By David Lammers

Applied Materials reported a sharp rebound in its Silicon Systems Group (SSG) for its first fiscal 2012 quarter, ending in late January, driven largely by foundry spending that was much stronger than expected just a few months ago. However, a “continuing bottom” in display equipment investments and the deep slump in solar spending will continue to put a drag on Applied’s overall results, executives said in a conference call following release of the financial results.

SSG orders were $1.42 billion in the quarter, up 53 percent, while net sales increased to $1.34 billion, up 26 percent, from the fourth fiscal quarter of 2011. The results reflect the inclusion of Varian’s business; Applied’s acquisition of Varian was finalized during the quarter, adding $200 million to Applied’s net sales and $270 million to the order book.

Three customers accounted for 70 percent of Applied’s SSG business during the quarter, a consolidation trend that will continue in the current quarter, and executives made light-hearted reference to 2012 being “the year of the foundry.” Overall wafer fab equipment (WFE) spending could possibly match last year’s level, with Applied seeing $30-35 billion in calendar year 2012 WFE, flat to down 15 percent from last year. SSG sales could be up 15-25 percent for the year, partly due to Varian’s revenue addition.

CEO Mike Splinter said foundries are investing in leading-edge capacity in order to keep up with the demands of the smartphone business, which grew to 600-700 million units in 2011, up 35 percent. Tablets added another 60 million units last year.

“Production of smartphones and tablets is accelerating. Die sizes are up about 50 percent year-on-year for the application processors used in smartphones, which means that the foundries have got to move to leading-edge processes very, very quickly. And consumers are moving to the newest models almost immediately,” Splinter said.

That happy scenario contrasts with the DRAM sector, where few companies are adding capacity and sales are limited to the technology upgrades required to meet tepid 30-40 percent bit growth. The release of the Windows 8 operating system from Microsoft and the forthcoming Ultrabook products could put some much-needed pep in the personal computer market, Splinter said.

NAND bit growth will be in the 70 percent range this year as NAND too rides the mobile wave. Splinter said the number of companies investing in NAND is “broadening, with one additional customer making significant investments in the second half of the year.”

The market for 200mm equipment has been “pretty light” in recent months, though Applied expects a pickup in the equipment sold to the automotive IC sector, where power electronics are rising. “We would be happy if we could improve our margins on (200mm equipment) sales of flat to up slightly year-on-year,” Splinter said.

Last year, memory and logic companies invested heavily in immersion scanners. That overall increase in lithography resulted in Applied’s served available market (SAM) shrinking by two or three points, a trend that could flatten this year. Because of the delay in EUV lithography, double patterning using the self-aligned approach, which uses spacers, could increase Applied’s SAM by as much as $800 million in the next few years.

Splinter agreed with a questioner’s supposition that EUV will begin to be used in 2014, but he said it initially will be brought in primarily for one layer: contacts. The cost of EUV and the need to slowly integrate it into volume production will provide a larger market for double patterning and Applied’s deposition technology.

Splinter said Applied did well in most of its semiconductor equipment businesses but lost some market share in etch and CMP. In etch, Applied’s strong presence in the DRAM sector hurt its sales, and in CMP Splinter predicted “a pop back this year to previous high (market share) levels.”

Asked if vertical or 3D memories will boost Applied’s sales, Splinter said vertical NAND devices will provide the NAND vendors with a renewed ability to cut costs and stay ahead of Moore’s Law. But he said vertical NAND products “are still a few years away.”

Tags: Applied Materials, double patterning, DRAM, EUV, NAND, Samsung Foundry, Varian

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