Semicon Plays a Game of Pick-Up Chips

It's also part of the reason for investor uncertainty about the equipment players, which are under increased pressure to lower costs, share development burdens and keep pace with planned technology transitions.

KLA and the Chip Factory

KLA, the world's fifth-largest equipment company, is planning 45 new 300-mm factories globally, says Kispert, about 10 of which are nearing completion. He doesn't know when the majority of those factories will be built, but he said his company is ready.

"We've had years where we've had to fill 30 of them," he says, adding that the growing importance of the volatile consumer-electronics market, as opposed to the more predictable and homogenous PC sector, makes it harder to estimate end demand.

Likewise, Somekh sees both positive and negative aspects to the growth of consumer electronics as part of the overall semiconductor supply chain. "The good news is this increases business as consumer products grow to consume large numbers of chips. But the bad news is that it's more cyclical and price driven."

This trend ripples through all parts of the electronics industry. "The farther up you go in any kind of supply chain, the more variability and cyclicality increase," says Somekh. "As suppliers of tools to the chipmakers, we are at the tip of a bullwhip, and we have more variation in our business."

The end result for chip-equipment companies, Somekh says, is that productivity of tools has become just as important as technology. "We need technology because the technology race has intensified, and we need productivity to allow our customers to reduce their costs and be competitive," he says.

Novellus' actions during the past year illustrate this squeeze effect of increasing tool complexity coupled with increased cost pressures. The company diversified its revenue base last year by purchasing Peter Wolters, a precision-machine tool manufacturer. And in March, Novellus began refurbishing and reselling used tools.