and financing activities. These are valuable details of the companys transactions. The statement illustrates, among other things, how a company generated or used cash from its business, how it funded capital expenditures or repaid debt, how it used cash from the issuance of debt or new equity, and so on. Many analysts use the concept of free cash flow (often defined as cash flow from operations, less capital expenditures and changes in working capital) as an important analytical tool. An adequate amount of free cash flow is needed to support internal growth and to maintain a degree of financial flexibility.

VALUATION METHODS
Before the most recent cycle, semiconductor equipment stocks had been relatively consistent in the valuation levels at which tops and bottoms were formed. Over the past 15 years (excluding the technology bubble and collapse of 1999 to 2002), semiconductor equipment stocks have generally traded between 1.0X and 5.0X trailing sales. Ranges typically vary depending on the size of the firm. For example, Applied Materials has traded at a five-year and 10-year historical average of 3.2X and 4.0X. KLA-Tencor, a semiconductor equipment company with larger market capitalization, has traded at five-year and 10-year multiples of 3.7X and 4.6X. However, smaller capitalized names such as Brooks Automation have historically traded at lower multiples (1.5X and 2.2, respectively). On a price-to-book value basis, over the same period, these stocks have typically traded between 1.0X and 5.4X book value. During the cycle upswing and peak in February 2000, semiconductor equipment stocks peaked at 12.1X trailing 12-month sales and 10.5X book value. These extremes have been excluded from the valuation peaks
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just mentioned, since the stock market that led to them was highly speculative, particularly with regard to technology stocks. Many of the riskier stocks fell by 90% or more. We view this event as a speculative bubble that is unlikely to recur in the foreseeable future. While historical trends are easy to identify, it can be challenging to identify peaks and troughs as they occur or ahead of their occurrence. For example, in the second half of 2007, there were varying opinions about whether the weakness at that time was a short-term breather for the industry or the beginning of a more serious and extended downturn.

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GLOSSARY
Automatic test equipment (ATE)Highly complex computerized tools used to verify, without human intervention, the electrical performance and functionality of finished chips. The two types of ATE tests are wafer probe, which takes place before dicing, and package test, in which individual chips are tested in their packages. (See Dicing.) CapacitanceThe property of an electronic device that determines how much charge it can store. Chemical mechanical planarization (CMP)Use of an abrasive compound (slurry) to polish a wafers surface to eliminate imperfections that would otherwise interfere with the photolithography process and chip yields. Chemical vapor deposition (CVD)The process of applying a thin film to a substrate using a controlled chemical reaction. CVD is used in the deposition of semiconducting and insulating materials. ChipA rectangular piece of semiconductive material, typically silicon, on which large amounts of transistors and circuitry have been implanted; also known as a die, integrated circuit, or semiconductor. Clean roomA special environment used in the manufacture of semiconductors, in which humidity, temperature, and particulate levels are precisely controlled. ConductorA material, such as a metal, that efficiently transfers an electrical charge. Cost of ownershipThe total expense incurred in owning a piece of semiconductor manufacturing equipment, relative to its productive output. Includes purchase, training, and operating costs, throughput (the total number of wafers processed in a given period), and yield. Critical dimensionThe size of the smallest circuit line, element, or feature that must be manufactured on a given layer of a chip; also called linewidth or minimum feature size. DefectAny imperfection on a layer of an integrated circuit that causes a short circuit or other problem with the performance of the device. DepositionThe process by which a layer of electrically insulating or conductive material is deposited on the surface of a wafer. Design rulesA set of instructions, used by circuit designers, that define the minimum size of a transistor and the minimum spacing between adjacent components. A given set of design rules is specific to a given manufacturing process. Dicing (wafer dicing)The process of cutting a wafer into individual chips, or dice; typically done with a diamond-bladed saw. DieA piece of a semiconductor wafer containing a single integrated circuit that has not yet been packaged. The plural form is dice. (See Chip.) Die bondingAttaching a die to the frame of a package before wire bonding. DielectricSee Insulator. Dielectric constantThe property of a dielectric (or insulator) that determines the electrostatic energy that can be stored. The dielectric constant affects the properties of transmission lines. DiffusionThe movement of one material into another; used in semiconductor manufacturing to introduce impurities, or dopants, into a semiconductor area to form a transistor junction.

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DopingThe introduction of precise amounts of impurity to a semiconductor, via diffusion or ion implanting, to alter its electrical properties. Dry (plasma) etchThe process of using reactive gas excited by a plasma field to remove surface material from a wafer. EtchingThe selective removal of thin films or layers to engrave a circuit pattern on a wafers surface. FabAn informal term for a semiconductor fabrication (manufacturing) plant. FablessSemiconductor companies that design and market their own chips, but rely on others to manufacture them. Feature sizeThe dimensions, usually in microns or nanometers, of an electronic device or component in an integrated circuit; often used to mean minimum feature size. (See Linewidth.) FoundryA wafer fab that makes chips on a contract basis for other companies. High-k (or Hi-k)Stands for high dielectric constant, which is a measure of how much charge a material can hold and relates directly to transistor performance. InsulatorA material, such as glass or porcelain, that does not conduct electricity. It will absorb an electrical charge because it has a deficiency of unbound electrons; also called a dielectric. Integrated circuit (IC)Another name for a semiconductor chip. (See Chip.) Integrated device manufacturer (IDM)A company that designs and manufactures its own chips, as contrasted with fabless companies, which design but do not manufacture their chips. Interconnect layerThe alternate layers of wiring and insulation in an IC that form its electrical interconnections. IonAn atom that has been electrically charged by the loss or gain of electrons. Ion implantingThe use of magnetically focused ion bombardment to inject charged particles (impurities known as dopants) into a silicon wafer in order to change its electrical properties. LinewidthThe dimension of the smallest feature (a line or space in a circuit pattern) constructed on the chip; also called minimum feature size or critical dimension (CD). LithographySee Photolithography. Low-k dielectricA dielectric with a small dielectric constant. Low-k dielectrics have reduced parasitic capacitance and enable faster switching speeds and lower heat dissipation. (See Dielectric and Dielectric constant.) MaskSee Photomask. MetallizationThe use of sputtering or evaporation to create conductive layers on a chip by applying a thin layer of metal (usually aluminum or copper) to a device. MetrologyIn semiconductor manufacturing, the measurement of the thickness of thin film layers, circuit widths, and other microscopically small features. Metrology is used to assure that the results of a process conform to desired specifications. MicronA unit of measure equal to one millionth of a meter; used to measure semiconductor feature sizes or linewidths (e.g., 0.18 micron). A human hair is about 100 microns wide. Nanometer (nm)One billionth of a meter, or 1/1,000 of a micron. As semiconductor feature sizes are reduced, minimum feature sizes are often referred to in nanometers instead of microns (e.g., 90nm versus 0.09 microns). OxideA common term for silicon dioxide, which is added as an insulating film on the surface of a wafer.
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PassivationAdding a final protective layer of silicon nitride or silicon dioxide to the top surface of a wafer. This step seals the finished semiconductor to prevent damage or contamination during packaging. PhotolithographyUse of light-sensitive photoresist and reticle masks to create integrated circuit patterns. These patterns are transferred from a mask to a silicon wafer using a light projector called a stepper; also called lithography. PhotomaskA clear quartz plate containing microscopic images of electronic circuits, used as a template to transfer the circuit image to a silicon wafer; also called a mask or reticle. PhotoresistA light-sensitive material used in the photolithography process to develop a circuit pattern on the wafer. The pattern is then etched into the wafer. Physical vapor deposition (PVD)A deposition technique in which insulating or conductive material is transferred to a substrate by physical means, such as evaporation or sputtering. ReticleSee Photomask. SemiconductorA material, such as silicon, whose properties lie in between that of a conductor and an insulator. If impurities are introduced (a process called doping), the material can be made slightly conductive or slightly insulative. (See Chip.) SiliconA nonmetallic element, made from melted sand, used to create wafers. Solid state drive (SSD)A data storage device that uses solid-state memory to store persistent data. An SSD emulates a hard disk drive and is capable of replacing it in most applications. SputteringA method of depositing a thin film of material on wafer surfaces using radio frequencyexcited ions; also called physical vapor deposition. StepperA device used to expose a photoresist-coated wafer surface by projecting light through a circuit pattern contained on a photomask. Its name is derived from the operation of making small step offsets to align the mask with each die position. SubstrateThe underlying material on which a microelectronic device is built, such as a silicon wafer. TransistorA three-terminal semiconductor device (triode) used for amplification, switching, and detection. The term is a contraction of transfer resistor. WaferA thin circular silicon disk, usually 1/40 inch thick and six to 12 inches (150 to 300 millimeters) in diameter, used to form the substrate of an integrated circuit. YieldThe percentage of dice that function normally out of the total number available on a wafer.

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INDUSTRY REFERENCES
PERIODICALS Electronic Business Electronic News http://www.edn.com The first is a monthly geared toward managers in the electronics manufacturing industries; the second is a weekly with news coverage of various technology-based industries. Infrastructure http://www.infras.com Electronic newsletter and research resource; provides investment and market information on the semiconductor, semiconductor equipment, and flat panel display industries. Semiconductor Manufacturing SEMI Book-to-Bill Report http://www.semi.org Monthlies; the first is a magazine that offers business and technological news on the semiconductor equipment industry. The Book-to-Bill Report, released on the website, includes total shipment and booking figures for North Americabased manufacturers of semiconductor equipment. ONLINE RESOURCES International Technology Roadmap for Semiconductors (ITRS) http://public.itrs.net Annual report; a cooperative effort to assess the technological challenges and needs facing the semiconductor industry over the next 15 years. Silicon Strategies http://www.siliconstrategies.com Valuable source of daily news stories on the entire semiconductor industry, including equipment makers. BOOKS The Chip: How Two Americans Invented the Microchip and Launched a Revolution T.R. Reid The story of Jack Kilby and Robert Noyce, who invented the integrated circuit. The Conquest of the Microchip: Science and Business in the Silicon Age Hans Queisser The story behind the growth of a new industry, from a firsthand observer. Crystal Fire: The Invention of the Transistor and the Birth of the Information Age Michael Riordan, Lillian Hoddeson Colorful history of how transistors and integrated circuits were invented. The Essential Guide to Semiconductors Jim Turley Briefing written by an analyst on the semiconductor industry that includes technology, design, manufacturing, applications, and markets. Microchip Fabrication: A Practical Guide to Semiconductor Processing (5th ed.) Peter Van Zant Readable, comprehensive textbook covering the key techniques used to manufacture semiconductors. TRADE ASSOCIATIONS Global Semiconductor Alliance (GSA) http://www.gsaglobal.org Industry association representing fabless semiconductor manufacturers. Semiconductor Equipment and Materials International (SEMI) http://www.semi.org International trade association for the semiconductor equipment and materials industries. Semiconductor Industry Association (SIA) http://www.sia-online.org International trade association of semiconductor manufacturing companies. RESEARCH ORGANIZATIONS DisplaySearch http://www.displaysearch.com Worldwide leader in display market research and consulting.

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Gartner Inc. http://www.gartner.com Information technology market research and consulting firm serving information technology suppliers and the financial and investment communities. IC Insights Inc. http://www.icinsights.com Leading provider of market research and analysis for the integrated circuit industry. International Data Corp. http://www.idc.com Leading provider of information technology data and industry analysis to the information technology industry. The Information Network http://www.theinformationnet.com Provider of market research and analysis reports and services for the integrated circuit, computer, and telecommunications industries. iSuppli Corp. http://www.iSuppli.com Covers the global electronics marketplace, from raw materials and manufacturing to systems and end consumption. SEMATECH http://www.sematech.org Research consortium of 11 semiconductor companies. Website has news on advanced research developments, a schematic description of how a chip is made, and images of chipmaking tools in use. Semico Research Corp. http://www.semico.com Market and engineering research company focused on semiconductor forecasts based on consumption of semiconductors in end-use markets. VLSI Research Inc. http://www.vlsiresearch.com Performs market research and economic analysis on the semiconductor and semiconductor equipment industries. GOVERNMENT AGENCIES Federal Reserve Bank of St. Louis http://research.stlouisfed.org/fred2 Provides the FRED Economic Time-Series Database, a wellorganized government source for a wide range of statistical economic data, including GDP, interest rates, and more.

COMPANY WEBSITES Applied Materials Inc. http://www.appliedmaterials.com Shows photographs of front-end wafer process equipment in the News section, under Features and then Product Features. Intel Corp. http://www.intel.com http://www.intel.com/museum/onlineexhibits.htm The Intel Museum (at the second website listed) describes how a chip is made, how transistors work, the history of the microprocessor, what a clean room is like, and other background information. KLA-Tencor Corp. http://www.kla-tencor.com Photographs of various measurement, wafer inspection, and yield control tools. The company also has a quarterly electronic magazine on yield management under the Company link. Kulicke & Soffa http://www.kns.com Displays images of back-end wafer process equipment. Lam Research Corp. http://www.lamrc.com Shows pictures of etch, chemical mechanical polishing, and wafer cleaning tools. Novellus Systems Inc. http://www.novellus.com Provides links to illustrated descriptions of fundamentals of the copper Damascene process for making chips. Taiwan Semiconductor Manufacturing Co. Ltd. http://www.tsmc.com TSMC, the worlds largest foundry, provides monthly sales updates on its website (under Investor Relations, Financials); these are a leading indicator of impending industry turns. Teradyne Inc. http://www.teradyne.com Displays pictures of automatic electronic testing equipment.

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COMPARATIVE COMPANY ANALYSIS SEMICONDUCTOR EQUIPMENT

Operating Revenues
Million $ Ticker Company Yr. End DEC OCT DEC SEP SEP DEC DEC DEC JUN SEP JUN DEC DEC DEC DEC DEC DEC DEC SEP DEC 2009 186.4 5,013.6 254.7 218.7 291.4 A 171.3 307.7 577.3 1,520.2 225.2 A 1,115.9 1,163.6 A 411.4 639.2 78.7 819.4 299.4 95.8 362.1 380.1 2008 328.9 8,129.2 335.4 A 526.4 375.1 199.7 A 459.0 599.2 2,521.7 A 328.0 D 2,474.9 A 2,004.5 647.0 1,011.0 A 131.0 1,107.0 A 248.3 131.7 834.1 442.8 2007 384.7 9,734.9 364.1 743.3 D 338.2 241.4 521.7 592.5 2,731.2 700.4 2,566.6 1,921.8 780.5 1,570.0 160.1 A 1,102.3 D 195.7 A 112.3 1,054.9 402.5 2006 410.7 9,167.0 325.9 692.9 A 320.8 A 270.1 D 543.9 479.5 D 2,070.6 696.3 D 1,642.2 1,540.6 782.8 1,658.5 201.2 A 1,376.8 208.7 A 119.6 730.7 441.0 2005 325.5 D 6,991.8 281.8 463.7 C,D 270.5 238.9 383.6 427.2 2,085.2 561.3 1,502.5 1,107.4 509.3 1,340.5 A 82.9 1,075.2 D 94.7 A 122.4 581.6 410.2 2004 395.3 8,013.1 246.3 D 539.8 309.4 176.2 418.1 465.7 1,496.7 717.8 D 935.9 1,028.0 A 555.1 1,357.3 A 84.2 1,791.9 72.7 109.9 530.1 390.4 A 1999 184.0 4,859.1 A 196.2 A 103.9 A 98.7 208.8 220.4 216.2 A 843.2 398.9 648.0 693.6 187.1 592.7 38.1 1,790.9 NA 113.1 249.9 246.6 A SEMICONDUCTOR EQUIPMENT AEIS ADVANCED ENERGY INDS INC AMAT [] APPLIED MATERIALS INC ATMI ATMI INC BRKS BROOKS AUTOMATION INC CCMP CABOT MICROELECTRONICS CORP COHU CYMI FEIC KLAC KLIC LRCX WFR MKSI NVLS RTEC TER TSRA UTEK VSEA VECO [] [] [] [] COHU INC CYMER INC FEI CO KLA-TENCOR CORP KULICKE & SOFFA INDUSTRIES LAM RESEARCH CORP MEMC ELECTRONIC MATRIALS INC MKS INSTRUMENTS INC NOVELLUS SYSTEMS INC RUDOLPH TECHNOLOGIES INC TERADYNE INC TESSERA TECHNOLOGIES INC ULTRATECH INC VARIAN SEMICONDUCTOR EQUIPMT VEECO INSTRUMENTS INC CAGR (%) 10-Yr. 0.1 0.3 2.6 7.7 11.4 5-Yr. (14.0) (9.0) 0.7 (16.5) (1.2) 1-Yr. (43.3) (38.3) (24.1) (58.4) (22.3) (14.2) (33.0) (3.6) (39.7) (31.3) (54.9) (42.0) (36.4) (36.8) (40.0) 2009 101 103 130 210 295 82 140 267 180 56 172 168 220 108 206 46 ** 85 145 154 Index Basis (1999 = 100) 2008 179 167 171 507 380 96 208 277 299 82 382 289 346 171 344 62 ** 116 334 180 2007 209 200 186 715 343 116 237 274 324 176 396 277 417 265 420 62 ** 99 422 163 2006 223 189 166 667 325 129 247 222 246 175 253 222 418 280 528 77 ** 106 292 179 2005 177 144 144 446 274 114 174 198 247 141 232 160 272 226 218 60 NA 108 233 166

(2.0) (0.6) 3.4 (5.9) 10.3 4.4 6.1 0.3 (5.6) (20.7) 5.6 5.3 8.2 0.8 7.5 3.6 2.5 (5.8) (14.0) (1.4)

(7.5) (14.5) (26.0) NA 32.7 20.6 (1.6) (2.7) (27.3) 3.8 (7.3) (56.6) 4.4 (0.5) (14.2)

OTHER COMPANIES WITH SIGNIFICANT SEMICONDUCTOR EQUIPMENT OPERATIONS AMKR AMKOR TECHNOLOGY INC DEC 2,179.1 2,658.6 ASMI ASM INTERNATIONAL NV DEC 846.6 1,040.3 AXTI AXT INC DEC 55.4 73.1 ENTG ENTEGRIS INC DEC 398.6 C 554.7 KEI KEITHLEY INSTR INC SEP 102.5 152.5

2,739.4 1,394.9 58.0 626.2 D 143.7

2,728.6 1,158.0 D 44.4 678.7 D 155.2

2,099.9 860.2 26.5 367.1 A 141.6

1,901.3 A 1,021.1 A 35.5 346.8 140.2

1,910.0 417.4 81.5 242.0 100.9

A A A A

1.3 7.3 (3.8) 5.1 0.2

2.8 (3.7) 9.3 2.8 (6.1)

(18.0) (18.6) (24.2) (28.1) (32.8)

114 203 68 165 102

139 249 90 229 151

143 334 71 259 142

143 277 55 281 154

110 206 33 152 140

Note: Data as originally reported. CAGR-Compound annual growth rate. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.

SEMICONDUCTOR EQUIPMENT INDUSTRY SURVEY

Data by Standard & Poor's Compustat A Division of The McGraw-Hill Companies

Net Income
Million $ Ticker Company Yr. End DEC OCT DEC SEP SEP DEC DEC DEC JUN SEP JUN DEC DEC DEC DEC DEC DEC DEC SEP DEC 2009 (102.7) (305.3) (6.7) (227.9) 11.2 (28.2) 12.0 22.6 (523.4) (58.0) (302.1) (68.3) (212.7) (85.2) (29.6) (133.8) 69.8 2.1 (38.0) (15.6) 2008 (1.8) 960.7 33.3 (236.6) 38.3 (5.4) 36.5 24.3 359.1 (19.6) 439.3 387.4 30.1 (115.7) (249.7) (398.6) 4.6 11.8 98.4 (71.1) 2007 34.4 1,710.2 40.5 54.3 33.8 8.0 88.4 57.9 528.1 37.7 685.8 826.2 86.4 213.7 11.9 71.9 45.1 (1.0) 142.2 (17.4) 2006 87.2 1,516.7 40.0 25.8 32.9 18.6 95.6 17.7 380.5 77.0 335.8 369.3 94.2 189.1 12.7 202.6 61.4 (9.0) 94.7 14.9 2005 3.6 1,209.9 30.7 (8.1) 32.5 34.0 46.6 (78.2) 466.7 (104.1) 299.3 249.4 34.6 110.1 5.0 (60.5) 31.4 (1.2) 72.0 (0.9) 2004 (12.7) 1,351.3 20.1 17.7 46.7 16.7 43.2 16.6 243.7 56.7 83.0 226.2 69.8 156.7 6.8 165.2 59.1 0.6 61.1 (62.6) 1999 16.8 725.7 10.5 (7.9) 12.3 25.9 8.6 (7.4) 39.2 (16.9) (112.9) (151.5) 24.0 76.6 3.3 191.7 NA (4.2) (13.2) 20.4 10-Yr. NM NM NM NM (0.9) NM 3.4 NM NM NM NM NM NM NM NM NM NA NM NM NM SEMICONDUCTOR EQUIPMENT AEIS ADVANCED ENERGY INDS INC AMAT [] APPLIED MATERIALS INC ATMI ATMI INC BRKS BROOKS AUTOMATION INC CCMP CABOT MICROELECTRONICS CORP COHU CYMI FEIC KLAC KLIC LRCX WFR MKSI NVLS RTEC TER TSRA UTEK VSEA VECO [] [] [] [] COHU INC CYMER INC FEI CO KLA-TENCOR CORP KULICKE & SOFFA INDUSTRIES LAM RESEARCH CORP MEMC ELECTRONIC MATRIALS INC MKS INSTRUMENTS INC NOVELLUS SYSTEMS INC RUDOLPH TECHNOLOGIES INC TERADYNE INC TESSERA TECHNOLOGIES INC ULTRATECH INC VARIAN SEMICONDUCTOR EQUIPMT VEECO INSTRUMENTS INC CAGR (%) 5-Yr. NM NM NM NM (24.9) NM (22.6) 6.4 NM NM NM NM NM NM NM 1-Yr. NM NM NM NM (70.8) NM (67.2) (6.8) NM NM NM NM NM NM NM 2009 (610) (42) (63) NM 91 (109) 140 NM (1,335) NM NM NM (885) (111) (907) (70) ** NM NM (76) Index Basis (1999 = 100) 2008 (11) 132 316 NM 312 (21) 426 NM 916 NM NM NM 125 (151) NM (208) ** NM NM (348) 2007 204 236 384 NM 276 31 1,031 NM 1,347 NM NM NM 359 279 363 37 ** NM NM (85) 2006 518 209 379 NM 268 72 1,116 NM 970 NM NM NM 392 247 389 106 ** NM NM 73 2005 22 167 291 NM 264 131 543 NM 1,190 NM NM NM 144 144 152 (32) NA NM NM (4)

NM NM 3.4 1,403.6 27.8 (81.9) NM NM NM NM

OTHER COMPANIES WITH SIGNIFICANT SEMICONDUCTOR EQUIPMENT OPERATIONS AMKR AMKOR TECHNOLOGY INC DEC 156.0 (456.7) ASMI ASM INTERNATIONAL NV DEC (152.7) 25.6 AXTI AXT INC DEC (1.9) (0.7) ENTG ENTEGRIS INC DEC (57.7) (515.9) KEI KEITHLEY INSTR INC SEP (50.5) (2.6)

219.9 89.0 5.3 46.4 (0.3)

170.1 72.2 0.9 62.4 8.4

(137.2) (47.6) (12.8) 9.4 10.1

(37.5) 32.5 (14.5) 24.8 11.4

76.7 11.2 0.7 5.7 13.7

7.4 NM NM NM NM

NM NM NM NM NM

NM NM NM NM NM

203 (1,366) (279) (1,008) (368)

(595) 229 (101) NM (19)

287 797 778 809 (3)

222 646 136 1,090 61

(179) (426) (1,876) 164 74

Note: Data as originally reported. CAGR-Compound annual growth rate. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available.

SEMICONDUCTOR EQUIPMENT INDUSTRY SURVEY

Data by Standard & Poor's Compustat A Division of The McGraw-Hill Companies

Return on Revenues (%)

Ticker Company Yr. End DEC OCT DEC SEP SEP DEC DEC DEC JUN SEP JUN DEC DEC DEC DEC DEC DEC DEC SEP DEC 2009 NM NM NM NM 3.8 NM 3.9 3.9 NM NM NM NM NM NM NM NM 23.3 2.2 NM NM 2008 NM 11.8 9.9 NM 10.2 NM 8.0 4.1 14.2 NM 17.8 19.3 4.7 NM NM NM 1.9 8.9 11.8 NM 2007 8.9 17.6 11.1 7.3 10.0 3.3 16.9 9.8 19.3 5.4 26.7 43.0 11.1 13.6 7.4 6.5 23.1 NM 13.5 NM 2006 21.2 16.5 12.3 3.7 10.3 6.9 17.6 3.7 18.4 11.1 20.4 24.0 12.0 11.4 6.3 14.7 29.4 NM 13.0 3.4 2005 1.1 17.3 10.9 NM 12.0 14.2 12.1 NM 22.4 NM 19.9 22.5 6.8 8.2 6.0 NM 33.2 NM 12.4 NM 2009 NM NM NM NM 2.3 NM 1.7 2.5 NM NM NM NM NM NM NM NM 12.5 0.9 NM NM SEMICONDUCTOR EQUIPMENT AEIS ADVANCED ENERGY INDS INC AMAT [] APPLIED MATERIALS INC ATMI ATMI INC BRKS BROOKS AUTOMATION INC CCMP CABOT MICROELECTRONICS CORP COHU CYMI FEIC KLAC KLIC LRCX WFR MKSI NVLS RTEC TER TSRA UTEK VSEA VECO [] [] [] [] COHU INC CYMER INC FEI CO KLA-TENCOR CORP KULICKE & SOFFA INDUSTRIES LAM RESEARCH CORP MEMC ELECTRONIC MATRIALS INC MKS INSTRUMENTS INC NOVELLUS SYSTEMS INC RUDOLPH TECHNOLOGIES INC TERADYNE INC TESSERA TECHNOLOGIES INC ULTRATECH INC VARIAN SEMICONDUCTOR EQUIPMT VEECO INSTRUMENTS INC

Return on Assets (%)

2008 NM 8.9 7.1 NM 8.2 NM 4.7 2.6 7.6 NM 17.9 13.3 2.9 NM NM NM 1.0 5.3 13.1 NM 2007 7.9 17.0 8.3 5.4 7.8 2.4 10.1 6.3 11.5 8.2 31.1 35.5 8.1 9.6 2.6 4.4 11.8 NM 16.4 NM 2006 24.2 14.6 8.1 3.2 8.2 5.9 11.0 2.4 8.9 19.5 17.8 25.3 9.9 8.1 4.1 11.3 24.0 NM 10.5 2.6 2005 1.0 10.4 6.3 NM 8.7 12.2 5.8 NM 12.4 NM 22.6 23.1 4.1 4.7 2.8 NM 19.1 NM 9.0 NM 2009 NM NM NM NM 2.5 NM 2.3 4.2 NM NM NM NM NM NM NM NM 13.7 1.1 NM NM

Return on Equity (%)

2008 NM 12.5 7.9 NM 9.0 NM 7.2 4.8 11.0 NM 29.7 18.8 3.3 NM NM NM 1.1 6.4 18.2 NM 2007 9.0 23.6 9.3 6.5 8.7 2.9 14.8 13.8 14.8 46.4 53.3 51.6 9.3 12.7 2.9 5.6 12.5 NM 21.5 NM 2006 28.4 19.5 9.0 4.7 9.3 7.1 15.6 5.5 11.5 323.9 27.3 39.3 11.3 10.5 4.6 15.6 25.3 NM 13.1 5.6 2005 1.8 13.3 8.2 NM 9.9 14.8 8.8 NM 16.5 NM 31.9 43.2 4.6 6.0 3.1 NM 20.0 NM 11.4 NM

OTHER COMPANIES WITH SIGNIFICANT SEMICONDUCTOR EQUIPMENT OPERATIONS AMKR AMKOR TECHNOLOGY INC DEC 7.2 NM ASMI ASM INTERNATIONAL NV DEC NM 2.5 AXTI AXT INC DEC NM NM ENTG ENTEGRIS INC DEC NM NM KEI KEITHLEY INSTR INC SEP NM NM

8.0 6.4 9.1 7.4 NM

6.2 6.2 2.1 9.2 5.4

NM NM NM 2.6 7.2

6.5 NM NM NM NM

NM 2.2 NM NM NM

7.1 7.7 4.8 4.2 NM

5.7 7.0 0.9 5.3 5.7

NM NM NM 1.1 7.3

50.3 NM NM NM NM

NM 5.6 NM NM NM

41.9 21.4 6.1 5.0 NM

55.1 22.3 1.2 6.1 7.3

NM NM NM 1.3 9.5

Note: Data as originally reported. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year.

SEMICONDUCTOR EQUIPMENT INDUSTRY SURVEY

Data by Standard & Poor's Compustat A Division of The McGraw-Hill Companies

Current Ratio
Ticker Company Yr. End DEC OCT DEC SEP SEP DEC DEC DEC JUN SEP JUN DEC DEC DEC DEC DEC DEC DEC SEP DEC 2009 5.8 2.9 7.9 3.1 8.0 3.6 4.9 2.7 4.3 2.4 3.5 2.5 7.5 5.2 7.5 2.7 12.6 7.7 6.0 3.3 2008 8.5 2.3 7.8 3.3 8.7 4.6 2.7 3.3 3.2 2.6 3.0 3.1 7.0 3.4 10.4 1.8 7.2 7.3 4.8 2.7 2007 8.3 2.8 6.9 3.4 8.5 5.7 5.8 2.2 3.0 3.0 2.1 3.6 6.4 3.7 7.5 4.2 17.1 5.8 3.5 2.4 2006 5.7 2.5 6.5 2.4 6.7 5.7 7.9 3.8 3.5 3.6 3.0 3.5 4.6 4.2 6.5 3.4 14.3 4.1 4.5 3.5 2005 4.0 5.4 7.2 1.6 6.9 5.1 6.9 3.5 3.4 2.6 3.3 1.9 5.6 4.0 9.5 2.1 13.2 7.5 5.1 3.7 2009 0.0 2.7 0.0 0.0 0.3 0.0 0.0 15.0 25.4 39.3 2.7 14.8 0.0 8.8 0.0 17.3 0.0 0.1 0.3 21.7 SEMICONDUCTOR EQUIPMENT AEIS ADVANCED ENERGY INDS INC AMAT [] APPLIED MATERIALS INC ATMI ATMI INC BRKS BROOKS AUTOMATION INC CCMP CABOT MICROELECTRONICS CORP COHU CYMI FEIC KLAC KLIC LRCX WFR MKSI NVLS RTEC TER TSRA UTEK VSEA VECO [] [] [] [] COHU INC CYMER INC FEI CO KLA-TENCOR CORP KULICKE & SOFFA INDUSTRIES LAM RESEARCH CORP MEMC ELECTRONIC MATRIALS INC MKS INSTRUMENTS INC NOVELLUS SYSTEMS INC RUDOLPH TECHNOLOGIES INC TERADYNE INC TESSERA TECHNOLOGIES INC ULTRATECH INC VARIAN SEMICONDUCTOR EQUIPMT VEECO INSTRUMENTS INC

Debt / Capital Ratio (%)

2008 0.0 2.6 0.0 0.0 0.6 0.0 0.0 18.3 20.0 58.5 13.4 1.2 0.0 0.0 0.0 0.0 0.0 0.2 0.4 33.1 2007 0.0 2.5 0.0 0.0 0.9 0.0 21.7 19.1 0.0 70.3 17.5 1.2 0.6 8.6 0.0 0.0 0.0 0.3 0.5 30.3 2006 0.1 3.0 0.0 0.0 1.2 0.0 16.8 46.8 0.0 65.0 20.0 2.4 0.7 6.5 0.0 0.0 0.0 0.0 0.4 41.6 2005 0.8 4.4 0.0 0.0 1.6 0.0 20.2 43.3 0.0 103.6 0.0 4.4 0.8 6.6 0.0 0.1 0.0 0.0 0.5 47.9 2009 0.0 5.4 0.0 0.0 0.5 0.0 0.0 23.2 40.6 63.8 4.8 51.9 0.0 15.7 0.0 29.5 0.0 0.1 0.4 31.8

Debt as a % of Net Working Capital

2008 0.0 5.4 0.0 0.0 0.9 0.0 0.0 32.9 35.7 67.5 21.6 2.7 0.1 0.0 0.0 0.0 0.0 0.2 0.5 64.5 2007 0.0 4.8 0.1 0.0 1.3 0.0 28.2 27.2 0.0 86.2 33.6 2.2 1.1 16.0 0.0 0.0 0.0 0.3 0.6 69.4 2006 0.1 5.6 0.0 0.0 2.0 0.0 20.5 65.1 0.0 78.3 30.7 4.6 1.3 11.2 0.0 0.0 0.0 0.0 0.6 82.1 2005 1.5 5.3 0.0 0.0 2.6 0.0 28.2 69.3 0.0 145.1 0.0 16.5 1.5 12.3 0.0 0.3 0.0 0.0 0.6 99.8

OTHER COMPANIES WITH SIGNIFICANT SEMICONDUCTOR EQUIPMENT OPERATIONS AMKR AMKOR TECHNOLOGY INC DEC 1.5 1.6 ASMI ASM INTERNATIONAL NV DEC 2.8 3.0 AXTI AXT INC DEC 7.9 5.7 ENTG ENTEGRIS INC DEC 3.6 3.9 KEI KEITHLEY INSTR INC SEP 2.9 3.3

1.5 2.6 8.9 3.0 3.8

1.3 2.6 9.6 5.3 4.2

1.2 2.5 4.7 4.3 4.2

77.5 35.1 0.4 13.1 0.0

85.5 22.7 0.5 30.9 0.0

70.8 26.0 6.3 2.3 0.0

82.0 34.0 7.8 0.3 0.0

89.6 39.0 11.8 2.1 0.0

411.3 49.8 0.6 27.1 0.0

469.9 35.0 0.7 64.4 0.0

519.3 39.5 8.3 7.9 0.0

846.1 52.9 10.3 0.7 0.0

NM 68.2 20.4 5.3 0.0

Note: Data as originally reported. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year.

SEMICONDUCTOR EQUIPMENT INDUSTRY SURVEY

Data by Standard & Poor's Compustat A Division of The McGraw-Hill Companies

Price / Earnings Ratio (High-Low)

Ticker Company Yr. End DEC OCT DEC SEP SEP DEC DEC DEC JUN SEP JUN DEC DEC DEC DEC DEC DEC DEC SEP DEC 2009 NM NM NM NM 76 NM NM 44 NM NM NM NM NM NM NM NM 22 NM NM NM NM NM NM NM 38 NM 42 19 NM NM NM NM NM NM NM NM 7 NM NM NM 2008 NM 31 31 NM 26 NM 32 44 24 NM NM 10 8 NM 12 NM 15 24 7 NM 2007 34 19 30 27 33 68 18 24 23 19 12 26 19 20 45 48 49 NM 33 NM 16 14 23 16 21 40 13 15 17 10 9 11 11 14 24 26 33 NM 15 NM 2006 10 21 32 50 28 36 22 53 29 924 29 15 23 43 17 31 NM 28 56 6 15 20 29 19 17 13 36 20 5 15 14 10 15 27 11 18 NM 15 35 2005 NM 26 39 NM 31 18 31 NM 23 NM 18 21 32 38 66 NM 65 NM 24 NM 68 19 24 NM 19 10 18 NM 16 NM 11 9 22 26 40 NM 35 NM 15 NM SEMICONDUCTOR EQUIPMENT AEIS ADVANCED ENERGY INDS INC AMAT [] APPLIED MATERIALS INC ATMI ATMI INC BRKS BROOKS AUTOMATION INC CCMP CABOT MICROELECTRONICS CORP COHU CYMI FEIC KLAC KLIC LRCX WFR MKSI NVLS RTEC TER TSRA UTEK VSEA VECO [] [] [] [] COHU INC CYMER INC FEI CO KLA-TENCOR CORP KULICKE & SOFFA INDUSTRIES LAM RESEARCH CORP MEMC ELECTRONIC MATRIALS INC MKS INSTRUMENTS INC NOVELLUS SYSTEMS INC RUDOLPH TECHNOLOGIES INC TERADYNE INC TESSERA TECHNOLOGIES INC ULTRATECH INC VARIAN SEMICONDUCTOR EQUIPMT VEECO INSTRUMENTS INC

Dividend Payout Ratio (%)

2009 NM NM NM NM 0 NM 0 0 NM NM NM NM NM NM NM NM 0 0 NM NM 2008 NM 34 0 NM 0 NM 0 0 30 NM 0 0 0 NM NM NM 0 0 0 NM 2007 0 18 0 0 0 69 0 0 18 0 0 0 0 0 0 0 0 NM 0 NM 2006 0 16 0 0 0 29 0 0 25 0 0 0 0 0 0 0 0 NM 0 0 2005 0 8 0 NM 0 14 0 NM 5 NM 0 0 0 0 0 NM 0 NM 0 NM 2009 0.0 2.9 0.0 0.0 0.0 3.4 0.0 0.0 3.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.7 0.0 0.0 0.0 1.7 0.0 0.0 1.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Dividend Yield (High-Low, %)

2008 0.0 3.3 0.0 0.0 0.0 2.6 0.0 0.0 4.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.1 0.0 0.0 0.0 1.2 0.0 0.0 1.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2007 0.0 1.3 0.0 0.0 0.0 1.7 0.0 0.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 0.0 0.0 0.0 1.0 0.0 0.0 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2006 0.0 1.1 0.0 0.0 0.0 1.7 0.0 0.0 1.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.8 0.0 0.0 0.0 0.8 0.0 0.0 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2005 0.0 0.4 0.0 0.0 0.0 1.5 0.0 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.0 0.0 0.0 0.8 0.0 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

13 4 53 6 42 - 19 NM - NM NM - NM NM NM 34 31 NM NM 83 17 10 NM

OTHER COMPANIES WITH SIGNIFICANT SEMICONDUCTOR EQUIPMENT OPERATIONS AMKR AMKOR TECHNOLOGY INC DEC 92 NM - NM 13 ASMI ASM INTERNATIONAL NV DEC NM - NM 69 - 13 18 AXTI AXT INC DEC NM - NM NM - NM 40 ENTG ENTEGRIS INC DEC NM - NM NM - NM 32 KEI KEITHLEY INSTR INC SEP NM - NM NM - NM NM -

6 13 21 21 NM

14 16 NM 26 32 -

5 10 63 18 21

NM NM NM NM 32 -

NM NM NM 69 21

0 NM NM NM NM

NM 0 NM NM NM

0 8 0 0 NM

0 0 0 0 29

NM NM NM 0 24

0.0 0.0 0.0 0.0 5.4 -

0.0 0.0 0.0 0.0 1.5

0.0 0.0 0.0 0.0 7.4 -

0.0 0.0 0.0 0.0 1.3

0.0 0.7 0.0 0.0 1.7 -

0.0 0.4 0.0 0.0 0.9

0.0 0.0 0.0 0.0 1.4 -

0.0 0.0 0.0 0.0 0.9

0.0 0.0 0.0 0.0 1.2 -

0.0 0.0 0.0 0.0 0.8

Note: Data as originally reported. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year.

SEMICONDUCTOR EQUIPMENT INDUSTRY SURVEY

Data by Standard & Poor's Compustat A Division of The McGraw-Hill Companies

Earnings per Share ($)

Ticker Company Yr. End DEC OCT DEC SEP SEP DEC DEC DEC JUN SEP JUN DEC DEC DEC DEC DEC DEC DEC SEP DEC 2009 (2.45) (0.23) (0.21) (3.62) 0.48 (1.20) 0.40 0.60 (3.07) (0.93) (2.41) (0.31) (4.31) (0.88) (0.96) (0.77) 1.43 0.09 (0.53) (0.48) 2008 (0.04) 0.71 1.06 (3.67) 1.64 (0.23) 1.22 0.66 1.99 (0.37) 3.52 1.71 0.61 (1.18) (8.16) (2.34) 0.10 0.50 1.34 (2.27) 2007 0.76 1.22 1.19 0.74 1.42 0.35 2.64 1.62 2.68 0.67 4.94 3.66 1.53 1.78 0.41 0.39 0.95 (0.04) 1.77 (0.56) 2006 1.95 0.98 1.11 0.36 1.36 0.82 2.53 0.52 1.92 1.40 2.42 1.66 1.70 1.51 0.47 1.04 1.33 (0.38) 1.12 0.49 2005 0.10 0.74 0.86 (0.18) 1.32 1.55 1.29 (2.33) 2.38 (2.02) 2.17 1.17 0.64 0.80 0.29 (0.31) 0.71 (0.05) 0.87 (0.03) SEMICONDUCTOR EQUIPMENT AEIS ADVANCED ENERGY INDS INC AMAT [] APPLIED MATERIALS INC ATMI ATMI INC BRKS BROOKS AUTOMATION INC CCMP CABOT MICROELECTRONICS CORP COHU CYMI FEIC KLAC KLIC LRCX WFR MKSI NVLS RTEC TER TSRA UTEK VSEA VECO [] [] [] [] COHU INC CYMER INC FEI CO KLA-TENCOR CORP KULICKE & SOFFA INDUSTRIES LAM RESEARCH CORP MEMC ELECTRONIC MATRIALS INC MKS INSTRUMENTS INC NOVELLUS SYSTEMS INC RUDOLPH TECHNOLOGIES INC TERADYNE INC TESSERA TECHNOLOGIES INC ULTRATECH INC VARIAN SEMICONDUCTOR EQUIPMT VEECO INSTRUMENTS INC

Tangible Book Value per Share ($)

2009 6.48 4.19 11.31 3.99 17.58 6.80 17.46 13.68 10.00 1.13 9.42 8.10 10.81 10.67 4.42 2.93 9.01 8.36 6.91 7.68 2008 7.26 4.50 11.14 5.72 18.02 7.87 16.85 12.68 11.96 1.85 10.99 9.27 10.71 11.32 5.42 3.06 6.91 8.19 7.00 4.83 2007 7.49 4.65 12.16 6.58 16.43 11.30 15.90 12.06 16.00 0.93 8.46 8.87 10.70 11.98 6.15 6.70 6.83 7.59 7.31 5.43 2006 6.47 4.22 11.56 4.69 14.68 11.10 17.81 8.91 17.56 0.87 2005 4.22 5.30 11.07 5.37 13.83 10.45 14.40 7.11 15.19 (1.18) 2009 15.30 - 5.36 14.22 - 8.19 19.77 - 11.80 9.11 - 3.30 36.38 - 18.47 14.45 - 7.00 39.99 - 16.66 26.50 - 11.36 37.71 - 15.27 6.68 - 1.15 39.80 21.36 20.60 26.00 8.46 18.24 11.32 11.38 11.43 1.95 2008

Share Price (High-Low, $)

2007 25.97 23.00 36.05 20.08 46.61 23.70 46.68 39.25 62.67 12.46 60.82 96.08 28.47 34.97 18.29 18.53 46.43 16.78 58.17 22.28 12.18 17.35 27.51 11.74 29.67 14.11 35.10 24.01 46.59 6.47 42.67 39.51 16.94 25.40 10.03 10.02 31.35 10.79 26.39 15.47 2006 19.33 21.06 35.30 17.83 38.45 29.48 56.69 27.37 55.03 12.50 57.05 48.90 24.97 35.00 20.15 18.08 41.40 25.03 30.98 27.55 11.50 14.39 21.72 10.56 25.60 14.16 33.75 18.78 38.38 6.50 35.44 22.60 17.05 22.28 12.75 11.50 24.58 10.56 17.25 17.33 2005 13.85 19.47 33.62 18.91 40.90 27.39 40.43 25.78 55.00 10.60 39.18 24.68 20.69 30.77 19.19 17.33 46.28 22.93 20.71 21.52 6.80 14.33 20.53 11.25 25.50 14.81 22.65 17.66 37.39 4.94 24.24 10.70 13.96 20.83 11.61 10.80 24.70 13.21 13.39 12.83

16.98 - 5.73 21.75 - 7.17 32.53 - 8.70 13.39 - 2.52 43.18 - 19.51 20.52 - 9.13 38.90 - 18.36 29.14 - 15.87 48.35 - 14.81 7.95 - 1.11 44.73 91.45 25.88 27.66 11.45 14.72 10.00 11.76 10.26 2.03

9.85 J 7.77 5.23 3.21 9.43 8.83 12.54 11.29 7.26 8.42 6.84 5.18 7.50 8.91 5.81 5.96 3.17 7.96 7.91 4.96

10.96 - 3.24 32.17 - 10.13 16.00 - 9.74 36.63 - 15.96 34.84 - 3.22

14.50 - 2.80 44.97 - 8.33 17.20 - 8.67 41.16 - 14.05 19.82 - 3.53

OTHER COMPANIES WITH SIGNIFICANT SEMICONDUCTOR EQUIPMENT OPERATIONS AMKR AMKOR TECHNOLOGY INC DEC 0.85 (2.50) 1.22 0.96 ASMI ASM INTERNATIONAL NV DEC (2.95) 0.49 1.65 1.35 AXTI AXT INC DEC (0.07) (0.03) 0.17 0.03 ENTG ENTEGRIS INC DEC (0.49) (4.58) 0.38 0.46 KEI KEITHLEY INSTR INC SEP (3.23) (0.16) (0.02) 0.51

(0.78) (0.90) (0.56) 0.12 0.62

2.04 5.36 2.97 2.06 2.36

1.23 7.25 2.95 2.15 6.68

(0.22) 7.27 2.96 3.24 7.07

(1.73) 5.38 2.68 4.14 7.28

(2.65) 3.52 2.27 3.86 6.86

7.70 25.75 3.40 5.75 6.87 -

1.60 6.23 0.68 0.50 1.86

12.70 33.60 7.20 8.76 11.86 -

1.33 6.35 0.86 1.04 2.02

16.29 - 7.60 30.50 - 20.70 6.84 - 3.53 12.18 - 7.87 16.45 - 8.70

13.09 - 4.61 21.50 - 13.65 5.49 - 1.90 12.00 - 8.37 16.10 - 10.77

6.99 - 2.87 19.25 - 12.75 2.47 - 1.08 12.00 - 8.22 19.70 - 12.80

Note: Data as originally reported. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year. J-This amount includes intangibles that cannot be identified.

The analysis and opinion set forth in this publication are provided by Standard & Poors Equity Research Services and are prepared separately from any other analytic activity of Standard & Poors. In this regard, Standard & Poors Equity Research Services has no access to nonpublic information received by other units of Standard & Poors. The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.

SEMICONDUCTOR EQUIPMENT INDUSTRY SURVEY

Data by Standard & Poor's Compustat A Division of The McGraw-Hill Companies