Making Chips, Solar Panels

and Public PolicyITC Briefing – February 15, 2011

Maggie Hershey, SEMI and William Morin, Applied Materials

2

About SEMI• Global industry association• ~1900 members• Established in 1970 to serve

the semiconductor supply chain

• Today serves members interests in the following market segments:– Semiconductor– Photovoltaic/Tech-Energy– Emerging or Adjacent

Markets• HB-LED• Flat Panel Display• Nanotechnology• MEMS

The Electronics Ecosystem

Materials

SemiconductorEquipment

SemiconductorsSemiconductors

Electronic End EquipmentElectronic End Equipment

Source: SIA, SEMI, and IC Insights

SEMI®

membership

Estimate2010

$43B

$38B

$300B

$1,237B

{

4

Semiconductor Industry Outlook:2010 is a Record Year

150

204

139 141166

213228

248 256 249226

301319 330

$0$25$50$75

$100$125$150$175$200$225$250$275$300$325$350$375

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

F

2011

F

2012

F

-50%

-25%

0%

25%

50%

75%

100%

Semiconductor Revenue Annual Growth

Source: SIA/WSTS historical year end reports, SIA November 2010 Forecast

Glo

bal

Sem

ico

nd

uc

tor

Rev

enu

e U

S $

B

(bar

gra

ph

)

An

nu

al G

row

th %

(li

ne

gra

ph

)

5

Demand Drivers

• Shift from personal computers toward consumer and wireless applications; small proportion of demand from government

• End Market Drivers for Semiconductor Demand– Wireless applications (cellular, Wi-Fi networks)– Entertainment (DVD, home FPDs, games)– Personal Computers– Automotive Electronics

6

Worldwide IC Revenues by Region of Sale

Source: WSTS

0%

10%

20%

30%

40%

50%

60%

Pe

rce

nt

of

IC S

ale

s

2000 2006 2007 2008 2009 2010

Americas Europe Japan Asia-Pacific

7

Capital Equipment Cycles

58 9 9 9 8

1015

2426 28

2225

48

28

2022

3733

4043

30

16

3839

$0

$10

$20

$30

$40

$50

$6019

8719

88

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

E20

11F

-50%

-25%

0%

25%

50%

75%

100%

125%

150%

Capital Equipment Revenue Annual Growth

Source: SEMI and SEMI/SEAJ year end historical reports, SEMI Mid-Year 2010 Forecast

Glo

bal

Cap

ital

Eq

uip

men

t R

eve

nu

e U

S $

B

(bar

gra

ph

)

An

nu

al G

row

th %

(li

ne

gra

ph

)

8

SEMI® 2010 Year-end Equipment Forecast By Market Region

Source: SEMI Year-end 2010 Semiconductor Consensus Forecast, November 2010

$0$5

$10$15$20$25$30$35$40$45

N. America Japan Taiwan Europe S.Korea China ROW

ROW 3.05 2.61 1.44 3.62 4.08 4.52

China 2.92 1.89 0.94 3.27 3.77 4.16

S.Korea 7.35 4.89 2.60 8.61 8.28 8.72

Europe 2.94 2.45 0.97 2.33 2.91 3.20

Taiwan 10.65 5.01 4.35 9.99 9.00 9.17

Japan 9.31 7.04 2.23 4.41 4.90 4.94

N. America 6.55 5.63 3.39 5.31 6.01 5.81

2007 (A) 2008 (A) 2009 (A) 2010 (F) 2011 (F) 2012 (F)

US

$ B

illi

on

s

$15.92

$37.54

$29.52

$38.95$42.77 $40.52

Totals may not add due to rounding.

9

7 8 9 9 9 1013

1519 21 22

2023

20 2124

2931

37

43 43 4446

28

35

05

1015202530354045505560

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

E

2011

F

-50%

-25%

0%

25%

50%

75%

100%

Materials Revenue Annual Growth

Source: Rose Associates historical reports 1987 through 1999, SEMI 1999 through 2011, January 2011

Glo

bal

Mat

eria

ls R

eve

nu

e U

S $

B(b

ar g

rap

h)

An

nu

al G

row

th %

(li

ne

gra

ph

)

Semiconductor Materials Cycles

10

$0$5

$10$15$20$25

$30$35$40

$45$50

N. America Japan Taiwan Europe S.Korea China Southeast Asia

Southeast Asia 4.55 5.03 6.18 6.79 6.90 6.05 7.35 7.50 7.67

China 1.28 1.64 2.38 3.31 3.57 3.27 4.09 4.60 5.03

S.Korea 3.10 3.78 4.88 6.10 5.90 4.72 6.11 6.52 6.81

Europe 2.80 2.88 3.39 3.68 3.32 2.52 3.13 3.22 3.27

Taiwan 4.85 5.31 6.74 8.34 7.87 6.84 9.07 9.56 9.91

Japan 7.61 7.58 8.57 9.19 9.96 7.65 9.33 9.49 9.53

N. America 4.63 4.72 5.11 5.25 4.99 3.78 4.48 4.63 4.72

2004 2005 2006 2007 2008 2009 2010F 2011F 2012F

US

$ B

illi

on

s

$37.25

$28.82

$42.52

$34.83$30.94

Totals may not add due to rounding. Source: SEMI Materials Market Data Subscription January 2011

$42.67$45.53

$43.55$46.93

SEMI® 2011 Materials Forecast By Market Region

11

Some Industry Characteristics

• R&D intensive: 10-15% of revenues reinvested into R&D

• Export dependent: over 80% over U.S. companies’ sales are overseas

• Global: no U.S. monopoly on this technology

12

Making the Same Chip

Etch

CVD

PVD

Implant

Lithography

Track

Mask Making

CMP

Process Control

Lam, AMAT

Novellus

Applied

Varian

ASML

TEL

Nuflare

AMAT

KLA-Tencor

Lam, AMAT

Novellus

Applied

Varian

ASML

TEL

Nuflare

AMAT

KLA-Tencor

TEL, Hitachi HT

Jusung

Ulvac

SEN

Nikon

Sokudo

Micronic

Ebara

Vistec

TEL, Hitachi HT

Jusung

Ulvac

SEN

Nikon

Sokudo

Micronic

Ebara

Vistec

TEL, HHT, AMEC

ASM

Unaxis

Nissin

Canon

Suss MicroTec

Hitachi

Tokyo Seimitsu

Nova Measuring

TEL, HHT, AMEC

ASM

Unaxis

Nissin

Canon

Suss MicroTec

Hitachi

Tokyo Seimitsu

Nova Measuring

Option 1 Option 2 Option 3, etc.

Substantial Foreign Availability of Technology

February 2011

13

PV Group Focus - Manufacturing

• Close to 500 SEMI member companies form PV Group, many of them with history and expertise in semiconductor manufacturing

• 85+ PV “pure players” have joined since January 2009

• Advisory Committees, Technology Roadmap and Industry Collaboration, Standards, Expositions and Conferences, Policy and Advocacy, Industry Research and Statistics

SEMI PV Group

14

Worldwide PV Production

• In 2009, China and Taiwan built 49% of PV modules

• U.S. ranked 5th in worldwide production

15

Worldwide PV Installations

• Worldwide installed PV capacity has grown 16-fold over the past decade

• Most of new capacity has been in Germany• US poised to overtake Germany in next two years

16

Policy Issues

17

Export Control Reform

• Administration’s export modernization initiative seeks to create a:– Single list– Single license processing agency– Single IT system– Single enforcement agency

• SEMI believes the system needs updating, particularly the Commerce Control List.– Semiconductor equipment controls not updated in 20 years.– Industry is highly controlled, products are widely available.– Emerging domestic industry within China.

• U.S. companies need equal access to China market now to establish themselves, build their long term business, and to fund R&D and remain leaders.

18

U.S.-Korea Free Trade Agreement

• SEMI urges Congress to pass this agreement as soon as possible. Working with the High Tech Trade Coalition (HTTC), a group of 15 industry associations.

• Key benefits include:– Tariff elimination– Intellectual property rights protection– Trade facilitation– Need for U.S. to regain momentum on trade liberalization

• SEMI also supports market expansion efforts through the Colombia and Panama Free Trade Agreements and the Trans-Pacific Partnership.

19

ITA Product Expansion

• WTO’s Information Technology Agreement negotiated in 1996. Originally 29 participants, now 70.

• Eliminated tariffs on wide range of IT products, including many types of semiconductor devices and equipment. Estimated cost savings in the billions.

• Preliminary stage of considering expansion of product list:– New products and major changes in industry since

1996– Clarify coverage, avoid classification disputes

• Several associations recently sent a letter to USTR Kirk encouraging this initiative and work is beginning to build support with key trading partners.

20

Intellectual Property

• Mounting challenges in IP protection can undermine the incentives and rewards of innovation.

• Developing and protecting intellectual property has become a costly global management concern: – Rising costs of R&D increase pressure for return on these

investments– Escalating legal costs of IP management and litigation– The globalization of the semiconductor business requires a

global approach to IP management

• Increasing IP violations are driven by: – Weak IP protection laws, enforcement and penalties in many

regions– Outsourcing and off-shoring from the US and Europe to Asia– Major pressures for cost reduction in a consumer driven

market

21

Intellectual Property

Industry Impact: • Equipment – many companies focus on a limited number of product

areas, making it difficult to absorb IP losses since there is not a lot of room to spread out these losses

• Materials – many companies often serve multiple industries and could focus their resources in other areas if semiconductor-related investments are no longer advantageous

Government:• Promote strong IP protection and enforcement provisions in free trade

agreements• Ensure compliance by trading partners• Assist individual companies as possible

Industry:• SEMI promotes best practices by requiring all member companies to

commit to an IP Statement of Principles, Board-level discussions, educational activities, etc.

• IP White Paper: www.semi.org/ip

22

Other Policy Issues

• PV/Solar Energy:– Extension of the grant-in-lieu-of investment tax credit– Expansion of the advanced energy manufacturing tax credit– Renewable energy standard or clean energy standard with solar

provisions

• R&D Tax Credit– Extension before December 2011 expiration, goal of permanency

• Government Investment in Basic Research:– NSF, NIST, DOE Office of Science, Focus Center Research Program

• High Skills Immigration:– H-1B visas are critical for highly skilled workers and shortages

continue

• Supply Chain Issues:– “Rare earth” minerals: restrictions from China– Conflict minerals: SEC reporting/disclosure

23

For More Information

Maggie HersheySenior Director, Industry Advocacymhershey@semi.org202-289-0440www.semi.org

William MorinDirector, Government AffairsApplied MaterialsWilliam_Morin@amat.com202-638-4434www.appliedmaterials.com