Semiconductor

Manufacturing

Equipment

USITC Publication 3868

June 2006

OFFICE OF INDUSTRIES

U.S. International Trade Commission

Washington, DC 20436
UNITED STATES INTERNATIONAL TRADE COMMISSION

This report was prepared principally by

Heather Sykes and Falan Yinug

under the direction of

Michael Anderson, Chief, Advanced Technology and Machinery Division

Robert Carr, Chief, Natural Resources and Metals Division

Address all communications to

Secretary to the Commission

United States International Trade Commission

Washington, DC 20436

COMMISSIONERS

Shara L. Aranoff, Vice Chairman

Daniel R. Pearson, Chairman

Jennifer A. Hillman

Stephen Koplan

Deanna Tanner Okun

Charlotte R. Lane

www.usitc.gov

Robert A. Rogowsky

Director of Operations

Karen Laney-Cummings

Director of Industries
 1

 The information and analysis provided in this report are for the purpose of this report only.

Nothing in this report should be construed to indicate how the Commission would find in an

investigation conducted under statutory authority covering the same or similar subject matter.

i

PREFACE1

In 1991, the United States International Trade Commission initiated its current Industry and

Trade Summary series of informational reports on the thousands of products imported into

and exported from the United States. Each summary addresses a different

commodity/industry area and contains information on product uses, U.S. and foreign

producers, and customs treatment. Also included is an analysis of the basic factors affecting

trends in consumption, production, and trade of the commodity, as well as those bearing on

the competitiveness of U.S. industries in domestic and foreign markets. This report on

semiconductor manufacturing equipment covers the period 2001 through 2005.

iii

CONTENTS

Page

Preface ................................................................ i

Abstract .............................................................. 1

Introduction ........................................................ 3

Industry coverage ........................................................ 3

Importance of the SME industry ............................................. 5

Overview of industry trends and developments ................................. 5

U.S. industry and market ....................................... 7

Number of firms and industry structure ....................................... 8

Firms specialize . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Industry concentration ................................................. 9

Employment decreases ................................................. 10

Research and development remains vital ................................... 11

Marketing’s valuable role . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Factors affecting production ................................................ 13

Consumer characteristics and factors affecting demand . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Shipments, consumption, and trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

U.S. trade ............................................................ 17

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

U.S. exports ............................................................. 19

U.S. imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

U.S. and foreign trade measures ............................................. 20

Tariff measures ....................................................... 20

Nontariff measures .................................................... 20

Other trade issues affecting the industry .................................... 21

Foreign industry profiles ....................................... 22

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
iv

CONTENTS—Continued

Page

Foreign market profiles ......................................... 24

Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Appendices

A. Detailed description of the semiconductor manufacturing process .............. A-1

B. Technical glossary ................................................... B-1

C. SME: Harmonized Tariff Schedule subheading, description, U.S. col. 1 rate of 

duty as of January 1, 2006, U.S. imports, 2005, and U.S. exports, 2005 ......... C-1

Tables

1. Payroll and wage rates for production workers in the SME industry, 2000-2004 .... 11

2. Top 10 SME companies ranked by 2005 revenue ............................ 14

3. Top 10 semiconductor companies ranked by capital spending, 2005 ............. 15

4. SME: U.S. shipments, U.S. exports of domestic merchandise, U.S. imports for

consumption, apparent U.S. consumption, the ratio of imports to consumption, and

the ratio of exports to shipments, 2001-2005 ................................ 17

5. SME: U.S. exports of domestic merchandise, imports for consumption, and

merchandise trade balance, by selected countries, 2001-2005 .................. 18

6. SME: U.S. exports of domestic merchandise, by principal product groups, 2001-

2005 ............................................................... 19

7. SME: U.S. imports for consumption, by principal product groups, 2001-2005 ..... 20

Figures

1. Major product segments of the SME industry ............................... 4

2. Worldwide SME sales by product type, 2005 ............................... 5

3. Comparison between the global SME and semiconductor markets ............... 6

4. U.S. shipment data for SME, 2001-2004 ................................... 8

5. SME industry employment, 2000-2004 .................................... 10

6. Total SME production by country/region, 2005 ............................. 22

7. Total spending on SME by country/region, 2005 ............................ 25

A-1. Formation of a silicon wafer ............................................ A-3

A-2. Front-end wafer fabrication process ...................................... A-3

A-3. The stages of integrated circuit fabrication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-6
v

CONTENTS—Continued

Page

Boxes

1. Consumer of SME: the semiconductor industry ............................... 16

2. A new Harmonized Schedule (HS) heading for SME in 2007 ..................... 21

3. The growth of the semiconductor foundry industry in Taiwan .................... 27

1

ABSTRACT

This report addresses trade and industry conditions for semiconductor manufacturing equipment (SME)

for the period 2001 through 2005.

• The U.S. SME industry is strongly competitive in most equipment and is one of the few

industries in which the United States has a substantial trade surplus ($7.1 billion in 2005).

U.S. manufacturers share worldwide production and technological leadership with European

and Japanese companies.

• The SME industry is dominated by the major top-tier firms. In 2004, the top 10 worldwide

SME companies accounted for almost 58 percent of total industry sales. SME firms within

the United States are widely dispersed, although the majority are in California. From 2001

through 2005, the industry witnessed concentration, specialization, and a rapid decrease in

employment. Research and development and marketing are extremely important to the

industry. 

• The U.S. trade surplus in SME grew from $4.1 billion in 2001 to $7.1 billion in 2005. The

largest gains were made in bilateral trade with Taiwan, Korea, China, and Singapore. Most

countries involved in SME trade are signatories to the Information Technology Agreement,

which eliminated tariffs for SME.

• Semiconductor producers are the main consumers of SME. They need SME to outfit newly

constructed semiconductor fabrication facilities as well as to replace and upgrade existing

equipment. Taiwan, Korea, and Japan were the largest markets for U.S. SME in 2005. Asia

has grown as the major market for SME due in part to the increase in new fabrication facility

construction from 2001 through 2005. 

• Three major long-term trends are driving equipment sales: (1) transition to larger silicon wafer

sizes (from 200 mm diameter wafers to 300 mm diameter wafers), allowing more surface area

on which to build chips, (2) the use of 0.09 and smaller-micron lithography to improve the

functionality of chips while reducing their size, and (3) the use of copper for interconnects

instead of aluminum because of its higher conductivity. These changes lead to improved chip

performance and manufacturing efficiency, spur equipment investment by semiconductor

companies, and, in turn, drive the SME industry.

 1

 Semiconductor devices are commonly referred to by many other names including

semiconductors, integrated circuits, ICs, microchips, and chips. This report uses these terms

interchangeably.

 2

 Dale W. Jorgenson, Mun S. Ho, and Kevin J. Stiroh, “Potential Growth of the U.S. Economy:

Will the Productivity Resurgence Continue?” Business Economics, January 2006, vol. 41 issue 1,

7–16.

 3

 In the past few years, some SME companies have diversified into the flat panel display

equipment market, as the technology for making flat panel displays is similar for making

semiconductors. See Colin McArdle and Nelson Wang, “Semiconductor Equipment,” Standard &

Poor’s Industry Surveys, November 17, 2005, 4. Sources of information available to Commission

staff on the semiconductor manufacturing equipment industry are limited. Therefore, Commission

staff has relied on a limited number of sources, including the Standard & Poor’s Industry Survey,

for parts of this report. 

 4

 For more information on the semiconductor industry, please refer to Box 1.

3

INTRODUCTION

Semiconductor manufacturing equipment (SME) is used in perhaps the most complex and

advanced manufacturing process in the world, the production of semiconductor devices.1

Semiconductors, such as microprocessors and memory devices, are used in a wide variety

of manufactured products, including personal computers, telecommunications equipment,

and many common consumer electronics goods. Chip-containing products have proliferated

in the past decade and have been a major contributor to increased productivity in virtually

every sector of the U.S. economy.2

 SME has been a critical contributor to this technological

revolution.

SME refers to all equipment used to produce semiconductor devices. The technology used

in this equipment is constantly being improved because of consumer demand for higher

performing semiconductors. Rapid advances in chip technology can render existing chips

and the SME used to make them obsolete in just a few years, and an aggressive research and

development (R&D) program is essential to maintaining competitiveness in the SME

industry. The U.S. SME industry is one of the few U.S. industries that consistently maintains

a substantial trade surplus, because U.S. firms are strongly competitive in R&D and the

production of most types of equipment. The majority of all SME is used for manufacturing

semiconductor devices; few other end uses exist.3

The SME industry is globally oriented, with a high degree of foreign investment and close

interrelationship between domestic and foreign SME producers. The health of the SME

industry is tied to the semiconductor industry4

 and follows its global fortunes. This summary

covers the SME industry for the period 2001–2005. It describes the SME production

processes, profiles the U.S. and foreign industries and markets, and provides U.S. trade and

tariff information for the industry.

Industry Coverage

The SME industry consists of two broad categories: front-end and back-end equipment

(figure 1). Front-end SME is used to make the silicon wafers and create the semiconductor

chips on the wafers. This category includes wafer manufacturing equipment and wafer
 5

 See technical glossary in appendix B for definitions.

 6

 Various forms of wafer and chip testing take place throughout the semiconductor

manufacturing process, in addition to the final testing at the end of the process.

4

processing equipment.5 Back-end equipment is used to assemble, package, and test6

semiconductors. This equipment is used primarily in the latter part of the production process.

Figure 1: Major product segments of the semiconductor manufacturing equipment industry

Front-end equipment

 Silicon wafer manufacturing equipment

This equipment is used to produce pure silicon by growing cylindrical silicon crystals and cutting these crystals

into wafers. Prior to silicon growing, the silicon is mined, converted into a gas through a chemical reaction, and

then reacted with hydrogen to form a semiconductor-grade silicon crystal. This equipment includes lasers,

saws, and grinding and polishing equipment that produce the finished silicon wafers.

 Wafer processing equipment

This equipment is used to make the electronic circuit pathways by placing conductive and nonconductive 

materials on the silicon wafer. The placement is achieved by bombarding the wafer with elements or by adding

layers of material. This equipment also includes machines that make masks that act as production templates

during wafer processing.

Back-end equipment

 Testing equipment (note: also used in the front-end process)

Testing equipment is used at many points during the manufacturing of semiconductor devices, although it is

concentrated in the back-end process during packaging. Types of equipment include microscopes, machine

vision systems, probe machines, and scales.

 Assembly and packaging equipment

This equipment is used to place the semiconductor devices into packages for shipping or placement in

electronic equipment. The backside of the wafer is prepared, and the individual chips on the wafer are

separated before the die is attached to a package. The chips are attached to the package via gold wiring, which

is then set up and trimmed using assembly equipment. Finally, the chip is encapsulated in plastic.

Source: U.S. International Trade Commission, Global Competitiveness of U.S. Advanced-Technology Manufacturing

Industries: Semiconductor Manufacturing and Testing Equipment, USITC publication 2434, September 1991, 1–2;

and Peter Van Zant, Microchip Fabrication: A Practical Guide to Semiconductor Processing, 4th edition, (New York:

McGraw-Hill, 2000).

Front-end equipment is much more expensive, because it adds more value to the final

semiconductor product than back-end equipment. Similarly, front-end SME is generally

more profitable than back-end SME.

Because of higher profitability and rapidly changing customer requirements, most SME

producers’ sales are concentrated in front-end products (figure 2). This report analyzes

global producers, markets and trade trends for both front-end and back-end equipment.
 7

 Bill McClean, Brian Matas, and Trevor Yancey, The McClean Report: A Complete Analysis

and Forecast of the Integrated Circuit Industry, edited by Richard D. Skinner, 2006 (Arizona, IC

Insights, Inc., 2006), 2–5.

 8

 The SME industry generally follows the fortunes of the semiconductor industry, which has

historically followed a 4–5 year boom-bust cycle. For more information, see: McClean, Matas, and

Yancey, 2–23 through 2–26.

 9

 USITC staff, email communication with Semiconductor Equipment and Materials

International (SEMI), February 7, 2006; and McArdle and Wang, 8.

5

Figure 2: Worldwide semiconductor manufacturing equipment sales by product type, 2005 (percentage)

Source: Semiconductor Equipment and Materials International (SEMI).

Note: Percentages based on 2005 SME total market of $32.9 billion.

Importance of the SME Industry

Demand for SME is directly linked to demand for semiconductors, which, in turn, is linked

to the strength of the global economy.7

 The competitiveness of individual SME firms is

linked to their ability to design and manufacture products capable of producing the latest

generation of semiconductors at the lowest cost. This generally requires a high commitment

to R&D expenditures; 20 percent of annual sales is not uncommon. The U.S. SME industry

is globally competitive and is considered to be the world leader. SME production for U.S.-

headquartered companies is concentrated in the United States, which has consistently run a

trade surplus in SME in recent years.

Overview of Industry Trends and Developments

The SME industry has historically been characterized by severe market volatility, and the

period 2001 through 2005 was no exception. Following a record-setting year in 2000 with

$47.7 billion in global equipment sales, the global SME industry witnessed a 41 percent

decrease in sales to $28 billion in 2001, followed by a 30 percent drop to $19.7 billion in

2002. Following the 4–5 year boom-bust cycle that has historically characterized the

industry,8

 sales increased by 13 percent to $22.2 billion in 2003 and by 67 percent to

$37.1 billion in 2004. Sales leveled off in 2005 with an 11 percent decrease to $32.9 billion.9

Testing equipment

16%

Assembly and 

packaging 

equipment

7%

Other front-end 

production 

equipment

8%

Wafer processing 

equipment

69%
 10 G. Dan Hutcheson, “Economics of Semiconductor Manufacturing,” Handbook of

Semiconductor Manufacturing Technology, edited by Y. Nishi & R. Doering, (New York: Marcel

Dekker, 2000), 1125–1126.

6

 Several key characteristics of the SME industry are responsible for this recurring volatility,

the most important being the direct link between demand for SME and demand for

semiconductors. An adage notes, “When the economy gets a chill, electronics catches a cold,

semiconductors come down with pneumonia, and the equipment industry dies.”10 This

relationship underscores specific factors that are responsible for SME industry

volatility—rapid growth cycles, sharp price fluctuations, rapid technological innovation, and

frequent capacity imbalances. These factors have a strong effect on the ability of companies

to compete effectively. It is not surprising that from the last cyclical peak in 2000 to 2005,

the SME industry experienced a pattern of cyclical volatility similar to that in the

semiconductor industry (figure 3).

Figure 3: Comparison between the global semiconductor manufacturing equipment and semiconductor markets

Source: SEMI, World Semiconductor Trade Statistics (WSTS), and IC Insights. 

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005

SME, bil $ 

0 50 100 150 200 250

Semiconductors, bil $

SME market Semiconductor market
 11 McArdle and Wang, 3–4.

 12 Europe in all cases refers to the EU-15.

 13 The NAICS code for this industry is 333295.

 14 For more information on the history of the semiconductor equipment industry, see VLSI

Research’s History of the Equipment Industry, found at https://www.chiphistory.org/. 

 15 U.S. Department of Commerce, Bureau of the Census, “Annual Survey of Manufacturers,”

2004, 22, found at http://www.census.gov/prod/2005pubs/am0431gs1.pdf, retrieved

January 23, 2006.

7

The increase in SME demand that began in 2003 is driven by three major long-term trends

in the semiconductor industry: (1) the movement to larger silicon wafer sizes (from 200 mm

diameter wafers to 300 mm diameter wafers), allowing more surface area on which to build

chips, (2) the use of 0.09 micron and smaller process technology to improve chip

performance while reducing chip size, and (3) the use of copper for interconnects instead of

aluminum because of its higher conductivity.11 These changes improve chip performance and

manufacturing efficiency. More importantly for the SME industry, these changes have

spurred equipment investment by semiconductor companies looking to replace old

equipment and equip newly-constructed semiconductor fabrication facilities (fabs). As a

result, demand for SME has accelerated and equipment sales increased by 48 percent from

2003 through 2005.

While the United States, Europe,12 and Japan were the largest producers of SME throughout

2001–2005, the SME market shifted to Asia. During the period, many semiconductor

manufacturers either opened or expanded semiconductor manufacturing facilities in Asia or

outsourced to Asian facilities in order to be close to their largest customers (electronic

equipment manufacturers) and to reduce transportation and production costs. 

U.S. INDUSTRY13 AND MARKET

In the early 1960's, U.S. companies created the SME industry as an outgrowth of domestic

demand for tools to build semiconductors and dominated the industry in its early years. In

the early 1980s, Japanese and European companies gained market share in several equipment

and materials technologies.14 Over the last decade, however, U.S. companies have regained

market share and re-emerged as a global technological leader through R&D investments in

cutting-edge SME technology. U.S. producers’ SME shipments in 2004 totaled an estimated

$13.4 billion (figure 4).15
 16 USITC staff, email communication with SEMI, February 7, 2006.

 17 Japanese firms Canon Inc. and Nikon Corp. have excelled in the photolithography segment

mostly because of their ability to transfer knowledge gained from R&D in their camera operations

to their SME operations.

 18 USITC staff, email communication with SEMI, February 7, 2006.

8

Figure 4: U.S. shipment data for semiconductor manufacturing equipment, 2001–2004 (billion dollars)

Source: Compiled by USITC staff from official statistics of the U.S. Department of Commerce.

U.S. companies share worldwide leadership in the SME industry with Japanese companies.

In 2005, North American producers (i.e. predominantly U.S. producers) had an estimated

45 percent share of the world market, while Japan held an estimated 41 percent share.16

Although recent U.S. SME exports have predominately been to Europe and Japan, exports

have increased to Korea, Taiwan, and other parts of Asia in light of increasing production

of semiconductors in those countries. 

Number of Firms and Industry Structure

The U.S. SME industry is highly competitive. The North American SME industry consists

of more than 62 companies, the vast majority headquartered in the United States. Most

companies focus on products used in just one or two of the processes involved in making an

integrated circuit (IC). U.S. companies are globally oriented and sell in all major SME

markets. Photolithography equipment is the only segment of front-end SME equipment in

which U.S. manufacturers do not hold a competitive advantage. Firms in Japan, the principal

U.S. rival in SME production, and Europe currently dominate world markets for

photolithography.17

The U.S. SME industry is a major part of the $32.9 billion worldwide SME industry.18 The

number of worldwide SME producers is difficult to ascertain, as many firms are small, niche

equipment manufacturers. Semiconductor Equipment and Materials International (SEMI),

the industry association for SME, has 161 producers in its Worldwide Semiconductor

12.2 12.2

11.1

13.4

10

15

2001 2002 2003 2004
 19 Ibid.

 20 McArdle and Wang, 8.

 21 USITC staff, email communication with SEMI, February 7, 2006.

 22 McArdle and Wang, 20.

 23 The process of producing semiconductors using SME is explained in detail in appendix A.

 24 McArdle and Wang, 20.

9

Equipment Market Statistics (WWSEMS) program.19 Overall, however, the industry is

relatively concentrated and dominated by the top-tier firms. For example, the top ten global

SME producers accounted for almost 58 percent of worldwide SME sales in 2004.20 The

largest global producer of SME, Applied Materials, Inc., is a U.S.-based company,

headquartered in Santa Clara, CA. SME firms exist throughout the United States, although

the majority are in California. 

Firms Specialize

The SME industry is highly specialized. Today, semiconductor companies rarely make their

own tools as was common in the 1950s and 1960s, when the semiconductor industry was in

its infancy.21 The SME industry grew in response to the void left when semiconductor

companies began to focus on designing and building chips. In the front-end segment,

specialization is so common that, with the notable exception of the top two industry leaders,

Applied Materials, Inc. and Tokyo Electron Limited, the majority of SME companies

involved in front-end tool manufacturing concentrate on making tools for only one or two

of the four basic wafer processing operations: layering, patterning, doping, and heat

treatments.

The need for companies to stay competitive in a highly cyclical industry has driven SME

segment specialization. The peaks and valleys in equipment demand inherent in the SME

industry make survival during downturns challenging, especially for smaller firms that have

limited manufacturing capabilities. In order to become more responsive, firms focus their

resources and knowhow on a target market segment hoping to concentrate R&D and

marketing within that segment to secure greater market share.

Industry Concentration

A parallel trend to segment specialization has been industry concentration, especially around

equipment for certain processes. There are high technological and capital barriers to entry

in the SME industry. Without a high level of technological sophistication, which often takes

years to develop, new entrants find it challenging to establish a foothold in the industry. The

result has been that the production of certain tools is dominated by a handful of firms that

specialize in only making that one tool. For example, for several years three firms have

dominated the wafer patterning process known as photolithography: a Dutch firm, ASML

Holding (40 percent market share during the first half of 2004), and two Japanese firms,

Canon Inc. and Nikon Corp. (30 percent market share each).22 Tools for ion implantation,

one of two main processes in doping operations,23 are manufactured principally by three 

U.S. companies, Varian Semiconductor Equipment Associates Inc., Axcelis Technologies

Inc., and Applied Materials, Inc., which maintained a combined 75 percent market share in

the first half of 2004.24
 25 U.S. Department of Commerce, Bureau of the Census, “Annual Survey of Manufacturers

2004,” 32. Figures for 2000 and 2001 are from “Annual Survey of Manufacturers 2000,” 28,

found at http://www.census.gov/prod/2002pubs/m00as-1.pdf, retrieved January 23, 2006.

 26 Ibid.

10

Employment Decreases

Employment in the U.S. SME industry fell each year during the period 2000-2004,25 from

50,430 employees in 2000 to 27,212 employees in 2004, a decrease of 46 percent (figure 5).

Figure 5: Semiconductor manufacturing equipment industry employment, 2000–20041 

Source: U.S. Department of Commerce,

1

 2005 employment data is not yet available.

The rapid reduction in employment during the period began as a response to the severe

industry downturn in 2001, was exacerbated by several factors (increased productivity,

outsourcing of manufacturing and noncore business activity, mergers and acquisitions), and

continued as a means to address firms’ high cost structures. SME companies’ immediate

response to the 2001 downturn was to rapidly scale back the number of employees. For

example, total employment in the industry decreased by 31 percent in just 1 year, from

50,469 in 2001 to 34,998 in 2002. The decrease was most severe for SME production

workers, whose employment rate decreased by 41 percent from 24,709 in 2001 to 14,564 in

2002 (table 1).26 

0

1 0 ,0 0 0

2 0 ,0 0 0

3 0 ,0 0 0

4 0 ,0 0 0

5 0 ,0 0 0

6 0 ,0 0 0

2000 2001 2002 2003 2004

# of Employees

A ll e m p lo ye e s P ro d uctio n w o rke rs
 27 McArdle and Wang, 15.

 28 Lam Research Corp., submission to the United States Securities and Exchange Commission,

Form 10-K, 2005: Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange

Act of 1934, Commission file number 0-12933, 5. 

 29 Applied Materials, Inc., submission to the United States Securities and Exchange

Commission, Form 10-K, 2005: Annual Report Pursuant to Section 13 or 15(d) of the Securities

and Exchange Act of 1934, for the fiscal year ended October 30, 2005, Commission file number 0-

6920, 15.

11

Table 1: Payroll and wage rates for production workers in the semiconductor manufacturing equipment industry,

2000-20041

Year Total Payroll Total

Number of

Production

Workers

Total Hours

Production

Workers

Worked

Total Wages 

Paid to

Production

Workers

Average

Hourly Wage of

 Production

Workers

(Million dollars) (Million) (Million dollars) (Dollars)

2000 2,959.86 24,813 49.13 1,102.94 22.45

2001 2,784.33 24,709 49.36 969.88 19.65

2002 2,137.50 14,564 28.76 583.61 20.29

2003 2,025.51 13,344 25.73 556.30 21.62

2004 1,961.81 11,648 23.82 474.76 19.93

Source: Compiled by USITC staff from official U.S. Department of Commerce statistics.

1

 2005 employment data not yet available.

Recent increases in factory automation have also led to declining employment while also

improving SME productivity. The recent move to 300-mm diameter wafer fabrication, in

particular, has spurred automation because the larger size and weight of the wafer makes

manual handling difficult. For example, 300-mm diameter wafers are transported in a

cassette that fits 25 wafers. When fully loaded, the cassette weighs an estimated 90 pounds.27

Two segments of the SME labor force for which competition is intense and for which

employment levels have remained stable or grown are highly skilled technical workers in

R&D and customer support functions.28 SME companies differentiate themselves by how

well and rapidly they create advanced machinery and how well they support and maintain

their customers’ current tools.

Research and Development Remains Vital

SME companies must be able to continuously develop the equipment needed to meet

changing customer needs at competitive prices and in a timely manner. To meet customer

needs for chip-making equipment, SME firms devote significant portions of their human and

financial resources to R&D. Unlike counterparts abroad, the U.S. government does not

provide programs specifically designed to assist the SME industry with R&D. It is not

uncommon for SME firms to spend an average of 20 percent of their sales annually on R&D.

For example, the world’s leading SME company, Applied Materials, Inc., reports that it

spent 16 percent of its annual net sales on research, development and engineering from

FY2001 to FY2005,29 or about $1 billion per year. 

Even during severe downturns, SME companies will often continue to invest highly in R&D.

Many industry leaders reportedly increase R&D investment during downturns as a way to

gain market share from financially weaker companies that cannot match such high levels of
 30 McArdle and Wang, 25.

 31 Ibid., 22.

 32 Applied Materials, Inc., 22.

 33 Ibid., 21.

 34 A push strategy creates demand for a product through selling, or pushing it, to customers. A

pull strategy relies on advertising and promotions to create enough consumer demand for a product

that the consumers begin requesting it.

 35 For example, approximately 80 percent of Applied Material’s net sales in FY2005 was

outside of the United States. Applied Materials, Inc., 8.

12

R&D spending during downturns.30 This investment can exacerbate significant financial

losses for SME firms during downturns.

High levels of investment in R&D do not ensure company profitability, however. On

average, it takes several years for a new machine to become profitable. Typically, a new

product will start to generate sales in the third or fourth year after development, and it is only

around the sixth year that sales of a new machine may start to turn a profit.31

Besides developing their own technology through investment in R&D, SME companies often

increase their level of technology through the purchase of other companies that have

developed certain technologies. For example, from April 2003 to June 2005, Applied

Materials, Inc. spent approximately $146 million to acquire the full or partial assets of five

smaller SME firms.32

In general, SME firms protect their technology assets through obtaining and enforcing their

intellectual property rights. Intellectual property (IP) in the SME industry typically consists

of patents but can also include trademarks, trade secrets, and copyrights. As SME are

generally large, complicated machines, they are much more difficult to copy than products

such as CDs or watches. Most IP infringement in the SME industry is reportedly undertaken

by other major industry players. For example, in 2002, Nikon Corp. accused ASML Holding

of infringing on its photolithography equipment patents (see page 21 for more information).

Marketing’s Valuable Role

Marketing is a major activity for U.S. SME companies. For example, Applied Materials, Inc.

reports that it devoted 10 percent of its net sales to marketing, selling, general, and

administrative expenses during FY2005.33 Marketing of SME takes place through several

channels of distribution and through both push and pull strategies34 between SME producers

and their customers, semiconductor manufacturers. Larger SME firms tend to market directly

to semiconductor manufacturers, while smaller producers often hire representative firms.

Also, due to the international nature of the SME business, most firms have sales and support

offices in major equipment markets worldwide.35

SME companies focus marketing efforts on building long-term, close relationships with their

customers. It is common to have SME engineers working directly in semiconductor

manufacturing facilities to assist the chip makers with using and maintaining their

equipment. Because tools are very sophisticated and often built to customer specifications,

repeat business is common in the industry. In addition, because chip makers have to update

their equipment with the latest technology, there is a built-in replacement cycle that may

provide regular orders once a business relationship has been established. This tendency for

chip makers to buy again from an initial SME supplier means that the total amount of
 36 McArdle and Wang, 21.

 37 Ibid., 10.

 38 Peter Clarke, “Dropping Prices Signal Spending Restart, Says ASML,” EE Times,

January 18, 2006, found at http://www.eetimes.com/news/semi/showArticle.jhtml;

jsessionid=LWM2GG1GGQ23QQSNDBCCKH0CJUMEKJVN?articleID=177101313&printable=

true, retrieved February 1, 2006.

 39 Industry representative, interview with USITC staff, January 13, 2005.

13

software and machinery in service at a customer site—or the so-called “installed base”—is

an important gauge of an SME firm’s acceptance in the marketplace and measure of its level

of industry prestige.36

Pricing

SME is very expensive. Construction of a state-of-the-art semiconductor fab costs between

$3 and $4 billion, with equipment accounting for the majority of this cost.37 Equipment

prices vary widely, depending on the machine’s function. In general, tools used in front-end

wafer fabrication and testing are relatively costly, because of the high level of sophistication

of the operations they perform. For example, one of the most complicated front-end

fabrication processes is photolithography. According to ASML Holding, which is currently

the world’s leading producer of photolithography equipment, the average selling price of a

new lithography system was roughly $15.2 million in the fourth quarter of 2005.38 At the

other end of the pricing spectrum are machines used in back-end assembly and packaging

functions. For example, a wire-bonding machine costs around $100,000, and a molder,

which works in the packaging process by melting black carbon around the bare

semiconductor die, costs about $30,000.39

Factors Affecting Production

The SME industry has become increasingly global in recent years. Leading firms in the

United States, Japan, and Europe earn less than one-half of their revenues through sales in

their home markets. The top global SME companies are shown in table 2. 
 40 Applied Materials, Inc., Lam Research Corp., Novellus Systems, Inc., and KLA-Tencor

Corp., submissions to the United States Securities and Exchange Commission, Form 10-K, 2005:

Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934,

Commission files 0-6920, 0-12933, 000-17157, and 0-9992. 

14

Table 2: Top 10 semiconductor manufacturing equipment companies, ranked by 2005 revenue

Company Headquarters Revenue in $ millions

Applied Materials, Inc. United States 6,234

Tokyo Electron Limited Japan 4,455

ASML Holding Europe 3,160

KLA-Tencor Corp. United States 2,005

Advantest Corp. Japan 1,960

Nikon Corp. Japan 1,566

Lam Research Corp. United States 1,382

Novellus Systems, Inc. United States 1,302

Hitachi High-Technologies Corp. Japan 1,277

Canon Inc. Japan 1,247

Source: VLSI Research.

Long-term trends, including further industry concentration in a trend toward overall

production efficiency, have accelerated since the last downturn. Smaller manufacturers are

likely to consolidate during industry downturns in order to survive. Also, it is frequently

easier to obtain technology and customers through acquisition than through internal product

development. Further, consolidation can offer economies of scale and scope, leading to

greater efficiency.

With the move toward consolidation and high startup costs, it is unlikely that new companies

will be entering the SME business. Both startup costs and high R&D costs are difficult

barriers to overcome. Semiconductor companies, the main customer for SME producers, are

loyal and tend to stay with the same company for replacement equipment and parts.

Companies must have the ability to send customer service personnel to the client site to assist

with installation and upkeep of equipment; a local office near the customer is sometimes

preferred. 

Suppliers are also important to the SME industry. As SME is built-to-order, suppliers must

be able to send equipment subsets and/or equipment parts to the SME company in a timely

fashion. This ensures that the necessary SME is shipped to the customer in as timely a

manner as possible. Suppliers to the semiconductor equipment industry tend to be smaller

manufacturers throughout the world. Most large U.S. SME firms outsource the

manufacturing of major parts for the machines that they produce. Such activities consist

mainly of assembling and testing components, subassemblies, and modules for finished

products. Because the number of subassembly suppliers for certain key parts can be very

small, it is not uncommon for a few suppliers to provide the same part to a number of SME

firms that make the same end product. Such dependence on a limited number of key

suppliers is a major risk that many SME firms try to mitigate by outsourcing to a variety of

suppliers, where possible.40 For example, the photolithography equipment business is

dominated by three SME firms—ASML Holding, Canon Inc., and Nikon Corp.—all of

whom are dependent on two companies that manufacture laser light sources for DUV
 41 Cymer, Inc., submission to the United States Securities and Exchange Commission, Form 10-

Q: Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934,

for the quarterly period ended September 30, 2005, Commission file number 0-21321, 37. 

 42 McArdle and Wang, 10.

 43 McClean, Matas, and Yancey, 4-5 through 4-11.

 44 Company headquarters does not necessarily indicate country of production. 

15

photolithography applications - the U.S. firm Cymer, Inc. and the Japanese firm

Gigaphoton.41 

Outsourcing of major subassemblies to smaller more specialized firms is economically

beneficial to both groups. For the SME firm, outsourcing parts manufacturing reduces costs

for research, development, and manufacturing, while for the subassembly manufacturer,

specialization increases product efficiency and allows its engineers to increase product

functionality.42

Consumer Characteristics and Factors Affecting Demand

Semiconductor producers are the main consumers of SME (Box 1). They need SME to outfit

newly constructed semiconductor fabs as well as to replace and upgrade existing equipment

in their current fabs. The top 25 semiconductor companies in terms of capital spending in

2005 (top 10 of these are shown in table 3), accounted for 86 percent of total semiconductor

capital spending in that year, up from 75 percent in 2002.43 By location of headquarters,

North American companies44 are the largest spenders ($13.7 billion in 2005), followed by

companies from Japan, Korea, and Taiwan.

Table 3: Top 10 semiconductor companies, ranked by capital spending, 2005

Company Headquarters Spending in $ millions

Samsung Electronics Co., Ltd. South Korea 6,160

Intel Corp. United States 5,900

TSMC, Ltd. Taiwan 2,600

Hynix Semiconductor Inc. South Korea 2,000

Toshiba Semiconductor Co. Japan 1,950

Sony Japan 1,525

Advanced Micro Devices, Inc. United States 1,500

Micron Technology, Inc. United States 1,500

Infineon Technologies AG Europe 1,500

STMicroelectronics N.V. Europe 1,500

Source: The McClean Report 2006 Edition, 4–6.

Note: Spending on semiconductor manufacturing equipment is a major element of capital spending for semiconductor

manufacturers.
 45 Applied Materials, Inc., Lam Research Corp., and Novellus Systems, Inc.

 46 McArdle and Wang, 12.

16

As noted, semiconductor manufacturing facilities exist throughout the world. As the growth

of semiconductor wafer processing by foreign chip manufacturers has significantly outpaced

that of U.S. semiconductor production, much of the U.S. SME industry’s customer base is

overseas, concentrated in Asia. The SME industry’s customers look for quality of technology

and product, timeliness of product introductions, customer support, breadth of product line,

and price in making purchasing decisions.45 Established customer relationships are also

significant considerations. SME companies must try to differentiate themselves in most, if

not all, of these areas in order to survive.

As previously mentioned, the SME industry is cyclical. SME demand is driven by demand

for semiconductors, which in turn tends to rise and fall together with the economy as a

whole. Consumer products are responsible for much of the current growth in semiconductor

sales. One-half of all semiconductors sold in 2004 were used in consumer products, and this

share is expected to grow to two-thirds by 2010.46 Specific products contributing to this rise

in demand include consumer electronics, mobile phones, and automobiles.

Box 1: Consumer of semiconductor manufacturing equipment: the semiconductor industry

The semiconductor industry was a $227 billion industry in 2005. The most common type of semiconductor device

produced is the integrated circuit (IC), which accounts for roughly 85 percent of semiconductor production today.

Another type of semiconductor known as discrete devices accounts for the rest. North American sales (for which the

United States is the major market) accounted for about 18 percent ($40 billion) of the global market in 2005. U.S.-

based semiconductor manufacturers are largely global companies with fabrication facilities located both domestically

and abroad. Seventy-seven percent of manufacturing capacity of the U.S. industry is located in the United States with

a domestic workforce of over 225,000. Because of the constant pressure to innovate and stay on the cutting edge of

technology, semiconductor companies reinvest a high percentage of revenue in research and development. It is not

uncommon for a semiconductor firm to reinvest half of its gross profit in the form of research and development. Also,

because the industry is highly capital intensive, companies spend significant sums on capital equipment from the SME

industry. Currently, a state-of-the-art semiconductor fabrication facility costs approximately $3–4 billion to build, the

vast majority of the cost going to the machinery inside the facility to fabricate the semiconductors. Major players in the

semiconductor industry include Intel Corp., Samsung Electronics Co., Ltd., Texas Instruments Inc., Renesas

Technology Corp., Toshiba Semiconductor Co., STMicroelectronics N.V., TSMC, Ltd., NEC Electronics Corp., and

Freescale Semiconductor, Inc.

______________

Sources: Semiconductor Industry Association, SIA Issue Backgrounders, “State and Local Government Policies to

Keep Manufacturing in U.S.,” found at http://www.sia-online.org/backgrounders_government.cfm, retrieved

January 20, 2006; Semiconductor Industry Association, SIA Issue Backgrounders: “Free and Fair Trade,” found at

http://www.sia-online.org/backgrounders_trade.cfm, retrieved January 20, 2006; Bill McClean, Brian Matas, and Trevor

Yancey, The McClean Report: A Complete Analysis and Forecast of the Integrated Circuit Industry, Richard D.

Skinner, 2006 Edition (Arizona, IC Insights, Inc., 2006); Amrit Tewary and Elayne Sheridan, “Semiconductors,”

Standard & Poor’s Industry Surveys, September 1, 2005; and USITC staff telephone interview with Doug Andrey of

the Semiconductor Industry Association, June 26, 2002.
 47 Ibid., 21.

17

Shipments, Consumption, and Trade

Apparent U.S. consumption of SME decreased by 45 percent from 2001 through 2005

(table 4), as offshore production of semiconductors increased. The ratio of imports to

consumption rose sharply at the end of the period, reflecting, in part, increased U.S. demand

for expensive photolithography equipment that is not produced in the United States. The

large increase in the ratio of exports to shipments reflects the shift of semiconductor

production to foreign (mostly Asian) countries.

Table 4: Semiconductor manufacturing equipment: U.S. shipments, U.S. exports of domestic merchandise, U.S.

imports for consumption, apparent U.S. consumption, the ratio of imports to consumption, and the ratio of exports to

shipments, 2001–2005 

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Apparent Ratio of Ratio of

U.S. U.S. U.S. U.S. imports to exports to

Year shipments exports imports consumption consumption shipments ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

 Million Dollars Percent

2001 12,200 8,044 3,947 8,103 49 66

2002 12,200 6,972 3,304 8,532 39 57

2003 11,100 7,242 2,750 6,608 42 65

2004 13,400 12,790 3,586 4,196 85 95

2005 11,580 10,971 3,857 4,466 86 95

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Source: Compiled from official statistics of the U.S. Department of Commerce. Shipment data for 2005 are estimated

by Commission staff, using industry input.

Most SME is produced to order and shipped when ready. Because SME is sophisticated and

often made to customer specifications, production time is lengthy; the typical time to fill an

order is 5 to 6 months. Even during industry downturns, the turnaround may be still be up

to 3 months.47 Because this machinery is very expensive to produce and tends to be custommade for a certain semiconductor production facility, inventories are low. 

U.S. TRADE

Overview

The United States maintained a positive trade balance in SME throughout the period

2001–2005 (table 5). The trade surplus has grown from $4.1 billion in 2001 to $7.1 billion

in 2005, a 73 percent increase. The trade surplus fluctuated throughout the 5-year period,

from a low of $3.7 billion in 2002 to a high of $9.2 billion in 2004. The largest gains were

with Korea, Taiwan, China, and Singapore, and the combined 2005 U.S. surplus with the

four countries was $5.4 billion.
18

Table 5: Semiconductor manufacturing equipment: U.S. exports of domestic merchandise, imports for consumption,

and merchandise trade balance, by selected countries, 2001–2005 (Million dollars) ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Item 2001 2002 2003 2004 2005

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

U.S. exports of domestic merchandise: Taiwan 1,359 1,660 1,177 2,979 2,206

Korea 807 602 928 1,618 1,999

Japan 1,440 1,166 1,293 2,020 1,922 Singapore 527 583 560 1,476 764

China 338 551 529 1,261 662

Germany 823 440 420 544 658

Canada 373 354 350 325 338

Malaysia 328 252 228 362 298

United Kingdom 316 129 141 208 174

Netherlands 95 64 77 185 154

All Other 1,639 1,173 1,538 1,809 1,794 –––––––––––––––––––––––––––––––––––––––––––––––– Total 8,044 6,972 7,242 12,790 10,971

U.S. imports for consumption: Japan 2,406 1,750 1,292 1,811 1,972

Netherlands 472 665 665 636 761

Germany 348 258 193 284 291

United Kingdom 226 170 133 147 165

Singapore 29 16 28 84 85

Korea 12 20 38 48 61

Malaysia 7 15 34 77 49

Canada 41 32 32 50 46

Taiwan 25 23 17 37 39

China 4 8 25 31 34

All Other 378 347 291 382 354 –––––––––––––––––––––––––––––––––––––––––––––––– Total 3,947 3,304 2,750 3,586 3,857

U.S. merchandise trade balance:

Taiwan 1,335 1,636 1,159 2,943 2,167

Korea 795 581 890 1,571 1,938

Singapore 497 567 531 1,392 679

China 334 543 504 1,231 628

Germany 475 182 227 260 367

Canada 332 322 318 276 292

Malaysia 321 236 194 286 249

United Kingdom 90 -41 8 61 (2

) Japan -966 -584 (2

) 209 -50 Netherlands -376 -601 -587 -451 -607

All Other 1,261 826 1,247 1,427 1,440 –––––––––––––––––––––––––––––––––––––––––––––––– Total 4,096 3,668 4,492 9,204 7,113 ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Source: Compiled from official statistics of the U.S. Department of Commerce.

Note: Because of rounding, figures may not add to totals shown. 

1

 Import values are based on customs value; export values are based on f.a.s. value, U.S. port of export. 2

 Less than $500,000.

The Netherlands is the only country with which the United States maintains a sizeable trade

deficit ($607 million in 2005). This deficit is reportedly due to U.S. imports of expensive

photolithography equipment from Dutch producer, ASML Holding, as well as the fact that

the Netherlands is not a leading market for U.S. SME exports. 
 48 Semiconductor foundries are semiconductor companies that specialize in only the fabrication

of chips, as opposed to semiconductor design. Foundries provide services to “fabless”

semiconductor companies that only design chips, and to integrated device manufacturers (IDMs)

that outsource some chip production to foundries, especially during business upturns when IDMs

may not have sufficient capacity to meet demand. The foundry model was pioneered in Taiwan in

the late 1980s and has since become very popular in the global semiconductor industry. 

19

U.S. Exports

U.S. exports of SME rose irregularly during the period 2001–2005 (table 6). The United

States exported close to $11.0 billion of SME in 2005, 36 percent more than in 2001 but less

than the 2004 level. Exports of wafer production machinery accounted for about 67 percent

of SME exports, with test machinery and assembly and packaging equipment exports making

up an estimated 29 percent and 4 percent, respectively. 

Table 6: Semiconductor manufacturing equipment: U.S. exports of domestic merchandise, by principal product

groups, 2001–20051

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Percent change,

Product group 2001 2002 2003 2004 2005 2005 from 2001

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Assembly and packaging 

machinery 322,372 271,710 284,772 327,210 388,139 20

Test machinery 2,303,959 2,033,093 2,229,338 3,859,576 3,203,333 39

Wafer production and 

fabrication machinery 5,417,340 4,667,678 4,727,616 8,602,799 7,379,044 36

 Total 8,043,672 6,972,481 7,241,726 12,789,584 10,970,516 36 ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Source: Compiled from official statistics of the U.S. Department of Commerce.

Note: Because of rounding, figures may not add to totals shown.

1

 Export values are based on f.a.s. value, U.S. port of export.

The leading markets for U.S. exports of SME in 2001 were Taiwan and Japan, which

together accounted for 35 percent of total U.S. SME exports. These markets increased their

share of U.S. exports throughout the 5-year period. The Korean market surpassed that of

Japan in 2005; together, these three Asian markets received 56 percent of U.S. exports in

2005. Much of the increase in exports to Taiwan was due to the expansion of the foundry

industry.48

U.S. Imports

From 2001 through 2005, U.S. imports of SME fluctuated largely in response to an

economic downturn and subsequent decreased U.S. demand following the September 11,

2001 terrorist attacks (table 7). By 2005, however, demand had rebounded and import levels

approximated those of 2001. U.S. imports largely consist of photolithography equipment of

which there is no U.S. production.

Imports of front-end wafer production and fabrication machinery accounted for 74 percent

of all U.S. imports of SME in 2005; this percentage remained unchanged from 2001. Wafer

production and fabrication machinery and test machinery imports fluctuated during the

period; these groups were 3 percent and 2 percent lower in 2005 than in 2001, respectively.
 49 Office of the United States Trade Representative, 2006 National Trade Estimate Report on

Foreign Trade Barriers.

20

Table 7: Semiconductor manufacturing equipment: U.S. imports for consumption, by principal product groups,

2001–20051

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Percent change,

Product group 2001 2002 2003 2004 2005 2005 from 2001

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Assembly and packaging 

machinery 78,680 55,438 56,746 62,404 78,782 (2)

Test machinery 961,438 750,836 685,474 1,119,264 943,395 -2

Wafer production and 

fabrication machinery 2,907,329 2,498,029 2,007,372 2,404,299 2,835,213 -3

 Total 3,947,446 3,304,303 2,749,593 3,585,967 3,857,390 -2 ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Source: Compiled from official statistics of the U.S. Department of Commerce.

Note: Because of rounding, figures may not add to totals shown.

1

 Import values are based on customs value.

2

 Less than 0.5 percent.

Japan was the largest supplier of SME to the U.S. market throughout the period 2001–2005.

Although U.S. imports from Japan fluctuated, the country accounted for 51 percent of total

U.S. imports of such machinery in 2005, a decrease from a 61 percent share of imports in

2001. Other principal suppliers of SME to the U.S. market were the Netherlands, Germany,

the United Kingdom, and Israel. The Netherlands’ share of U.S. SME imports increased

during this period, while the German, British, and Israeli market shares decreased.

U.S. and Foreign Trade Measures

Tariff Measures

All SME imports enter the United States free of duty. Duties on SME were eliminated by the

Information Technology Agreement (ITA), which entered into force in July 1997. All

developed country signatories were obligated to reduce their tariffs to zero by January 2000.

There are currently 63 signatories to the ITA, including all major SME-producing and -

importing countries. 

SME imports enter under various tariff subheadings in chapters 84, 85 and 90 of the

Harmonized Schedule (HS) (appendix C). There has been an international initiative to

classify some of this equipment under one HS heading (Box 2); this is expected to take effect

in January 2007.

Nontariff Measures

The Commission is unaware of any nontariff barriers (NTBs) affecting the SME industry.

No NTBs were reported by the Office of the United States Trade Representative in its 2006

National Trade Estimate Report on Foreign Trade Barriers.49 However, government-funded

R&D programs have been set up in many countries for SME manufacturers (see Foreign

Industry Profiles section).
 50 19 U.S.C. 1337. 

 51 USITC, Microlithographic Machines and Components Thereof, investigation No. 337-TA468.

 52 Commission notice issued on March 18, 2003.

 53 Such orders are issued by the U.S. Department of Commerce. Commerce will issue such an

order if it finds that imported merchandise is subsidized and/or sold in the United States at less

than fair value (dumped), and the U.S. International Trade Commission determines that an industry

in the United States is materially injured or threaten with material injury by reason of such imports

of such merchandise. The U.S. countervailing duty and antidumping duty laws are found at 19

U.S.C. 1671, et seq.

21

Other Trade Issues Affecting the Industry

The Commission identified only one trade-related investigation conducted with respect to

SME imports during the period 2001–2005, an investigation conducted by the Commission

under section 337 of the Tariff Act of 1930.50 This investigation was instituted by the

Commission in January 2002 on the basis of a complaint filed by Nikon Corp. of Japan, et

al. Nikon Corp. alleged that ASML Holding of the Netherlands, et al. had violated section

337 in the importation and sale in the United States of certain microlithographic machines

and components thereof by reason of infringement of certain claims of seven U.S. patents.51

In March 2003, the Commission found no violation of section 337 and terminated the

investigation.52 Nikon Corp. appealed the Commission’s determination to the U.S. Court of

Appeals for the Federal Circuit. The parties subsequently settled, and the appeal has been

dismissed. There were no orders in place under the U.S. countervailing duty and

antidumping laws with respect to imports of SME at the time this summary was written.53

Box 2: A new Harmonized Schedule (HS) heading for semiconductor manufacturing equipment in 2007

Since the advent of the HS in 1989, semiconductor manufacturing equipment has been classified under many different

categories in three separate chapters: 84, 85, and 90. However, beginning in January 2007, all front-end SME will be

classified under one HS heading: 8486. Back-end equipment will remain scattered throughout chapter 90. 

This reorganization of the HS was originally proposed to the World Customs Organization in the second HS review

cycle by the government of Japan, with limited success. It was reintroduced in the third HS review cycle. 

The new heading and subheadings will appear as listed below:

8486 Machines and apparatus of a kind used solely or principally for the manufacture of semiconductor

boules or wafers, semiconductor devices, electronic integrated circuits or flat panel displays;

machines and apparatus specified in Note 9(C)1

 of this chapter; parts and accessories

8486.10 Machines and apparatus for the manufacture of boules or wafers

8486.20 Machines and apparatus for the manufacture of semiconductor devices or of electronic integrated

circuits

8486.30 Machines and apparatus for the manufacture of flat panel displays

8486.40 Machines and apparatus specified in Note 9 (C)1

 to this chapter

8486.90 Parts and accessories

______________

1

 Note 9 (C) states that heading 8486 also includes machines and apparatus solely or principally of a kind used for (i) the

manufacture or repair of masks and reticles; (ii) assembling semiconductor devices or electronic integrated circuits; and (iii) lifting,

handling, loading or unloading of boules, wafers, semiconductor devices, electronic integrated circuits and flat panel displays.
 54 USITC staff, email communication with SEMI, February 7, 2006.

 55 Ibid.

22

FOREIGN INDUSTRY PROFILES

U.S. SME producers share global leadership with Japanese and European producers. In 2005,

North American SME manufacturers (predominantly U.S. producers) had an estimated 45

percent share of global production, while Japan held an estimated 41 percent share.54

European manufacturers accounted for an estimated 13 percent of production (figure 6).

Figure 6: Total semiconductor manufacturing equipment production by country/region, 2005, percentage

Source: SEMI.

Note: Percentages based on 2005 semiconductor manufacturing equipment total market of $32.9 billion.

Japan

The Japanese SME industry shares global leadership with the United States. Japan accounted

for 41 percent of world SME production in 2005, shared among 71 producers.55 In the early

1980s, Japanese SME manufacturers seized manufacturing technology leadership with major

capital commitments, increasing manufacturing yield and factory efficiency. Japanese

producers of SME remain competitive in SME production.

Although the United States appeared to be turning around its long-term SME trade deficit

with Japan during 2001–2004, the U.S. SME trade balance with Japan registered a deficit

of $50 million in 2005. Overall, from 2001 through 2005, imports from Japan decreased by

18 percent, to about $2.0 billion. On the other hand, U.S. exports to Japan increased by

North America

45%

Japan

41%

Europe

13%

Other

1%
 56 Industry representatives, interview with USITC staff, October 14, 2004.

 57 McClean, Matas, and Yancey, 2-53.

 58 Semiconductor Industry Research Institute of Japan (SIRIJ), found at

http://www.sirij.jp/index.html, retrieved April 3, 2006.

 59 Figures are from SEMI. USITC staff, email communication with SEMI, February 7, 2006.

 60 Medea+, found at http://www.medea.org/, retrieved April 3, 2006.

23

33 percent due, in part, to increased demand for semiconductors in Japan resulting from

strong consumer electronics sales.56

SME production was originally developed in Japan to support that country’s semiconductor

production facilities. Approximately 21 percent of global semiconductor manufacturing is

in Japan,57 and semiconductor producers in Japan are generally much larger than their

counterparts in the United States. Japanese SME companies are leading global producers of

steppers, a type of photolithography equipment. Japan exports this expensive

photolithography equipment while importing many other types of equipment for the

country’s large semiconductor industry.

According to SEMI, the Japanese government is supporting its industry through programs

ranging from direct subsidies for specific 300-mm diameter equipment development

activities to new tax benefits for high-technology sectors. All of these programs are part of

a national effort to promote Japanese semiconductor manufacturing, which the

Semiconductor Industry Research Institute of Japan (SIRIJ) coordinates. SIRIJ’s members

include the country’s top 10 manufacturers of electronics. SIRIJ manages four main research

projects, including research for the development and promotion of semiconductor technology

(ATLAS), research on the social contribution of the semiconductor industry (BASIS),

research on international cooperation within the semiconductor industry (C-Project), and

research for the revitalization of the semiconductor industry (D-Project).58

Europe

Specializing in front-end equipment, the European SME industry is a mature industry. As

previously noted, Europe accounts for more than 10 percent of global SME production,

shared among 18 EU producers.59 The largest EU producer countries are the Netherlands,

Germany, France, and the United Kingdom. The largest EU producer, ASML Holding, is the

global leader in the production of photolithography equipment.

In 2005, the United States had a $335 million trade surplus in SME with Europe, as

$1.7 billion worth of SME was exported to Europe in exchange for $1.3 billion worth of

imported equipment. Exports of SME to Europe fell about 15 percent during 2001-2005,

while imports from Europe increased 12 percent.

Several European research initiatives exist that seek to assist the European SME industry.

MEDEA+ (EUREKA 2365) is the latest European program for advanced cooperative R&D

in microelectronics. Launched in January 2001, MEDEA+ aims to ensure Europe's global

technological and industrial competitiveness in this sector.60 The 8-year MEDEA+ program,

which will be completed in 2008, channels both private and public funding into R&D

projects. Other European government programs include the Semiconductor Equipment

Assessment (SEA), a program based in the United Kingdom and funded by the European

Union that enables equipment manufacturers to develop state-of-the-art applications together
 61 Semiconductor Equipment Assessment, found at http://www.sea.rl.ac.uk/, retrieved

April 3, 2006.

 62 Kelly Smith, “Semiconductor Production Equipment,” STAT-USA Market Research Report,

May 7, 2004.

 63 McArdle and Wang, 10–12.

 64 Ibid., 9–10.

 65 Testimony of Thomas R. Howell, Partner, Dewey Ballantine, LLP, before the Committee on

Commerce, Subcommittee on Technology, Innovation and Competitiveness, United States Senate,

Washington, DC, Hearing on Manufacturing Competitiveness, June 8, 2005, found at

http://commerce.senate.gov/hearings/testimony.cfm?id=1526&wit_id=4322, retrieved

March 31, 2006; and Dennis Normile, “The Strategic Art of International Site Selection,

Electronic Business, November 1, 2005, found at http://www.reed-electronics.com/eb-mag/article/

CA6261844.html?industryid=43311, retrieved April 6, 2006. 

24

with semiconductor companies.61 NanoCMOS is a third government program developed to

help the semiconductor and semiconductor manufacturing equipment producers of Europe.

Beginning in March 2004, NanoCMOS focused on developing 45-nm, 32-nm, and other

advanced CMOS manufacturing processes.62

FOREIGN MARKET PROFILES

Although the traditional SME-producing regions (the United States, Japan, and Europe) also

are the traditional markets for SME, consumption of SME has been shifting to other Asian

countries in recent years (figure 7). In 2004, semiconductor demand in the Asia-Pacific

region, including Japan, was 63 percent of the global total.63 Four of the world’s five largest

foundries are in Asia, primarily in Taiwan.64 Many new chip fabrication plants are being

built in Asia, particularly in Singapore, Korea, and China. There are a number of reasons for

increasing chip production in Asia, including the growth of semiconductor foundries, foreign

government incentives such as tax breaks and guaranteed constant access to water and

electricity, and access to low-cost engineers and other skilled labor.65 The primary reason,

however, is proximity to market as many semiconductor consumers and electronic

equipment manufacturers are in this region of the world. This discussion will focus on these

emerging Asian markets.
 66 SEMI Capital Equipment Consensus Forecast And Nanoelectronics Markets and

Opportunities Report, SEMI Member Webcast, December 14, 2005.

 67 USITC staff, email communication with SEMI, February 7, 2006.

25

Figure 7: Total spending on semiconductor manufacturing equipment by country/region, 2005, percentage

Source: SEMI.

Note: Percentages based on 2005 semiconductor manufacturing equipment total market of $32.9 billion.

Korea

Korea’s large semiconductor industry accounted for 12 percent of global SME sales in 2004

and 18 percent of global SME sales in the first 9 months of 2005.66 As such, Korea is a large

net importer and consumer of SME. Korea consumed $5.8 billion of SME in 2005.67

The United States maintained a trade surplus in SME with Korea from 2001 through 2005,

amounting to $1.9 billion in 2005. Korea exported about $61 million of SME to the United

States and received about $2.0 billion of U.S. SME exports in 2005.

Although Korea is the world's leading maker and exporter of dynamic random access

memory (DRAM) chips and one of the world's leading manufacturers of mobile handsets,

Korean chip makers are still working toward making state-of-the-art nonmemory

semiconductors. Dongbu Electronics, a foundry that produces nonmemory chips, was

established in 2001. This new company is helping Korea diversify away from DRAM

production.

The Korean government has been known to provide support to its DRAM memory chip

industry, stimulating the semiconductor industry and, thus, increasing the size of the SME

market in that country. In August 2003, the Commission determined that the U.S. DRAM

Japan

25%

Korea

17%

Taiw an

17%

North America

18%

EU

10%

Rest of w orld

9% China

4%
 68 U.S. International Trade Commission, inv. No. 701-TA-431: DRAMs and DRAM Modules

from Korea, USITC publication 3839, February 2006.

 69 Bruce Einhorn, et al. “Why Taiwan Matters,” Business Week, May 16, 2005, Issue 3933,

76–81.

 70 SEMI Capital Equipment Consensus Forecast And Nanoelectronics Markets and

Opportunities Report, SEMI Member Webcast, December 14, 2005.

 71 USITC staff, email communication with SEMI, February 7, 2006.

 72 Einhorn, 76–81.

 73 Industrial Technology Research Institute, found at http://www.itri.com/, retrieved

April 3, 2006.

26

industry was materially injured by imports of DRAMs and DRAM modules subsized by the

Government of Korea.68 Korea subsequently initiated a dispute settlement proceeding at the

WTO against the U.S. countervailing duty measure. The WTO Dispute Settlement Body

concluded that the Commission’s determination was not WTO-inconsistent in almost all

respects in July 2005.

Taiwan

Taiwan is one of the world’s leading and fastest-growing semiconductor producers. In

particular, Taiwan is currently the world’s largest provider of chip foundry services with

70 percent of the market.69 Taiwan accounted for 21 percent of global SME sales in 2004 and

17 percent of global SME sales in the first 9 months of 2005.70 Taiwan consumed

$5.7 billion of semiconductor manufacturing equipment in 2005.71

The United States maintains a large trade surplus in SME with Taiwan, which amounted to

$2.2 billion in 2005, a 62 percent increase from the 2001 surplus. U.S. imports from Taiwan

were only $39 million in 2005, rising from $25 million in 2001. U.S. exports to Taiwan have

increased 62 percent from 2001 through 2005.

Taiwan rapidly rose from the periphery of electronics manufacturing to become a major

computer and semiconductor manufacturer in the mid-1990s. Taiwan has been the center of

foundry activity since 1987, when Taiwan Semiconductor Manufacturing Co., Limited

(TSMC) was founded by a U.S.-based executive (Box 3). Taiwan is also the global leader

in semiconductor packaging, accounting for 36 percent of the market.72

Taiwan government policies to encourage growth in the chip industry include R&D cost

sharing, tax incentives, and the provision of land in the main Taiwan industrial parks for

investors. Shared R&D with industry is carried out by research institutes. The largest of these

is the Industrial Technology Research Institute (ITRI), which receives 55 percent of its

funding from the Taiwan Ministry of Economic Affairs (MOEA). Taiwan research initiatives

under ITRI take place in such industries as precision machinery and microelectrical

technology to promote the integration and upgrade of precision machinery, Micro

Electro-Mechanical System (MEMS), and microelectronics.73
 74 SEMI Capital Equipment Consensus Forecast And Nanoelectronics Markets and

Opportunities Report, SEMI Member Webcast, December 14, 2005.

 75 McArdle and Wang, 9–10.

 76 SEMI, China Capital Equipment and Electronic Materials Outlook, 2005.

 77 McArdle and Wang, 11–12.

 78 SEMI, China Capital Equipment and Electronic Materials Outlook, 2005.

 79 Ibid.

 80 “Chip Equipment Awaits a Recovery,” Standard & Poor’s, February 13, 2002, found at

http://www.netadvantage.standardandpoors.com, retrieved April 3, 2006. 

 81 McClean, Matas, and Yancey, 2–57.

27

China

China has rapidly become a semiconductor manufacturer, accounting for 7 percent of global

SME sales of semiconductors in 2004 and 4 percent of global SME sales in the first 9

months of 2005.74 One study predicts that the Chinese semiconductor industry will account

for 15 percent of wafer fab expenditures in 2010, up from about 7 percent in 2004.75 China

is home to more than 35 manufacturers with wafer fabrication facilities,76 and 20 new fabs

are expected to open in China by 2008.77 There are about 200 semiconductor assembly and

test companies in China; most of these are foreign-invested joint ventures and other

operations with foreign involvement.78 China consumed $1.3 billion of SME in 2005.79

The United States has a growing trade surplus in SME with China, expanding from

$334 million in 2001 to $628 million in 2005. U.S. SME imports from China have expanded

rapidly, but remain minimal compared with imports from some other countries. U.S. exports

of SME to China have almost doubled from 2001 through 2005. U.S. exports of SME to

China peaked in 2004, reaching $1.3 billion.

China’s growth lifted the semiconductor industry, and therefore the SME industry, out of the

latest downturn. The rapid growth of the semiconductor industry in China is driven by

demand for electronics to serve China’s large population and rapidly expanding economy.80

Chinese demand accounted for 17 percent of global semiconductor demand in 2004 and is

expected to reach 30 percent by 2009.81

Box 3: The growth of the semiconductor foundry industry in Taiwan

The first semiconductor foundry in the world was United Microelectronics Corp. (UMC), established in Taiwan in 1980.

UMC produced both its own semiconductors, as well as those under contract for other companies. The first foundry

to produce chips only for contract manufacturing was Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC),

established in 1987. Other foundries have since been built in Singapore, Korea, Malaysia, Israel, and China, but

Taiwan has remained at the center of the global foundry business. TSMC is the world’s largest foundry, with

46 percent market share in 2004. Its share has declined in recent years with more foundries entering the market.

Foundry revenues grew 44 percent in 2004, compared with 28 percent for all semiconductor producers. Many

foundries have state-of-the-art technology and are taking orders from both fabless companies (companies that design,

but do not produce, chips) and integrated device manufacturers.

_______________

Source: Colin McArdle and Nelson Wang, “Semiconductor Equipment,” Standard & Poor’s Industry Surveys,

November 17, 2005.
 82 “Semiconductor Quarterly Report,” U.S. Taiwan Business Council. Third Quarter, 2005. 

 83 McArdle and Wang, 11–12.

 84 USITC staff, email communication with SEMI, February 7, 2006.

 85 Ibid.

 86 Export-Import Bank of the United States, “Semiconductors/China,” December 23, 2003,

found at http://www.exim.gov/products/policies/23dec04.html, retrieved April 3, 2006.

28

However, recent reports indicate that Chinese demand for SME is slowing. For example,

U.S. exports to China decreased from 2004 to 2005. One source attributed this slowdown to

possible concerns about the potential for intellectual property rights infringement in China,82

while SEMI has noted that chip inventories have accumulated.83

U.S. producers have indicated that the Chinese government is planning to spend $100

million per year for semiconductor R&D.84 Many regional governments within China are

also offering semiconductor producers location incentives and R&D assistance.85

In December 2003, Chinese foundry Semicondutor Manufacturing International Corporation

(SMIC) applied for a $1.2 billion loan guarantee to finance equipment purchases from U.S.

SME companies.86 This equipment would be used to expand SMIC’s operations, increasing

the size of the Chinese market for SME.
APPENDIX A

Detailed Description of the Semiconductor

Manufacturing Process

 1

 A mask is a glass plate covered with an array of patterns consisting of opaque and clear areas

that prevent or allow light to go through. Masks are aligned with existing patterns on silicon

wafers and used to expose photoresist. The terms reticle and mask are sometimes used

interchangeably, but a reticle usually refers to a mask that is smaller than the wafer for use in

repeated exposures.

A-3

The first step in the creation of a chip is the formation of a wafer. The stages involved in this

formation process are indicated in figure A-1.

Figure A-1: Formation of a silicon wafer

Source: Compiled by USITC staff.

Next, a mask or reticle is formed,

1

 and put aside to be used further along in the

manufacturing process. Mask fabrication equipment is usually in the form of an E-Beam

mask-making machine, which uses an electron beam light on the photoresist. A photoresist

is a chemical that is sensitive to light.

Figure A-2: Front-end wafer fabrication process

1. Place a layer of silicon glass (referred to as a dielectric since it will not conduct electricity) on the wafer.

2. Photolithography, whereby a light is projected onto a wafer to create multiple layers of circuit patterns on a

chip.

3. Etching, whereby materials not hardened during photolithography are removed in a series of steps using

various manufacturing tools.

4. Photolithography and etching are repeated to achieve the multiple layers of circuitry that appear on a chip.

5. Doping, in which some areas of a wafer are exposed to chemicals that make the wafer more conductive in

terms of electricity.

6. A conducting metal, such as aluminum, is deposited on the entire surface of a wafer. Certain areas of this 

metal are removed through photolithography and etching. This step connects the individual horizontal and 

vertical conductive pathways on the chip, allowing it to function properly.

Silicon Made from Sand

9

Silicon Cut into Ingots

9

Ingot Ground and Polished

9

Ingot Sliced into Wafers

9

Edges of Wafers Rounded

9

One Side of Wafer Polished

9

Wafer Cleaned
 2

 A stepper is a photolithography machine used to expose a pattern on a wafer by shining light

through a mask.

A-4

Photolithography equipment is probably the most important type of machinery in the

semiconductor manufacturing process. The degree of accuracy required in the correct

exposure of patterns and alignment of the masks have led to a high degree of automation in

this process. Oxidation is the first process step involving photolithography equipment. In

oxidation, the silicon wafer is exposed to pure oxygen in order to grow a thin layer of silicon

dioxide. This is done in an oxidation furnace, which can be horizontal or vertical. The color

that the films turn is an indicator of the thickness of the film, with green signifying the

thickest layer. The wafer is then coated with a photoresist using a spinner. Microlithographic

equipment is also known as spinners, coaters, wafer tracks, photoresist processing, photo

clusters, and photoresist clusters.

In the mask exposure and development or masking step, a pattern is written onto the

photoresist with light, electrons, x-rays, or ions. The photoresist either hardens where the

light hits it and remains soft in unexposed areas, or vice versa, depending on whether a

positive or a negative photoresist is used. For multiple copies on a wafer, a stepper is used.2

In the alignment and exposure step, a solvent, such as hydroxide, dissolves away the

unexposed photoresist, revealing the silicon dioxide underneath. This part of the silicon

dioxide is chemically etched to reduce its thickness. The hardened photoresist is then also

dissolved, leaving an area of silicon dioxide. In the second masking, layers of polysilicon

and photoresist are applied to the wafer and, again, a pattern is exposed onto the photoresist.

The unexposed, soft photoresist is then dissolved, and then the polysilicon and silicon

dioxide are etched away, revealing the silicon base in the areas where the unexposed

photoresist was. The hardened photoresist is removed, revealing an area of polysilicon. The

critical dimension is measured, as well as the alignment. Adjustments are made, as necessary.

The oxide is etched using fluorine ions contained in Zyron gas. The wafer is etched in this

process, too, but very slowly. This is known as a dry etch. Plasma etching using fluorescent

light bulbs are also an option. The photoresist is stripped using pure oxygen plasma in the

same machine used for etching.

During doping, the layers are treated with dopants, which are chemical elements such as

arsenic and boron that change the conductivity of the wafer. Ion implantation is the

technique used to treat the layers. This allows for cleaner, more controlled doping. In this

method, the dopant atoms are applied through a blocking mask, given a charge and

accelerated to a high speed. The ions bombard the wafer surface where it is exposed. The

temperature of the wafer is then increased in order to diffuse the impurities deep into the

silicon. Positive ions are more common than negative ones in this process. Implant annealing

is performed with rapid thermal processing, as the surface of the wafer is heated to about

1200o C in 10 seconds.

In the contact mask process, all of the above steps are repeated. An additional layer of

photoresist is applied, and the masking, developing, etching, and stripping processes are

repeated. Alignment is necessary in this stage so that the contact made with the wafer is next

to the already formed diode. Next, a thin aluminum film is deposited onto the wafer. This

aluminum is sputtered using an argon plasma.

This process is then repeated a third time using a metal mask in the metallization step: apply

photoresist, align, expose, develop, etch, strip. A sample probe, or fab area test, is completed

at this stage using probe wires attached to contact pads. Chemical vapors are then used to
 3

 A lead frame is a spider-like mass of wires to which the chip will be connected. The lead

frame is then bent to form the metal pins that run out of the semiconductor package, allowing

connection between the chip and the electrical socket.

A-5

form a film on the wafer. This film is usually patterned using photolithography and the wafer

is heated. All modern fabs use chemical vapor deposition for several thin films.

The diode is covered using silicon nitride at low temperature so as not to melt the aluminum.

Plasma enhanced chemical vapor deposition is used in this step known as passivization.

Once the diode is safely covered, the pads must be uncovered for contact. A fourth mask is

used, photoresist is applied, and the wafer is etched and stripped as before. Most integrated

circuit devices use 10 to 20 masks, but up to 100 can be used. This concludes wafer

fabrications or front-end processing.

Back-end processing begins with backlap, in which wafers are ground, or lapped, in order

to thin them. The machine for backlap is the same one used when wafers were ground after

being cut from the ingot.

Gold is sputtered on the back of the wafer, known as backside gold. The machinery used for

applying backside gold is the same as for aluminum sputter. 

The die sort tests each chip on the wafer (similar to the way the sample probe tested the

chips) and puts ink spots on the bad ones. The die sort requires automatic probe stations and

a high speed computer tester. Test and measuring equipment is used throughout the

semiconductor manufacturing cycle. Metrology equipment ensures that design dimensions

of the semiconductor devices are achieved and maintained during the various manufacturing

steps. Test equipment includes a variety of testers with various capabilities, sophistication,

and price ranges. These machines are identified by the type of semiconductor devices they

are designed to test or perform, such as memory testers, microprocessor testers, and digital

integrated circuit testers (logic testers). Sample probe equipment involves a probe station,

computer, wires, and a PC board fixture.

In the cutting and assembly stages, the wafer is sawed up into die, or chips, with a diamondcoated blade, and each die is attached and bonded to a lead frame3

 through the use of a die

bonder. A copper tape must be cut or stamped into a series of frames for packaging the chip.

This copper should be coated with solder. The die is glued to the frame using epoxy

containing silver powder. Gold wire is melted and pressed against the aluminum pad. This

is repeated for the copper frame. The wire is cut and the frames are cut apart and mounted

in a die. Hot plastic is injected and allowed to cool. Once cool, the edges are trimmed. The

lead frame is cut off and the lead bent. 

After the package is sealed, the chip should be tested one final time before being pronounced

complete. Labeling, packaging, and shipping take place to complete the cycle.
A-6

Figure A-3: The stages of integrated circuit fabrication

Source: Compiled by USITC staff using U.S. International Trade Commission, Global Competitiveness of U.S.

Advanced-Technology Manufacturing Industries: Semiconductor Manufacturing and Testing Equipment, USITC

publication 2434, September 1991, E-2; and other publications.

Formation of Silicon Wafer

\

Formation of Mask

\

Oxidation

\

Photoresist

\

Mask Exposure and Developing

\

Etching

\

Doping (Ion Implementation)

\

Implant Annealing

\

Contact Mask

\

Metal Mask (Including Sample Probe)

\

Passivization

\

Sputtering

\

Die Sort

\

Wafer Cut into Die

\

Assembly: Die Attach and Bond

\

Package Sealing

\

Electrical and Mechanical Testing

\

Labeling, Packaging, and Shipping
APPENDIX B

TECHNICAL GLOSSARY

B-3

Anneal - Fix

Back-end manufacturing - Portion of semiconductor manufacturing that happens after the wafer has left

the clean room; test, assembly, packaging.

Capacitance - Ratio of charge to potential on an electrically charged, isolated conductor.

Capacitor - Two connecting plates with an insulator between them.

Chemical Vapor Deposition (CVD) - A method for depositing some of the layers which function as

dielectrics, conductors, or semiconductors, whereby a chemical containing atoms of the material to be

deposited reacts with another chemical.

Chip - one of the individual integrated circuits or discrete devices cut from a silicon wafer.

Clean room - Ultraclean place where wafer processing is done so that dust and particles do not

contaminate the wafer.

Cluster tool - Machine that contains more than one process module.

Critical dimension - Minimum width that is allowed as part of the circuit design on any given patterning

layer.

Deposition - Process in which layers are formed as the result of a chemical reaction in which the desired

layer material is formed and coats the wafer surface. 

Dicing - Cutting up the wafer into individual chips, usually done with a circular dicing saw.

Die - Single semiconductor chip.

Dielectric - Insulator.

Diode - Device that allows a current to go only one way.

Dopant - Tiny amount of impurities added to change the electronic properties of silicon and affect how it

conducts electricity.

Epitaxy - Deposition of a thin film of silicon on a wafer so that the deposited layer forms a single

continuous crystal with the underlying wafer.

Etch - To apply a strong acid to spur a chemical reaction.

Fab- Wafer fabrication facility or a clean room; location in which semiconductors are made.

Front-end manufacturing - Wafer processing that takes place in the clean room; stage of manufacturing

in which the semiconductor device is formed.

Furnace - Long glass tube that can be heated to high temperatures; may be horizontal or vertical.

Ingot - Metal cast into a bar or block.
B-4

Integrated circuit (IC) - Complete electronic circuit with transistors and wires connecting these

transistors on a semiconductor chip.

Interconnect - Wires patterned in integrated circuits to connect different devices together.

Ion implantation - Process by which dopants are introduced into silicon in exact quantities by being

directed at a silicon wafer at a controlled velocity.

Lead - Metal prongs that stick out of a chip package.

Lead frame - Spider-like wire frame that the chip is connected to; allows electrical connection from the

chip package to an electrical socket.

Mask - A print; a dark image on a clear background through which light is shown to create patterns on a

wafer.

Negative photoresist - Process that hardens an organic material when exposed to light.

Oxidation - Adding oxygen to a substance by adding high temperatures to an oxygen environment.

PC boards - Printed circuit boards; part of an electronic system.

Photolithography - Photographic processes used to transfer circuit patterns onto a semiconductor wafer

by projecting light through a mask or reticle onto a photoresist-coated wafer.

Photoresist - Any organic (photosensitive) material; liquid that can be applied to a wafer as a thin film to

be developed into an image.

Plasma - Highly excited gas that is exposed at low pressure to an electric or electromagnetic field.

Plasma enhanced chemical vapor deposition (PECVD) - A process by which plasma, created from

reactant gases, is used to allow films to grow on a wafer at a lower temperature.

Plasma etching - Dry etching; using plasma to etch a semiconductor layer.

Positive photoresist - Process that dissolves organic material when exposed to light.

Reticle - A mask that is smaller than the wafer for use in repeated exposures; glass plate with chrome on

one side in which a pattern is etched.

Spin coater - Spinner; machine for applying photoresist uniformly to a wafer by spinning the wafer

during or after pouring on the photoresist; also used for developing and drying photoresist.

Sputtering - Involves knocking metal atoms off a disc of pure metal using ions so that metal atoms will

redeposit onto the wafer to build up the desired metal film.

Stepper - Photolithography machine that works like a backwards microscope, exposing a pattern on a

wafer by shining mercury light through a reticle or mask.

Wafer - Round disc of silicon upon which semiconductors are developed.

Wet etching - Etching away of layers on a wafer by chemical immersion.
APPENDIX C

Semiconductor Manufacturing Equipment:

Harmonized Tariff Schedule Subheading,

Description, U.S. Col. 1 Rate of Duty as of

Jan. 1, 2006, U.S. Imports, 2005, and U.S.

Exports, 2005

Semiconductor manufacturing equipment: Harmonized Tariff Schedule subheading, description, U.S. col. 1 rate of

duty as of Jan. 1, 2006, U.S. imports, 2005, and U.S. exports, 2005 ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

2006 Col. 1 rate of duty U.S. U.S.

HTS as of Jan. 1, 2006 imports, exports,

subheading Description General 2005 2005

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Percent – Thousand dollars ––

C-3

8421.19.30 Spin dryers for semiconductor wafer

processing . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 2,754 108,169

8424.89.30 Spraying appliances for etching, stripping or

cleaning semiconductor wafers . . . . . . . . . . . Free 18,181 102,582

8424.89.50 Spray appliance to develop semiconductor

wafers; spray appliance to etch, develop,

strip or clean flat panel screen; certain

deflash machine . . . . . . . . . . . . . . . . . . . . . . . Free 5,104 92,836

8456.10.60 Machine tool operate laser/other light/

photon beam process in semicond wafer

production; lasercutter to cut contacting

track in semiconductor . . . . . . . . . . . . . . . . . . Free 11,941 113,026

8456.91.00 Machine tools for dry etching patterns on

semiconductor materials by

electro-chemical, electron-beam,

ionic-beam or plasma arc processes . . . . . . . Free 260,829 1,683,359

8456.99.10 Focused ion beam milling machines to

produce or repair masks and reticles for

patterns on semiconductor devices . . . . . . . . Free 1,103 13,385

8456.99.70 Machine tool for stripping and cleaning

semiconductor wafers,operated by

electro-chemical/electron-beam/

ionic-beam/plasma arc process, n.e.s.o.i. . . . Free 15,380 38,595

8462.21.40 Bending, folding or straightening machines,

numerically controlled, for semiconductor

leads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 10,026 41,671

8462.29.40 Bending, folding or straightening machines,

not numerically controlled, for

semiconductor leads . . . . . . . . . . . . . . . . . . . . Free 8,025 10,799

8464.20.10 Grinding or polishing machines for

processing of semiconductor wafers . . . . . . . Free 71,914 192,977

8464.90.10 Machine tools for scribing or scoring

semiconductor wafers; machine tools for

wet-chemical etching semiconductor

wafers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 122,120 8,919

8464.90.60 Machine tool for wet-etching or -stripping

semiconductor wafers; machine tool for

wet-etching, -developing or -stripping flat

panel screens . . . . . . . . . . . . . . . . . . . . . . . . . Free 78,548 22,421

8465.99.40 Deflash machines (by chemical bath) for

cleaning and removing contanimants

from metal leads of semiconductor

packages . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 280 9,573

8466.10.40 Tool holders for use solely or principally

with machines of headings 8456 to 8465

described in add. US note 3 to chapter 84 . . . Free 7,688 18,741
Semiconductor manufacturing equipment: Harmonized Tariff Schedule subheading, description, U.S. col. 1 rate of

duty as of Jan. 1, 2006, U.S. imports, 2005, and U.S. exports, 2005—Continued ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

2006 Col. 1 rate of duty U.S. U.S.

HTS as of Jan. 1, 2006 imports, exports,

subheading Description General 2005 2005

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Percent Thousand dollars 

C-4

8466.20.40 Work holders for the machine tools

described in additional U.S. note 3 to

chapter 84 . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 30,358 4,490

8466.30.45 Special attachments mach, us note 3 ch 84,

n.e.s.o.i. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 7,009 20,141

8466.93.47 Certain specified parts and accessories for

machines of subheading 8456.10.60,

8456.91, 8456.99.10 or 8456.99.70,

n.e.s.o.i. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 9,195 6,516

8466.93.85 Other parts and accessories for machines

of subheading 8456.10.60, 8456.91,

8456.99.10 or 8456.99.70, n.e.s.o.i. . . . . . . . . Free 108,918 32,580

8466.94.55 Other specified parts and accessories for

machines of subheading 8462.21.40 or

8462.29.40, n.e.s.o.i. . . . . . . . . . . . . . . . . . . . Free 1,645 19,629

8466.94.75 Other parts and accessories for machines

of subheading 8462.21.40 or 8462.29.40,

n.e.s.o.i. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 4,964 19,629

8477.10.70 Injection-molding machines for

encapsulation in the assembly of

semiconductors . . . . . . . . . . . . . . . . . . . . . . . Free 3,964 12,213

8477.40.40 Transfer molding and compression molding

machines for encapsulation in the

assembly of semiconductors . . . . . . . . . . . . . Free 7,784 13,576

8477.59.40 Liquid encapsulate molding machines for

encapsulation in the assembly of

semiconductors . . . . . . . . . . . . . . . . . . . . . . . Free 238 69,218

8477.90.15 Base, bed, platen, clamp cylinder and other

specified parts of machines of

subheading 8477.10.70, 8477.40.40 or

8477.59.40 . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 7,015 0

8477.90.35 Barrel screws of machines of subheading

8477.10.70, 8477.40.40 or 8477.59.40 . . . . . . Free 356 21,250

8477.90.55 Hydraulic assemblies of machines of

subheading 8477.10.70, 8477.40.40 or

8477.59.40 . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 409 10,625

8477.90.75 Parts of machines of subheading

8477.10.70, 8477.40.40 or 8477.59.40,

n.e.s.o.i. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 5,650 10,625

8479.89.84 Machines for production & assembly of

diodes, transistors and similar

semiconductor devices & circuits;

machines for mfg video laser discs . . . . . . . . . Free 624,340 2,706,296

8479.89.87 Machines for wet-cleaning flat panel

displays, n.e.s.o.i. . . . . . . . . . . . . . . . . . . . . . . Free 227 609,728
Semiconductor manufacturing equipment: Harmonized Tariff Schedule subheading, description, U.S. col. 1 rate of

duty as of Jan. 1, 2006, U.S. imports, 2005, and U.S. exports, 2005—Continued ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

2006 Col. 1 rate of duty U.S. U.S.

HTS as of Jan. 1, 2006 imports, exports,

subheading Description General 2005 2005

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Percent Thousand dollars 

C-5

8480.71.40 Injection or compression type molds for

rubber or plastics for the manufacture of

semiconductor devices . . . . . . . . . . . . . . . . . . Free 6,136 10,095

8514.30.20 Electric furnaces and ovens for diffusion,

oxidation or annealing of semiconductor

wafers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 77,753 31,770

8514.30.60 Industrial or laboratory electric furnaces and

ovens, n.e.s.o.i., for the rapid heating of

semiconductor wafers . . . . . . . . . . . . . . . . . . . Free 32,861 78,521

8515.90.10 Parts of electric welding die attach

apparatus, tape automated bonders and

wire bonders of subheading 8515.80 for

assembly of semiconductors . . . . . . . . . . . . . Free 15,281 119,096

8543.11.00 Ion implanters (particle accelerators)

designed for doping semiconductor

materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 85,927 439,216

8543.89.10 Physical vapor deposition apparatus to

process semiconductor material or produce

diodes, transistors & similar

semiconductor device & circuits . . . . . . . . . . . Free 27,909 734,016

8543.90.10 Parts of physical vapor deposition

apparatus . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 134,540 261,926

9010.41.00 Direct write-on-wafer apparatus for

projection or drawing of circuit patterns

on sensitized semiconductor materials . . . . . . Free 16,321 964

9010.42.00 Step and repeat aligner apparatus for

projection or drawing of circuit patterns

on sensitized semiconductor materials . . . . . . Free 943,552 29,311

9010.49.00 Apparatus for the projection or drawing of

circuit patterns on sensitized

semiconductor materials, n.e.s.o.i. . . . . . . . . . Free 28,587 16,494

9010.90.70 Part/accessory of apparatus: of subheading

9010.41-9010.49 or of subheading

9010.50.60 projection/drawing circuit

patterns on flat panel display . . . . . . . . . . . . . Free 119,163 32,207

9030.82.00 Instruments and apparatus for measuring or

checking electrical quantities, n.e.s.o.i.: for

measuring or checking semiconductor

wafers or devices . . . . . . . . . . . . . . . . . . . . . . Free 393,865 1,452,452

9030.90.64 Printed circuit assemblies for instruments

and apparatus for measuring or checking

semiconductor wafers or devices . . . . . . . . . . Free 94,233 54,919

9030.90.84 Parts and accessories for instruments and

apparatus for measuring or checking

semiconductor wafers or devices, n.e.s.o.i. . . Free 123,660 73,301
Semiconductor manufacturing equipment: Harmonized Tariff Schedule subheading, description, U.S. col. 1 rate of

duty as of Jan. 1, 2006, U.S. imports, 2005, and U.S. exports, 2005—Continued ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

2006 Col. 1 rate of duty U.S. U.S.

HTS as of Jan. 1, 2006 imports, exports,

subheading Description General 2005 2005

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Percent Thousand dollars 

C-6

9031.41.00 Optical measuring/checking instruments/

appliances for inspecting semiconductor

wafers/devices or photomasks/reticle

used to mfg such devices . . . . . . . . . . . . . . . . Free 143,009 1,225,911

9031.49.70 Optical instrument & appliance: to inspect

masks (not photomask) used to mfg

semiconductor devices; to measure

contamination on such devices . . . . . . . . . . . . Free 4,353 184,304

9031.80.40 Electron beam microscopes fitted with

equipment specifically designed for the

handling and transport of semiconductor

devices or reticles . . . . . . . . . . . . . . . . . . . . . . Free 95,243 93,862

9031.90.54 Parts & accessories of measuring &

checking optical instruments &

appliances of subheading 9031.41 or

9031.49.70 . . . . . . . . . . . . . . . . . . . . . . . . . . . Free 55,790 44,469

9031.90.70 Parts and accessories of articles of

subheading 9031.80.40 . . . . . . . . . . . . . . . . . Free 33,241 74,115 ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Source: U.S. exports and imports compiled from official statistics of the U.S. Department of Commerce.

Note: The abbreviation “n.e.s.o.i.” stands for “not elsewhere specified or otherwise included.”