Practical Chip Design

Applied Materials is to lay off 1000. Investors are pushing for the break-up of ASM International. Credence is going through a sobering restructuring. It appears that all along the semiconductor capital equipment chain companies are throttling back in anticipation of a global industry recession.

And that recession is becoming almost a certainty. Even if it weren’t certain in purely economic terms, so many analysts are now claiming to have spotted a recession that we will certainly talk ourselves into one. And that could be just the break that the nascent semiconductor equipment industry in China needs.

Already a handful of Chinese companies are starting to gather the technology and make tentative intrusions into the equipment space. One suspects that most of their business plans are based on serving demand in the local market—in competition against the steady stream of used and refurbished Western equipment—to build a revenue stream, and using that cash flow to support greater research and development efforts. Nor are these firms simple cloning operations. Some are showing considerable technical ability, often based on technology paths opened while the principals worked in the US industry. Consider, for example, AMEC, a broad-line equipment supplier starting out in the etch and CVD stages, and any number of infrastructure companies building expertise in precision machining and materials.

But a major recession, in which US and European equipment companies significantly scale back their efforts, could open a new strategic option for these young companies. Unless done very carefully, cutbacks now could open not just a niche in the Chinese market, but a shot at the global next-generation market to the Chinese ventures.

This may sound implausible on technical grounds. After all, an enormous amount of physics, chemistry, optics, and just plain hard engineering have gone into the learning curves of the US equipment makers. Nobody could duplicate that intellectual property over night. But this is a false sense of security. A company staffed by experienced developers doesn’t need to retrace the learning curves of the US companies. They can start with their personal knowledge, published science, and a clean sheet of paper, given a big enough opening in the market. And if they focus not on the bleeding-edge 32 nm process needs—which may not materialize for several years—but on radical ideas to cost-reduce and yield-enhance stages in existing processes, the result could be a very strong entry into the global market.