BACUS Panel Discussion: The $6 Million Mask Set — Truth and Consequences Klaus-Dieter Rinnen Chief Analyst and Director Semiconductor & Electronics Manufacturing Gartner Dataquest E-mail: klaus.rinnen@gartner.com BACUS Panel Discussion At SPIE Microlithography 2003 Santa Clara, 24 February 2003

Semiconductor Revenue Forecast: Recovery Gains Momentum in 2003 Billions of Dollars 19% -6% 2% 28% 9% 1%

Semiconductor Revenue Forecast: Cycles Are Nothing New Revenue Growth

Burning Questions for the Future of the Industry Show Me the Money? Big Three? The Red Brick Wall? Silicon to Carbon? Declining ROI? Robotics? Next “Killer Application?” China: Friend or Foe? Privacy? When Is the Upturn? From High-Tech to Appliance? Commoditization of Silicon? Deflation? Security? Zero Inventory? Virtual Integration? End-Market Saturation Limits to outsourcing? Real Time? Consolidation: Impact? Terrorism? Slowing Moore’s Law?

Key Long-Term Trends in Semiconductor Industry Crisis of confidence: Where is the “killer application”? Convergence of applications Serving a “demand-pull” market The “M” word: Is the industry maturing? Is the semiconductor industry CAGR slowing down? Pervasiveness of semiconductors Commoditization of silicon Big three — Consolidation and concentration of capital Structural changes — Super IDM Hype cycle — China, new technologies, applications: Friend or Foe? Moore’s Law — Slowing down? Where is the limit? What is next? Escalating cost for fab, design, masks: Raising barriers to entry?

What Is the Demand-Pull Market? Buying center is shifting from a high-margin corporate buyer to a low-margin consumer buyer Lower price point, lower premium for speed Easy-to-use human functionality most important Product cycles fast and fickle Cost pressures Market buys technology when cost is lower Money is wasted (lower profit) if technology comes to the market too fast Industry reacts: Restructuring and consolidation Speeding up ITRS to drive down cost and protect margins (BUT, industry passes through cost savings!)

Technology Cycles Are Speeding Up International Technology Road Map for Semiconductors Changes to Technology Timing, 1997, 1999 and 2001 Semiconductor Process Technology Cycle Compression Technology Node The Technology Gap!? Technology Leaders’ Road Map Technology Leaders

Impact on Suppliers Time-collapsed development cycles Reduced prospects for ROI Delayed ROI because of technology gap Less time means higher development cost per year and higher overall cost, as speed is achieved with more money Increased risk to develop product that will never come to market Decreased product maturity equates to customer dissatisfaction and higher support/manufacturing cost Spread-out technology adoption makes for slower manufacturing learning and increased cost Extreme price pressure Question: Do I really want to serve this market?

In the Age of Subwavelength Lithography, Photomasks Are the Enablers Source: Numerical Technologies

ITRS 2001: Leading-Edge SOC Design Cost Source: International SEMATECH Note: Costs called out are for 8M gate PDA in 2001

Stepper ASPs: Aggregate Millions of Dollars Growth

Photomask Set Cost in 2002 Thousands of Dollars 0.5 mm 18 Layers Note: Set cost is for 2002, best estimate.

Photomask Set Cost for Second Year of Production Thousands of Dollars 0.5 mm 18 Layers 0.35 mm 20 Layers 0.25 mm 22 Layers 0.18 mm 28 Layers 0.13 mm 32 layers Note: Set cost is for 2002, best estimate.

Photomask Set Cost for Second Year of Production, Extended Thousands of Dollars 0.5 m 18 L 0.35 m 20 L 0.25 m 22 L 0.18 m 28 L 0.13 m 32 L 90 nm 65 nm 45 nm 30 nm Note: Set cost is for 2002, best estimate.

Photomask Set Cost for Second Year of Production, Extended Thousands of Dollars 0.5 m 18 L 0.35 m 20 L 0.25 m 22 L 0.18 m 28 L 0.13 m 32 L 90 nm 65 nm 45 nm 30 nm Note: Set cost is for 2002, best estimate.

Semiconductor vs. Photomask Revenue Semiconductor Revenue (Billions of Dollars) Photomask Revenue (Percentage of Semiconductor Revenue) 12

Summary Points Hype about photomask cost is off the charts Cost of a mask set is dependent on number of layers, distribution of critical dimension layers, photomask technologies involved (PSM, OPC) and maturity of manufacturing tools. If you want a set for 32nm design today, $6 million will not be enough, if it could be done For mainstream production, the “$6 million mask set” will not happen, as it cannot happen. Gartner Dataquest projects photomask set costs to remain below $6 million, even at 32nm in the second year of production Wanted! New business models for photomask and ASIC maker There are myriad possibilities (in design, material, equipment process, usage) to reduce photomask cost. However, where are the margins for the photomask maker to secure its own and the industry’s future? This is not a nonprofit business. Photomask expenditure as a percentage of semiconductor revenue is not declining but also not appreciating, despite all the hype about photomask prices. Maybe photomask prices are too low to ensure options for an economically viable future?