OPPORTUNITIES FOR WEB COATED MATERIALS

IN ELECTRONICS

ELECTRONICSGROWTH OPPORTUNITIES

• The Electronics Industry offers opportunity and issues not found in other industries

– High growth

– Unmet customer needs

– Rapidly changing supply base

– Steep business cycles

THE GLOBAL ELECTRONICS INDUSTRY

WY94.274bp

1990 2000 2010 20201980

$247 Bn

1982

Computer23%

Communications26%

Consumer15%

Military19%

Industrial/Medical13%

Automotive4%

Japan 6%

Asia 17%

China 34%

Europe 15%

Americas 28%

17%

37%

12%

24%

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0

Trillion $

2001 and 2002 will be remembered by survivors as an industry turning point.Over 20 years the electronics industry will grow to be 2.5x as big as it is today.

$950Bn

2003

2/3 of the industry isbased on networked communications

Consumer10.3%

Industrial/Medical11.3%

Automotive6.7%

Military9.3%

10%

China10.2%

Rest of Asia17.4%

USA30.4%

Rest of Americas6.2%

Japan11.9%

Western Europe21.8%

Eastern Europe2.1%

2003 Production

2003 Total: $950Bn

M103.288skc-prod

Computer37.7%

Communications24.7%

5.0%

4.0%

3.0%

2.0%

1.0%

4.5%

3.5%

2.5%

1.5%

0.5%

0%

0%

10%

20%

30%

40%

50%

Year-on-YearSemiconductor Growth

-10%

-20%

-30%

-40%

-50%1988 1989

WORLD SEMICONDUCTOR GROWTH RATES

N84.239jpp-world

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

$ Value of semiconductorshipments year- on-year change

Semiconductor long term growth rate

Year-on-Year Semiconductor Growth Rates

GDP long term growth rate

GDP of top 20 electronics nationsyear-on-year change

Year-on-YearGDP Growth

+ 16.8%

+ 42% + 37% + 14%

+ 4% + 1.3%

+ 15%

+ 2%

+ 32% + 19% + 32%

-9% -32% -10%

-8%1998 2003

1994 1999 2004

1995 2000 2005

1996 2001 2006

1997 2002

2008

2007

ELECTRONIC MATERIALSENABLE ELECTRONICS GROWTH

• Since the beginning of the industry’s history, materials have enabled advances at both the component and system level

– Performance Increase

– Size Reduction

– Cost ReductionS64-bit high-performance microprocessor chip Source: IBM

60:1 aspect ration trench fromLeading DRAM design – requires thin film HfO2 deposition

ELECTRONIC MATERIALDEFINITION

• Materials used in the fabrication of electronic components or the assembly of electronic components, systems and subsystems

• Materials can take many forms

– Solids, liquid, gases

– Powders, ingots, films

• Exclude poorly differentiated materials supplied to a wide variety of industries including electronics

– Sheet steel used in electronic enclosures

– Polymers used in enclosures and connector bodies

ELECTRONICS INDUSTRY VALUE CHAIN (2003)

Electronic Equipment$948Bn

Computers$350Bn

Communications$245Bn

Other Electronics$353Bn

Electronic Components$342Bn

Semi-conductors

$144Bn

Semi-conductorsPackage &

Test$22Bn

FabMaterials$17Bn

Wafers, Bulk Gas, Spec Gas, Wet

Chem, CMP, Targ/Precurs,

Resists,Ancillaries,Masks

Laminate, Resist and Ancillaries,CeramicModules,

Solder Masks, Strip and Etch,Plating Chem

Leadframes,Mold Comp,Die Attach, Encaps,Substrates

Solder Paste,InterfaceMaterials, Gaskets,Adhesives

InterconnectSubstrates

$39Bn

Packaging Materials

$4Bn

PWB Materials

$9bn

Assembly,Thermal EMI

$3Bn

Electronic Materials$62Bn

Raw and~ Industrial Materials

$12Bn

Metals, Salts, Acids, Polymers, Inorganics

K84.217jd-chain

Glass, ColorFilters, Films,

Optical Element,Resists, Polymers,Precursors,

Thick Film Mat

Displays$53Bn

DisplaysMaterial$15Bn

Powders, Electrode

Metals, Film,Foil,

Separator

Passives$21Bn

PassiveMaterials

$7bn

Lithium,Carbon,NiCad,Film,

Metal Can

BatteryMaterials

$1Bn

Disk Substrates,

Film Substrates,

Mag Materials,Record Heads

DataStorage$24Bn

DataStorage

$5Bn

Connectors,Wires, etc.

$31Bn

Brass, Gold,Molding Resin,Plat Chem, Wire and Insulation,

Mech Comp,Crystals andSensors

Connectors,Cable, etc.

$4Bn

Optical Fiber,Glass,

Dielectrics,Substrates,

Semi Materials

PhotonicDevices

$8Bn

Photonics$2Bn

Energy$7Bn

ELECTRONIC MATERIALSDEFINITION

• Electronic materials revenues were $62Bn in 2003

• Mid point in the Electronics Supply Chain

– 5x value of input raw materials

– 1/5 value of produced components

Polysilicon

Hemlock Shin-Etsu Intel Microstar Dell

Raw Material

ElectronicMaterial

Component Subsystem System

Silicon Wafer Microprocessor Motherboard Computer

ELECTRONIC MATERIALS POTENTIAL FOR GROWTH AND PROFIT

• Materials offer the highest potential for growth of any segment of the electronics value chain

– Electronic Materials 9.4% 5 year CAAGR

– Electronic Components 8.5% 5 year CAAGR

– Electronic Systems 5.8% 5 year CAAGR

• Materials offer an attractive opportunity for many companies

– Sizable $62Bn revenue (2003)

– Fast Growth 9.4% CAAGR (2003 – 2008)

– Profitable 9.5% OPBT (2003 average)

ELECTRONIC MATERIALSMARKET SEGMENTATION

• Electronic materials can be segmented in many ways

– By industry segment (Computer, Automotive . . . )

– By component (Semiconductor, Passive . . . .)

– By chemistry employed (Metals, Acids, Acrylics, Silicones . . . )

– By material form (Gases, Films, Liquids . . . )

• For the purposes of today’s discussion we will examine web coated materials

ELECTRONIC MATERIALSWEB COATED MATERIALS

• Web coated materials – flexible film coated with secondary material in reel to reel format

– Organic films coated with organic materials

• Flexible PWB coverlay

– Organic films coated with inorganic materials or metals

• LCD polarizer film

– Metal films coated with organic materials

• Resin coated copper foil (PWB)

– Exclude simple uncoated materials

• Separator films used in batteries and capacitors

Electronic Materials$62Bn2003

Web Coated Materials$8.5Bn2003

Web Coated Materials$8.5Bn - 14%

Semiconductor2%

PWB27%

Display43%

Energy0.2%

Data Storage 24%

Assembly4%

B104.175jd-electronic mat’ls

WEB COATED ELECTRONIC MATERIALS

$8.5Bn - 2003

WEB COATED ELECTRONIC MATERIALS

Dicing Film

Flexible Laminate

Flexible C

overlay

Resin Coated Copper Foil

Dry Film

Potoresist

PWB Phototoo

LCD AG Film

PV Encapsulants

Energy - 0.2%

Flexible Magnetic Media

Data Storage - 24%

ACF

Assembly - 4%

TIM - film type

LCD Polarizer

LCD BEF

LCD WVA Film

LCD Diffusion Film

LCD Prism

atic Film

LCD Refle

ctor Film

PDP EMI Film

ELD Substrate

ITO PET for Touch Screen

Backgrinding Tape

Semiconductor - 2%

PWB - 27%

Display - 43%

LOC Tape

B104.175jd-breakdown of electronic mat’ls

ELECTRONIC MATERIALSWEB COATED MATERIALS

• Web coated materials make up a significant and growing electronic materials segment

– 2003 Sales $8.5Bn

– 2008 Sales $15.4Bn

– CAAGR 12.6%

• The significance of web coated materials is expected to increase over the next five years

– 2003 13.7% of total materials

– 2008 16.2% of total materials

ELECTRONIC MATERIALSWEB COATED MATERIALS

• The growth in web coated materials is driven by a number of phenomena

– Use in high growth applications

• Flat Panel Displays > > > portable electronics, televisions

• Flexible Printed Wiring Boards > > > cell phones, laptops

– Characteristics of web processing

• High volume

• Lower costs

• We will highlight two of the leading web coated materials in the following section

– Flat Panel Display materials

– Flexible PWB materials

WEB COATED MATERIALS INWEB COATED MATERIALS IN

DISPLAY APPLICATIONSDISPLAY APPLICATIONS

LCD FilmsLCD Films

2003

0

50

20

30

70

10

60

40

2004 2005 2006 2007 2008

M m Area2

WY94.048jd-area

DISPLAY GROWTH 2003-2008 AREA

CRT-Televisions

LCD

PDP

OLED

CRT-Monitors

LCD DISPLAYS

• LCDs are currently the dominant display technology representing 78% of unit volume and 59% of revenue in 2003

– Units 1.7Bn

– Area 10.8M m2

– Revenue $37Bn

• Despite the size of the LCD market, its growth is expected to be rapid over the next five years (2003 – 2008)

– Units 5.5% CAAGR

– Area 16.9% CAAGR

– Revenue 9.9% CAAGR

• LCDs are materials rich with total materials usage equal to 25% of total display cost

Panel Materials$9.2Bn 24.9%

Glass$2,360M 25.6%

Thin Films Deposition$210M 2.3%

Photoresists$180M 2.0%

Color Filters$1,750M 19.0%

Photomask$220M 2.4%

Black Matrix$7M 0.0%

Alignment Layers

$100M 1.1%

Sealant$55M 0.6%

Spacers$70M 0.8%

LCDTotal: $36.97Bn

LCD MATERIALS

WY94.048jd-material

Panel MaterialsTotal: $9.2Bn

Liquid Crystal$350M 3.8%

Polarizers$1,500M 16.3%

AG Film$190M 2.1%

Viewing Angle Film$490M 5.3%

Brightness Enhancing Film

$550M 6.0%

Light Guide$210M 2.3%

Prismatic Sheet

$470M 5.1%

Diffusion Sheet

$120M 1.3%

Reflection Sheet

$50M 0.5%

ACF$330M 3.6%

Profit, LaborDepreciation and Other Materials

$36.97Bn 75.1%

LCD MATERIALS

• Web coated materials make up more than 35% of the materials used in the construction of LCD panels

• Web coated materials are critical to the performance and quality of the display

– Brightness

– Wide viewing angle

– Low power consumption

– Viewability in brightly lit rooms

• There are several distinct materials used in LCD fabrication

– Antiglare films - Polarizer films

– Retardation films - Brightness enhancing films

– Wide viewing angle films - Diffusion films

– Prismatic films - Reflector films

TYPICAL TRANSMISSIVE LCD

Source: Kyocera/Prismark

1. Top polarizer

2. Wide viewing angle film

3. Retardation film

4. Top glass

5. Column electrodes

6. Liquid crystal

7. Row electrodes

8. Over coating

9. Color filter

10. Bottom glass

11. Retardation film

13. Bottom polarizer

14. Brightness enhancing film (non-prismatic)

15. Prism sheet

16. Backlight system

12. Wide viewing angle film

B94.049RS-lcd

LCD MATERIALS

• LCD Films Market– 2003 $3.4Bn

– 2008 $7.0Bn

– CAAGR 15.7%

• Customer Base – almost exclusively Asian– Japan

– Korea

– Taiwan and China

• Leading LCD Film Suppliers– Nitto Denko

– 3M

– Fuji

– Sanritz

– Sumitomo Chemical

WEB COATED MATERIALS INWEB COATED MATERIALS IN

FLEXIBLE PRINTED CIRCUIT BOARDSFLEXIBLE PRINTED CIRCUIT BOARDS

Flexible Laminate and CoverlayFlexible Laminate and Coverlay

FLEXIBLE PRINTED CIRCUIT BOARDS

• Flexible printed circuit boards are one of the smallest segments of the overall printed circuit board market, representing less than 15% of the market in both area and revenue in 2003

– Area 32.7M m2

– Revenue $4.8Bn

• The flexible printed circuit board market will lead the overall printed circuit board market in growth over the next five years (2003 – 2008)

– Area 17.8% CAAGR

– Revenue 12.2% CAAGR

2003 2003 2003 2003 20032008 2008 2008 2008 20080

5

10

15

20

25

30

35

Americas

Europe

Japan

Asia (Ex. Japan)

2003/2008 PCB MARKET PROFILES GROWTH

Commodity (Paper, Composite,

Rigid Glass)

Multilayers Microvia Si Platform Flex

($ Bn)

M44.044kk-growth

$7.27$7.84

$14.88

$17.86

$3.34 $3.03

$5.35$5.36 $4.80

$8.59

1.5%CAAGR

3.7%CAAGR

9.9%CAAGR

12.1%CAAGR

12.3%CAAGR

JVC DIGITAL CAMCORDER

• Microvia Boards- 2+ 4+ 2 laser via (main)- 1+ (1+ 2+ 1) + 1 rigid-flex microvia

(memory card)

• Rigid Boards- 2 four layer (playback, viewfinder)- 3 two layer (flash, infrared, headset)- 1 one layer (power)

• Rigid-Flex Boards- 2 six layer (CCD, tape drive)

• Flex Boards- 15 polyimide flex (2 DS, 13 SS)- 4 polyester flex (1 double layer)

59.182mvc

POLYMER THICK FILM CIRCUIT IN DIGITAL ANSWERING MACHINE

Cost effective integrated assembly of keyboard display and processor Source: Poly-Flex Circuits

126.182mvc

FPC APPLICATIONS IN MOBILE PHONES

• A variety of flexible circuits are used in a cell phone

• Clamshell designs require four or more flexible circuits

- LCD display Flex

- Hinge Flex

- Keypad Flex

- Camera Module Flex

• Standard “candy-bar” cell phone only needs one or two flexible circuits to connect the LCD display to the motherboard

• Growth of flexible circuit board demand is propelled by the following trends:

- Design change from “candy-bar” to “clamshell” style

- Adoption of color, larger and more displays per phone

- Incorporation of camera modules

- Constraint of the phone size, total thickness and increased functionality

74. 182rd

57.182mvc

CONTACTLESS SMART CARD

Flip chip attached with conductive adhesive to etched copper antenna. Manufactured by FELA-Hilzinger

Asian Companies$820M 16.5%

(Interflex, Young Poong,Career/Puka, Gflex,

AKM, MFS, etc.)

2003

European Companies

$160.7M 3.2%(Ruwel, etc.)

Japanese Companies

$3,155M 63.5%(Nippon Mektron, Fujikura,Sumitomo (EI), Nitto Denko,

Mitsui, Shindo, etc.)

Note: PCB value only. (Excludes value added assembly services. But includes packaging substrates, TAB, COF, etc.)

North American Companies

$836M 16.8%(3M, Innovex, M-Flex,Sheldahl, Parlex, etc.)

FLEXIBLE PRINTED CIRCUIT PRODUCTION BY COMPANY(EXCLUDE ASSEMBLY VALUE)

TOTAL: $4.97Bn

WY44.196skc-pc

CoverlaySuppliers

DuPont, DuPont Teijin, Kaneka, Ube$5/m

$12/m

$15/m

*

*

*

*Japan Energy, Mitsui

$2/m

2

2

2

2

FlexiblePWB

Fabricator

N94.039jd

Flexible LaminateSuppliers

Flexible FilmPI, PET, PEN

FLEXIBLE PRINTED CIRCUIT BOARD SUPPLY CHAIN

* Prices for common adhesive-based polyimide materials.

Adhesives

CopperFoil

PI Adhesive FPC$3.4Bn 69%

PI Adhesiveless FPC$1.3Bn 25%

PET/PEN$0.3Bn 6%

2003 GLOBAL FLEX CIRCUIT MARKET BY MATERIAL OPTIONS

TOTAL: $4.97Bn

WY44.039skc-market

------

-----

---

HDD Dynamic flexCellphoneNotebookCameraEngine controlMedical

TBGA/CSPPrinter cartridgeCOFHDD suspensionCellphone multilayer flex

AutomotivePrinterConsumer

FLEXIBLE PRINTED CIRCUIT BOARD MATERIALS

• Current market size (2003)

– Flexible laminate

• Area 49M m2

• Revenue $1,145M

– Coverlay

• Area 54M m2

• Revenue $519M

• Growth rate (2003 - 2008) – market growth

– Flexible laminate

• Area 14.2%

• Revenue 13.7%

– Coverlay

• Area 12.7%

• Revenue 10.2%

FLEXIBLE PRINTED CIRCUIT BOARD MATERIALS

• Supply Base

– NOK

– Nitto Denko

– Dupont

– Rogers

– Nippon Steel

– Mitsui Chemical

– 3M

ELECTRONIC MATERIALSKEY SUCCESS CRITERIA

• Driven by its favorable characteristics, the Electronic Materials business has attracted many new entrants

– Start-ups

– Chemical and materials companies

– Backward integrating component companies

• Not all new entrants succeed

– Steep business cycles

– Shifting customer lists and locations

– Capital and technical service requirements

– Many new materials carry high risk

ELECTRONIC MATERIALSKEY SUCCESS CRITERIA

• What does it take to succeed as a new entrant to the electronic materials market?

– Strategic Options

• Address unmet customer needs

– Technology – difficult for new entrant

» Not all segments have true unmet needs

» Most segments are well served by incumbents

– Cost – a key driver in all segments

– Scale – important in emerging applications

• Leverage key customer ties

– Strong linkage to dominant customer

– Ability to leverage position to generate sales

• Be an early and persistent investor

– Good longer term strategy

– Most near term opportunities well covered

ELECTRONIC MATERIALSKEY SUCCESS CRITERIA

• What does it take to succeed as a new entrant to the electronic materials market?

– Required Elements

• Sustainability - in the face of the Asian transition

– Local competitors emerge as businesses mature

– Are technology, cost advances sustainable?

• Value Capture

– What business model will generate necessary ROI?

– Many emerging opportunities will not generate adequate return using conventional m2 or kg pricing models

– Royalty or equity positions may be required

– Several companies investigating forward integration to capture value added from materials innovation

ELECTRONIC MATERIALSSUMMARY

• Web coated materials are used in a number of leading electronic applications

• Driven by their use in portable and display applications, the use of web coated materials will continue to lead the systems, components and total electronic materials markets

• Web coated materials may offer ample growth opportunities for new and existing electronic materials suppliers

THANK YOUTHANK YOU

P A R T N E R S L L C

PRISMARK

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