The art of measurement – Challenges in metrology

The market for metrology and inspection equipment is gaining importance within the $106bn semiconductor manufacturing industry. Mordor Intelligence expects the metrology and inspection equipment market size will reach $10.5bn in 2024. Rapid developments around increasingly complex and smaller transistor structures and advanced methods to encapsulate, combine and package chips require ever more precise measurements. With the increasing complexity of the chip-making process, the yield (or percentage of qualified chips produced) becomes critical. This report explores the structure of the metrology and inspection equipment market and the role European companies such as PVA TePla play in this increasingly important part of the semiconductor supply chain.

Semiconductor complexity leads to metrology needs

With the increasing complexity of the chip-making process, the requirements for materials and process tools are becoming more stringent. For example, to print 8nm thick elements on a wafer (by comparison an average human hair is 70µm, or 70,000nm, thick), the material onto which the elements are to be printed must have uniform surface density. The same goes for each layer and material that is added (deposited) and then etched. Irregularities on the surface or stress in the material can lead to defects, which lead to lower yields, and yields are everything in chip-making. Wafers can have more than 100 layers of circuits, so even a very small failure rate in one process can have considerable consequences. Hence, control over the process is becoming critical, and requires measuring and inspection steps. Metrology companies, which offer measurement equipment, are thus becoming more important in the semiconductor value chain, and this is reflected in relatively high revenue CAGRs as well as high margins. There has been a large rise in valuations as well.

Investing in metrology

Until recently, metrology companies did not have a very noteworthy revenue share in the semiconductor equipment market. Market leaders are based in the US, and include KLA and pure-play Onto Innovation, which has a market capitalisation of $11bn. In general, revenues in metrology have tripled in the past five years, as illustrated by Onto Innovation and US-based Camtek. This is also the case for German-based PVA TePla, which is targeting 50% of revenues in this segment (now c 25%) in the medium term. Dutch giant ASML, for which metrology makes up a smaller part of revenues and which has a larger presence in the niche lithography metrology and inspection tools market, has more than doubled its revenues in metrology over the last five years. Within our selected group of metrology companies, valuation multiples have drastically increased over the past five years, with the exceptions of PVA TePla, which has a more diversified profile, and Nordson, which trades at much higher multiples.

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