China and Global Semiconductor Industry Update and Outlook Randy Bane Managing Director Corporate Marketing Applied Materials CSIS/US-Taiwan Business Council Conference May 27, 2004
Top 15 Worldwide Semiconductor Equipment Manufacturers 2003 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 * Includes service and spares Source: VLSI Research 2/04 CY2003 Sales ($M)* 4,789.4 3,290.8 1,757.0 1,346.0 1,269.1 1,174.9 1,124.2 966.6 925.1 810.1 748.4 733.1 681.3 604.4 471.9 Company (Sorted by 2003 Revenues) Applied Materials Tokyo Electron Ltd. ASML Nikon Corporation KLA-Tencor Canon Inc. Advantest Dainippon Screen Novellus Systems Hitachi High-Technologies Lam Research Teradyne Agilent Technologies ASM International Yokogawa Electric Corporation
Applied Materials Success in China Explosive Revenue Growth: 75% CAGR ( 98-03); 6% of Total AMAT Revenues in FY2003 AMC Total Revenue Normalized to 1985 = 1 500 450 400 350 300 250 200 150 100 50 Tipping Point -Market Upturn -20 yrs of extended partnership? 0 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04F Sources: Applied Materials China
The Worldwide Semiconductor Industry Electronics Production $1,026.0 Billion 3.0% of Worldwide GDP Electronics Production $1,475.5 Billion 3.5% of Worldwide GDP 1.4x Semiconductor Production $169.8 Billion 14.6% of Electronics Semiconductor Production $331.3 Billion 22.5% of Electronics 2.0x Production Equip. $22.1 Billion 13.5% of Semiconductor Production Equip. $50.4 Billion 15.2% of Semiconductor 2.3x Materials $25.6 Billion Materials $57.0 Billion 2.2x Growth 2003 2010F Sources: Dataquest, Applied Materials Corporate Marketing estimates 3/04, WSTS, SEMI.
27 25 23 21 19 IC Units Shipped (B) 17 15 Q1'00 Q2'00 Q3'00 Q4'00 Q1'01 Q2'01 Q3'01 Q4'01 Q1'02 Q2'02 Q3'02 Q4'02 Q1'03 Q2'03 Q3'03 Q4'03 Q1'04 50.0 45.0 40.0 IC Revenues $B New Era of Unit Shipments >30% Revenue Growth in Q1 04 over Q1 03 Prior Unit Peak Revenues Units Sources: SICAS, WSTS, IC Insights 35.0 30.0 25.0 20.0 15.0 10.0
Shifting Markets for Semiconductors Millions of Users 1,000 100 10 Mainframes Desktop Computing Digital Consumer Appliances 1970 1980 1990 2000 2010 Convergence of Computing, Communications and Consumer Source: IDC
Mobile Penetration (%) 100 80 60 40 20 Latin America China 0 Expanding Global Markets Significant Opportunities Ahead Serbia India World 1995 Poland Wireless Societies ~1 B Cz. Republic Russia World Portugal Greece Emerging Markets ~4.5 B Taiwan Hong Kong Spain Finland Wired Societies ~625 M Sweden Denmark 0 20 40 60 Internet Usage Penetration (%) Italy Belgium Germany France Japan UK Singapore S. Korea US Best of Both Worlds ~25 M Norway Source: EMC Wireless, IDC
China Semiconductor Industry Electronics Production $108.0 Billion 7.9% of GDP Semiconductor Consumption $14.6 Billion, 13.5% of Electronics Semiconductor Production $2.5Billion Electronics Production $242.6 Billion 10.3% of GDP Semiconductor Consumption $53.6Billion, 22.1% of Electronics** Semiconductor Production $23.4 Billion 9.4x 3.7x 2.2x Production Equip. $1.4 Billion 55.0% of Semi Production Materials $1.5 Billion Production Equip. $8.2 Billion 35.1% of Semi Production Materials $9.8 Billion 6.5x 5.9x Growth 2003 2010F ** Assuming China is in par with the world at 22.1% of semiconductor content in electronics Sources: Dataquest, Applied Materials Corporate Marketing estimates, WSTS, SEMI
China s Grows its Dominance of Asia Pacific s Electronic Equipment Production 2003E 2010F Singapore 6% Rest of A/P 11% Singapore 5% Rest of A/P 8% Malaysia 11% China 39% Malaysia 7% China 46% South Korea 19% Taiwan 14% South Korea 20% Taiwan 14% $361B $636B Source: Gartner Dataquest, Applied Materials Corp. Marketing estimates
Semiconductor Sales By Region of Production Europe 12% Japan 38% 1985 2000 2010F Asia- Pacific 1% North America 49% China 0.5% Europe 14% Asia- Pacific 17% Japan 31% North America 37% China 7% Asia- Pacific 23% Europe 15% North America 35% Japan 20% $28B $209B $327B Sources: WSTS, Applied Materials
A New Customer Landscape Shifting Centers of Influence ($12B, 13%) Motorola US 90nm Alliance Philips STM Inotera NanYa TSMC ($4B, 4%) Chartered Asia-Pacific SMIC PSC ($4B, 4%) TI US ($2B, 2%) NEC Matsushita Elpida ASPLA* Renesas ($15B, 15%) Intel ($16B, 17%) Japan Fujitsu Europe Infineon Samsung ($8B, 8%) AMD US IBM US ($14B, 15%) Toshiba Sony Note: () indicates 2001~2003 CAPEX *: Circle indicates major member companies
2004 Top 10 Semiconductor Capital Spending 2004 Rank Company 2004E Capex ($M) 2003 Capex ($M) 2004/2003 % Change 1 Samsung 4,407 3,375 31% 2 Intel 3,800 3,700 3% 3 UMC 2,120 739 187% 4 TSMC 2,000 1,082 85% 5 ST 1,600 1,200 33% 6 Infineon 1,563 1,000 56% 7 SMIC 1,551 670 131% 8 AMD 1,500 586 156% 9 Micron 1,450 1,055 37% 10 IBM 1,400 1,300 8% Total 21,391 14,707 45% Sources: IC Insights, Equity Analyst Reports, Company Reports, Applied Materials estimates
2004 Black-Book Book Capital Spending $40B $3.2B 8% $5.4B 14% $3.3B 8% $8.8B 22% $4.7B 12% $5.4B 13% $9.2B 23% North America Europe Japan Taiwan Korea China SEA Sources: SEMI Fab Database, Company Announcements, Applied Materials estimates
China Semiconductor Consumption Outpaces Domestic Production: Can Supply only 22% of Demand by 2005 35 Consumption 60% 30 Production 50% Billions of US$ 25 20 15 10 5 Percent Demand Satisfied by Domestic Production 22% 40% 30% 20% 10% Percent Demand Satisfied by Domestic Production 6% 0 2002 2005 0% Source: Gartner Dataquest, Applied Materials Corporate Marketing Estimates, CCID (China Center for Information Industry Development)
China Fabs and Location Shanghai JSMC PJMC Fab 1 SGNEC SMIC CSMC Hua Jing Prima SMIC,GSMC TSMC, HeJian HHNEC, ASMC Fab 2 Chengdu Potential Customer SINO CNMC Shengzhen Potential Customer
China s Capacity to Become an Important Foundry Alternative in the Next 2 Years Wafer Starts (8" Equiv.) 900 800 700 600 500 400 300 200 100 0 Taiwan 18% China 2003 2004 2005 Note: 8 and Above Fabs Only 33% *China foundry s capacity includes DRAM capacity that do not compete with existing Taiwan foundry s capacity ** Taiwan s Foundries Capacity consists of only TSMC and UMC Source: Company Reports, Analyst Reports, Corporate Marketing Estimates 48% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% China Capacity as a % of Taiwan Foundry's Capacity**
Establishing a Complementary Industrial Strategy Silicon Valley Technology Innovation Entrepreneurial with strong linkages to Capital Markets Maximizing the Semiconductor Food Chain China Vast Markets Abundant Resources Regional Distribution Low Cost Manufacturing Taiwan Advanced IC manufacturing Vibrant Entrepreneurial and Capital Markets Three Regional Centers, together, growing the overall size of the pie
Summary Integration End markets shift to lower cost consumer products Global partnerships drive future of technology and shifting manufacturing base Foundry proven model stimulates further stratification of markets Regions segmenting around core capabilities, infrastructure/cluster success, cost and incentives