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SEZ Group's, recently promoted COO, Kurt Lackenbucher, noted during an analyst conference call to discuss the company's 3Q05 results that it was seeing a concerted shift away from wet bench processes to single wafer platforms as chip manufacturers prepared to start 65nm production.

As a pioneer in single wafer wet processes, Lackenbucher highlighted during the Q&A session, that it was having to engage in a larger number of tool and process qualification programs with customers this year. Many chip manufacturers, including memory suppliers were rushing to introduce new single wafer wet cleaning and wafer prep processes as traditional wet benches were unable to meet process parameters dictated by the 90nm and 65nm nodes.

In contrast to a broad range of semiconductor equipment suppliers, SEZ reported slightly increased sales over figures for 2004 for the 9-month reporting period to 231.2 million CHF. The company now expects full year figures to reach about 305 million CHF slightly up on previous forecast of 305 million CHF.

However, the Lackenbucher detailed the unique situation the company was facing in significant pricing challenges with its Da Vinci 300mm platform, that was representing 55 percent of all systems sales in the quarter.

Net profit margins have continued to be very low all year, with the current reported quarter only reaching 3 percent.

Interestingly, Lackenbucher reiterated several times to analysts, concerned over the poor profit margins that the pricing pressure was not just down to competitive pressures from rivals DNS and Semitool, but by customers, especially those transitioning to 300mm production at the 90 & 65nm nodes.

"Price erosion has been more dramatic than we originally expected," noted Lackenbucher.

He highlighted that as chip manufacturers are being forced to switch from traditional wet benches to single wafer processes to ensure adequate yields. The problem was inflated by the fact that single wafer processes were yet to be optimised as chip manufacturers switch to single wafer. The result is that wafer processing costs are higher with single wafer wet processing, forcing SEZ to reduce tool prices to allow customers to remain with process budget confines. This was different to the perceived pricing pressures of normal competition. Lackenbucher also reiterated that the company was nevertheless experiencing strong competition which was also negatively impacting tool prices for the Da Vinci platform.

Lackenbucher, guided that pricing issues would continue into 2006 forcing a wave of consolidation in the equipment market for wet processing tools. He highlighted that as the adoption of single wafer processing increases, the key aspect of tool acceptance rests with the process capabilities of the tool. Those equipment companies lacking the process knowledge and capabilities to deal with a growing number of customer unique requirements would force many to exit the sector.

" It is cost intensive to work with customers but ultimately rewarding," noted Lackenbucher.

Key to this development was the expertise and specialist engineers equipment companies required to meet customer needs. Lackenbucher, noted that he believed SEZ retained at least 80 percent of skilled workforce currently available while key competitors retained only 10 percent each of that pool. This would ultimately dictated order wins and market share gains. Lackenbucher claimed that by 2008, there would only be 2 or 3 companies controlling the wet processing market.

The pressures on both customers and tool suppliers is expected to increase next year as a wave of new FEOL applications  for single wafer tools will develop. Lackenbucher felt that companies wanting to compete for this large and emerging market they needed to already be engaging with customers to ensure production order wins. He felt that SEMICON West this year was a potential turning point for would be competitors as no new announcements were made about market entry. As the middle of next year would see FEOL applications move into production, companies not yet in this market would be too late to gain a foothold.