The Chip Insider®– Why Test is Outpacing WFE
Summary:
Summary: Why Test is Outpacing WFE
Test has been outgrowing WFE for some time now. Many have asked if this is just a bubble? Or is something different? It turns out, it’s not a bubble and something is very different. What’s different is the industry’s shift away from consumer-oriented market demand to an AI-dominated market. Let me explain why there’s a difference: Chips are not chips. The differences are defined by the market and its applications. How they differ in device characteristics, manufacturing parameters, the economics of test escapes, and an information-theory based model developed by my father, Jerry Hutcheson, in the 80s are what is driving the market's structural change.
Of these, Jerry’s test demand information-theory model may be the most important, because it described why WFE would outpace test as the demand driver shifted from enterprises to consumers. It accurately predicted the actual change in the market from the 80s until now…
What we're seeing today in terms of test's market pace hasn't been seen since the 1970s when ATE systems were the priciest tools semiconductor companies bought. In those days they were EUV today. Just with three fewer zeros: A Fairchild Sentry VII sold for north of $500K... Add three zeros to that and you get the first $1B WFE tool. It’s coming, but not here yet…
Price wasn't the only pattern. In 1979, the largest equipment company in the world was Fairchild Test Systems Group… Teradyne was down a few places in the top 10. Applied Materials was at the bottom, TEL was a sales rep, and David Lam was leaving TI to found Lam Research.
In 1979, … cents were spent on ATE for every dollar spent on WFE. Then came the PC, the cell phone, and eventually … the smartphone. By the early 2020s… when IBM was no longer the world’s largest electronics company, Apple was… less than … cents were being spent on ATE for every WFE dollar.
History doesn't repeat, but it rhymes: First of all, there’s a long way to go to reach the old levels. It could add $75B to the size of today’s ATE market. Still, there’s plenty of room at the bottom, to borrow from Richard Feynman. So what was it about the industry then that rhymes with today, making test so valuable again today?
Back then, as now, the high dollar market was advanced computing…
Economics of test escapes (or how the industry got from ATE spend down)… This is completely inverting, as can be seen with Nvidia’s transition from selling graphics cards its customers take home to install in their computers. It’s now selling racks of AI supercomputers that go to datacenters. The market is inverting. We are back to the future. Or at least, back to the enterprise as the primary demand driver.
This is not all that’s happening… Jerry Hutcheson’s test demand information theory…
Now, think about how yields have evolved since the 70s and the difference between consumer and AI chips yields, as well as affordability differences… The value of test going forward is soaring, which is taking the market with it. That’s why test has been outpacing WFE.
“History never repeats itself, but it often rhymes.” — as Mark Twain is reputed to have said
