Chipmakers' soaring profits good for photonics

March 15, 2010
EL SEGUNDO, CA--The global semiconductor business is more profitable now than it has been at any time in the last decade, according to figures collected by electronics market-research firm iSuppli (

EL SEGUNDO, CA--The global semiconductor business is more profitable now than it has been at any time in the last decade, according to figures collected by electronics market-research firm iSuppli ( This turn of events is a result of the industry's increasingly aggressive management of costs, capacity, and competitive positioning, says iSuppli.

The overall operating profitability of semiconductor suppliers rose to 21.4% in the fourth quarter of 2009, the highest level since the fourth quarter of 2000, when it reached 24.7%. Industry profitability soared in 2009, rising throughout the year after falling to negative 5.3% in the first quarter due to the impact of the global economic downturn. The size and swiftness of the semiconductor recovery is a bit of good news for other linked industries, including that of photonics.

The silicon semiconductor industry is tied to photonics in two direct ways. First, the lithographic chip-fabrication process is at its heart an optical process--requiring excimer-laser sources, extremely precise all-silica imaging systems (some with numerical apertures greater than 1), and other optical systems such as interferometers for stage alignment and imaging systems for wafer inspection and alignment. Second (and as yet mostly in the research stage), methods are being developed to integrate photonic circuits, including sources, waveguide components, and photodetectors, with electronic circuits on silicon to create optical interconnects within and between computer chips.

And there are additional links between photonics and silicon fabrication. Advanced R&D into the properties of silicon and other semiconductors relies partly on photonics tools such as microscopes; also, lithographic techniques used to fabricate silicon chips are also used to make CMOS and CCD imaging chips as well as III-V semiconductor devices such as laser diodes and photodetectors.

Spending restraint affects photonics

While the rebound in profitability for chipmakers last year was partly driven by the economic and industry recovery during the year, the rise to the decade-high level was spurred also by strategies and structural changes within the semiconductor industry.

"Chipmakers in 2009 reacted quickly and aggressively to meet the downturn by cutting costs and improving cash flow," said Derek Lidow, president and CEO of iSuppli. "And as the market began to turn back up, the industry showed great restraint against adding production in order to avoid any overcapacity situations. This allowed the companies to recapture their pricing power to boost profitability."

Although global spending on semiconductor manufacturing equipment is expected to rise in 2009 after three consecutive years of decline, expenditures will remain at historically low levels, at less than half of what they were in 2007 and 2008. Furthermore, the planned spending by semiconductor manufacturers is primarily oriented at implementing advanced packaging to support new types of products, rather than at investments in expansion of overall wafer-fabrication capacity. This restraint has limited the growth in supply, keeping pricing under control.

However, this approach means that the effect of the sudden boost in chipmakers' prosperity on photonics is not one of unalloyed goodness. A slowdown in the expansion of wafer-fabrication capacity means that sales of optics and lasers, such as Cymer's (San Diego, CA) photolithographic excimer lasers, are reined in too. But in the world of silicon, where Moore's Law still reigns supreme, leading-edge chipmakers will always need the latest round of photonics technology--which at some point could be Cymer's new extreme-UV light source (now in the R&D stage), and eventually could mean the introduction of on-chip CMOS-compatible optical interconnects as well.

About the Author

John Wallace | Senior Technical Editor (1998-2022)

John Wallace was with Laser Focus World for nearly 25 years, retiring in late June 2022. He obtained a bachelor's degree in mechanical engineering and physics at Rutgers University and a master's in optical engineering at the University of Rochester. Before becoming an editor, John worked as an engineer at RCA, Exxon, Eastman Kodak, and GCA Corporation.

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