Record revenues for critical subsystems suppliers in 2018 despite collapse in orders

Critical subsystems for the IC equipment market continued to grow to a new record of $11 billion in 2018. While 2019 is expected to be a downturn year, the long-term outlook remains unchanged with an average growth rate of 3 percent.

Last year may have been a new high for revenues, but it will be remembered as a year of two parts: record quarterly revenues in Q1, followed by rapidly falling orders in Q3 and Q4. Normally, this would not be a problem as suppliers are used to managing volatility in their businesses. However, encouraged by solid end market drivers and optimistic customers, the timing of this downturn was particularly bad as it coincided with the addition of significant new manufacturing capacity for critical subsystems that will be needed to supply the industry into the next decade. The resulting step change in costs against the backdrop of falling revenues has put strain on the financials of these suppliers. Although current visibility is poor, the order decline appears to be stabilising and the worst is nearly over. Revenues are expected to recover in the second half of 2019 followed by a promising outlook for the following three years.

Suppliers of subsystems used in vacuum process tools, such as deposition and etch, have benefited the most from critical subsystems growth since 2012. Vacuum intensity of semiconductor processing continues to grow and in 2018 the value of vacuum process tools exceeded the value of non-vacuum process tools for the first time. This trend is expected to continue with vacuum based semiconductor process equipment accounting for over 60 percent of wafer fab equipment revenues by 2023.

In summary, 2019 is expected to be down 10 percent to 20 percent as the industry digests the recent large additions to semiconductor manufacturing capacity, followed by a new cycle starting in 2020.

Julian West is a technical and marketing analyst at VLSI Research Europe.