Customers want lower costs, enhanced performance
Applied Materials’s (AMAT) core customers include Intel (INTC), Samsung Electronics (SSNLF), and Taiwan Semiconductor Manufacturing (TSM). Recently, these customers have been pressuring suppliers to reduce costs. At the same time, they also pushed equipment makers to invest in R&D to develop sophisticated and complex machines, as well as to shrink the size of transistors on their chips.
Transition to large silicon wafers
Research analysts believe that an expensive transition is on the way in the semiconductor space as chip manufacturers contemplate a shift to larger silicon wafers, from 300 mm to 450 mm. The above graphic shows the silicon demand trends by wafer size and how the preference of 450 mm wafers is expected to increase. This move will reduce the cost of each chip produced.
Applied and Tokyo Electron, the leading companies in this space, are expected to develop new equipment as part of this transition. The formation of Eteris is expected to result in cost savings and the initiation of other technology development efforts.
If the Applied Materials deal with Tokyo Electron is a success, it will benefit exchange-traded funds (or ETFs), such as the Technology Select Sector SPDR (XLK), that have significant exposure to Applied Materials.
Because the semiconductor industry requires a huge investment in R&D, this merger should encourage combined research and broaden the product portfolios, as the above chart shows. This should enable the merged entity to become a forerunner in the newest lines of semiconductors, as well as create efficient ways to manufacture smaller and faster devices.