The tensions are growing fast as the industry confronts the issue of 450mm. Some believe it is absolutely necessary. It is scheduled in the ITRS roadmap to be ready by 2012 and believed essential to keep chipmakers on Moore’s cost-performance curve. Meanwhile, having just come off 300mm, others believe it will be a disaster and are fighting tooth and nail behind the scenes to stop it. Today, they represent the majority. It’s not just the equipment-makers who are in this camp. It is also the majority of chipmakers. Many believe Moore’s law must slow; that staying on it is unaffordable; that 450mm will lead to even worse scale problems than 300mm; and that if it happens the result will be more consolidation and even harder times.

In favor of the people arguing for it is the fact that every wafer size jump has met with resistance based on the same reasoning. But there are reasons to believe that this time things will be different. The industry’s growth has slowed. Plus, 300mm proved to be incredibly painful for the equipment industry. These are differences few argue with.

One of the problems in addressing these issues is that there has been little data to make decisions around. As a result, emotion has ruled. So I have spent the better part of this year mining our archives for historical data on what it cost to develop the equipment base for the various wafer sizes. Hopefully, this will shed some light on the issues and allow the industry to engage in a more productive discussion.

The data shows 300mm equipment development was indeed very expensive for the equipment industry. (See Figure 1.)

In fact, at $11.6 billion, its cost dwarfs that of 200mm, towering over the smaller size by nine times. In contrast, both 200mm and 150mm were only about double their prior generations. RD&E spending has averaged 16.2 percent over the last 10 years, which means that it will take a total of $72 billion in equipment revenues to payback the amount suppliers spent on 300mm. This will be achieved by 2007, which doesn’t seem unreasonable. However, one must remember that the first 300mm development costs were incurred in 1993. This is a 14-year payback cycle. If we start in 2006, the simple math of adding 14 years out puts the 450mm payback in 2020. Most of the industry’s senior executives will be retired by then. The stock ownership of these companies will have turned many times, as will the financial analysts that cover the companies. The time-tomoney in other high-tech markets is far shorter. This makes such a long endeavor difficult to achieve from a social standpoint.

Let’s change perspectives. The industry was much larger when 300mm came to be. So, one must look at this relative to the total that was spent on development over the periods when these wafer sizes were developed. This picture is not that bad. (See Figure 2.)

At 18 percent of the total RD&E spent by the industry over that period, it does not seem inordinate. Though it was significantly higher than the 15 percent spent on 200mm, spending at this level does not seem to be something that would break the equipment-maker’s bank. But since this occurred at a time when the industry was achieving phenomenal growth and 300mm was spread over more years, the costs were held to a reasonable proportion of spending.

The problem for equipment-makers is that 300mm fabs are not that more expensive. The size of wafer size development costs to that of a new fab was far higher than in previous generations. (See Figure 3.)

At 3.9 times the cost of a new 300mm wafer fab, the relative wafer size development costs for the equipment were far higher. Chipmakers got a great deal on 300mm, as equipment-makers were spending twice what they had to spend to field 200mm gear. But, since the sustainable return on investment is fixed by financial markets – and is a function of equipment prices – this ratio should have been somewhere near 2.0. In other words, 300mm equipment prices are about half what they should be in historical terms. This is the source of a deep and festering wound for equipment-makers. It is a wound that has led to poor profitability throughout the supplier base and could put it in jeopardy over the longer run.

Because 300mm is so productive, fewer fabs are built. Since the fab costs are relatively the same and equipment purchase amounts similar, equipment-makers argue that they got a raw deal by not sharing in the benefits 300mm brought to chipmakers – and it is a benefit they made possible. Had they not developed 300mm, they would be selling twice the equipment and thus have twice the revenues they have today. Of course this is a static analysis. Had 300mm not been developed and the economic benefits accrued to the end users, it is likely semiconductor growth would be lower and thus total equipment demand lower. But, it probably would have still been a net gain for equipment-makers over the deal they got with 300mm.

Another way to look at this is to compare the relative areal cost of wafer size development costs to that of fab costs. (See Figure 4.)

What you can see is that in dollars per square centimeter, the costs for both rose steadily before 300mm. So, both chip and equipment-makers were sharing the pain. With 300mm, the trend reversed for chipmakers – but not for equipment-makers. There are two conclusions to draw from these figures. One is that the development costs for 300mm was unacceptable for equipment-makers. The gap between these costs means that payback was stretched out inordinately long. Development costs should have followed fab costs down. If not, that leads to the second conclusion: Fab cost per square centimeter for 300mm should be somewhere between $15 and $20 to pay back equipment development costs in a reasonable time. That is two times where they are today.

Looking at it all, it is easy to see why the equipment industry is violently opposed to 450mm. For it to happen, the trends and the conditions behind them must change. One clue to how this could be changed is in how the development costs for 300mm were spent in time in comparison to the other wafer sizes. (See Figure 5.)

Prior to 300mm, wafer size transitions were relatively smooth. 300mm came with two peaks of spending that were spread out over 11 years. Some argue that this happened because of the deep downturn in 1998. However, there was also a deep downturn in 1986 that had no impact on 150mm development spending. We also know that the deep downturn of 1975 did little to slow the progression of 3-inch wafer development. At the same time, the mild downturns of the early eighties and mid-nineties had little impact on wafer size development spending by the equipment industry. The biggest difference with 300mm and other generations was the lack of bridge tools and the presence of consortia management of the transition.

It is hard to come to any other conclusion than that the primary reason for the high costs incurred by the equipment industry in developing 300mm is largely attributable to the mismanagement of the transition by the various consortia involved. First, there was the insistence that there be no bridge tools. The resulting co-development of different platforms for 200mm and 300mm escalated costs. Second, the insistence that early generation 300mm tools be targeted at 0.25 micron, while 200mm tools in development are targeted at 0.18 micron, ensured there would be no market for the first generation of 300mm equipment. This resulted in the waste of precious development funds. The smart equipment suppliers responded by giving lip service to 300mm and focusing their money on 200mm. Their resistance also doomed this early generation of equipment. Third, the insistence that a complete 300mm tool set be ready by 1997 was too short to do any reasonable planning. Ultimately, the industry had to backtrack to develop all the automation requirements that were discovered later on.

The blame for the failure can be placed in many corners. But it is the consortia that took the responsibility for leading 300mm. Instead of leading, they blindly followed the interests of their member companies. In so doing, the industry was set up for failure from the start. Part of the problem here is that these consortia do not have any outside board member of any influence. But in the end, the consortia must suffer the blame, and hopefully learn from it for the next round.

The reason for the double peak can largely be blamed on the toxic combination of the customer-inspired rush, the lack of bridge tools, and supplier resistance. The lack of bridge tools changed the market dynamics. Instead of being incentivized to be first with 300mm, equipment suppliers were incentivized to be last. Without a complete 300mm tool set, none would be sold. When the lithography equipment suppliers decided not to play, the first generation of 300mm was doomed. When the downturn hit in 1998, no one was buying and there was no way customers would have bought an incomplete set of 300mm equipment that was a node behind. 300mm would not become the standard until 90nm, fully three nodes from the initial target set by the customers. So there is a lot for the industry to learn and comprehend if 450mm is to be successful. Most of the responsibility for this lies on the shoulders of the chipmakers. They must shoulder this responsibility to convince equipment-makers to come along – or 450mm will not happen.

There is a silk lining to this sow’s ear. Had it been properly managed, 300mm development costs would have been far lower. If we can learn from our mistakes and achieve this as an industry, 450mm may indeed come. One thing about our industry: it is incredibly good at learning from its mistakes. Plus, as Bob Noyce once said, “Understanding that there’s a problem is 95 percent of the solution.”

That leads us to the difficult questions of how feasible 450mm is from a financial perspective. As well as what is a likely timeframe for its appearance? Is 2012 feasible?

Let’s start this by looking at the escalation of equipment costs. At nine times that of 200mm, a simple extrapolation to 450mm leads to a number of $102 billion in equipment development costs needed to make the transition. But if the acceleration in development costs from 200mm to 300mm continues, the number escalates to $917 billion. For all intents and purposes, that is a TRILLION DOLLARS! Clearly that is unattainable, so at a bare minimum, the number must be curbed to $100 billion.

Yet, the $100 billion figure is also unaffordable. As it turns out, total RD&E will only accumulate past $100 billion between now and 2013. That is based on 1) our current forecast through 2010; 2) assuming that the industry grows 6 percent annually after that; and 3) that R&D expenditures are kept at the 10-year average of 16.2 percent. That means that no more than $20 billion can be spent on 450mm wafer size platform development and it probably should be kept closer to $15 billion. That allows for less than a doubling of development costs between wafer size generations.

Worse, this is an optimistic picture. Assuming that RD&E will continue to be 16.2 percent of revenue is highly questionable. It was spent in an environment where the assumed growth of the equipment industry was 18 percent. But it actually ran closer to 6 percent. If we cut the spending rate in half because of the lower growth, the $100 billion will not be achieved until 2019. If we cut it to a third, it will take almost until 2025. So, we must do something significantly different to lower development costs. We must also raise the assumed growth in the equipment market significantly to have 450mm ready by 2012.

Let’s look at the revenue picture. (See Table 1). When 300mm finally came on line in 2004, the equipment industry was almost four times the size it was when it started.

This was far greater than its growth in any other wafer size transition. But, it had taken 11 years to get there. If we start on 450mm in 2006, we must be finished in six years to hit a target of 2012. That rolls us back to the time it took for 150mm. The raw trend puts the time needed at 15 years, which is back in the 2020 timeframe. Nevertheless, with expected revenues of $91 billion in 2012, we are almost close enough to double revenues, which will actually occur in 2015. Growth has to be significantly greater (15 percent) and start in 2007 to meet a revenue multiple of two to afford 450mm by 2012. The problem is that if the equipment industry growth is upped, the capital spending ratio escalates out of control, unless the chip industry follows. This would be unrealistic.

Let’s turn to what the equipment industry can realistically afford to spend on 450mm development between 2006 and 2012. If the RD&E rate of spending gets cut in half, then $41 billion will be spent between 2006 and 2012. If 15 percent is allocated for 450mm platform development, the amount available will be $6 billion. That is more than the $5.2 billion that would be needed, assuming 300mm had been well-managed and achieved two times growth in development costs and then another two times growth was achievable for 450mm. If the spending rate is not cut in half, which is likely, then almost $12 billion will be available – the amount actually spent on 300mm. It all depends on controlling development costs.

Hopefully, you’re still awake after all this onslaught of numbers. Let’s conclude with what are the three most likely scenarios and what we have to achieve to meet them.

1. 450mm never happens: Unless the dynamics are changed and the equipment industry is given some incentives, this is very likely to happen. It has the advantage of inertia, or lack thereof. The equipment suppliers need to do nothing to achieve this scenario. For the chipmakers to change this they have to change the incentives for equipment suppliers – who now see no gain in profitability, fewer units sold, and lower potential revenues in developing a larger wafer size. The financial metrics are all wrong for the suppliers. The problem with this scenario is that it slows Moore’s curve, which ultimately slows industry growth. It could put us all into a downward spiral.
2. 450mm comes between 2020 and 2025: I believe this is the most likely scenario. There will be plenty of funding and time to make it happen in this time frame. It allows for errors of management. History has shown that there is always great resistance to larger wafer sizes, which is always overcome. In the end the biggest customers get what they want. To a great deal, it is the resistance that stretches out the development timeframe. Another reason for believing 450mm will be successful is that all other industries pursue a technical path at least one node too far and then back up. So far it looks like 300mm is successful, meaning there is at least another wafer size coming.
3. 450mm comes on schedule in 2012: I believe this is the least likely scenario. Like plans for 300mm to arrive in 1997, in my opinion, this schedule is unrealistic and is being rammed down the equipment industry’s throat. The equipment industry is resisting covertly, as well as many chipmakers who are choking on 300mm. It is the resistance that makes this scenario unlikely. It is achievable. But both chip and equipmentmakers must work together in ways closer than they have ever done before. This is unlikely because of current day buying tactics. The advantage to this scenario is that if the time needed to develop 450mm is trimmed back, development costs will be trimmed as well. Working together efficiently, could save billions in development costs. The other way to pull this off is for chipmakers to go it alone and develop their own equipment. This is already happening with Samsung and has been in place for some time. But even they would be hard pressed to develop an entire equipment set. Remember, it really won’t be any cheaper for them when the opportunity costs are factored in.

Looking back, the range of possibilities here is incredible. It reminds me of the gamble made by the researchers who set off the first atom bomb in New Mexico, who bet on one end that it would be a dud and on the other that it would ignite the earth’s atmosphere and incinerate the world. If we do everything perfectly, it is reasonable to expect 450mm development to cost the industry less than $10 billion. At the other end of the spectrum, if we get it really wrong – as wrong as 300mm – the cost could be as high as $1 trillion. As with the events in New Mexico, the result will probably fall somewhere in between, and the world will never be the same.

There you have it. You’ve got the data and my opinions. Now it’s time for the industry to move forward.