Semicon Plays a Game of Pick-Up Chips

Perhaps there will be strength in numbers.

After a big 2004, the chip-equipment industry has moseyed along this year, reflecting the lackluster growth of semiconductor makers.

The Philadelphia Semiconductor Index, which follows 19 semiconductor-related stocks, is flat for the year, but three of its four equipment components -- Applied Materials(AMAT Quote), Novellus Systems(NVLS Quote) and KLA-Tencor(KLAC Quote) -- are down between 3% and 8%, while the fourth, Teradyne(TER Quote), is off 30%.

With this uncertainty, 1,500 semiconductor-equipment companies will converge in San Francisco next week for a three-day trade show that will attract 50,000 attendees. The annual conference, called Semicon West, is the industry's largest.

The showcase presents the consummate opportunity for company executives to meet with customers, competitors, suppliers, analysts and investors. Although product announcements will stream out of the show, much of the action will take place away from the showroom floor. Several CEO panel discussions, investor meetings, industry updates and analyst discussions will be tied into Semicon.

Novellus President Sass Somekh says he won't see home for the show's duration, and KLA CFO John Kispert estimates he'll be busy from 7 a.m. until 10 p.m. each day during the convention. "This is a gathering where it's very efficient to meet with so many people," says Kispert.

But for investors, the biggest question facing the industry now, as always, is when the next big wave of orders will hit.

Framing that question is the chip-industry's shift in production to larger and more-efficient 300-millimeter silicon wafers from 200-mm wafers. That transition requires a new set of tools in a new factory. A state-of-the-art chip factory now costs about $3 billion -- a figure that's increasingly hard to finance for all but the largest semiconductor players and reason in part for the growing number of industry partnerships and co-development linkages.