Thursday, January 15th, 2009

As SEMI’s SMC today, Raymond Roberge, SVP and CTO of Praxair Electronics, proposed a pragmatic new collaboration model for electronic materials R&D. Semiconductor fab process materials TAM for 2008 was ~$10B, yet materials suppliers now question their ongoing profitability. “Certainly the 300mm shift has resulted in productivity advances for IDMs at the expense of materials suppliers,” asserted Roberge.

Electronics (incl. IC, PV, FPD, LED) gases are ~8% of Praxair’s $11B sales. For other large materials suppliers, electronics typically are 1-10% of sales. These companies are positioned to be able to exit the IC fab business if it no longer makes sense, unlike OEMs that typically are utterly dependent upon this market.

If suppliers drive R&D, there are high costs and inefficiencies (like the 25 ALD precursor suppliers who chased $50M TAM last year), while if an IDM drives R&D then disclosure limitations lead to single source supply (like Rohm&Haas who still holds >90% of CMP pad SAM [source: Linx Consulting]). Collaboration models must be adjusted for mutual profitability:
• Early selection of limited suppliers (one or two materials companies),
• Detailed disclosure of requirement (with one or two OEMs),
• Supply/purchase commitments by the IDM, and
• Cross licensing to “share share” (so that IDM receives dual supply, and suppliers receive ROI).

Speaking with BetaSights after his presentation, Roberge acknowledged that there have been collaborations between materials suppliers and IDMs, and between materials suppliers and OEMs, but the industry needs to move to a more sophisticated model where all three are brought together. While such collaborations have been considered in the past, the difference this time around is that the materials R&D costs and risks remain high, but the former high growth potential is gone. “The industry needs to look at appropriate value sharing, so that materials companies can have a reasonable expectations of earnings throughout the cycle,” said Roberge. –E.K.

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