Revenues from service and support related to critical subsystems reached $2.3 billion in 2020 and are on track to exceed $3.5 billion by 2025. Growth in the installed base of tools, high-utilization rates, and more opportunities for upgrades and refurbishments have driven revenues to levels that were unlikely only a few years ago. This is great news for suppliers of service and support but is a growing problem for chipmakers.
Over the past five years, service and support revenues have seen a compound annual growth rate (CAGR) of 10.8% to a value of $2,316 million in 2020. Revenues are forecast to grow a further 11% in 2021 to reach a total of $2,571 million. Over the next five years, the outlook is for growth to moderate slightly to a CAGR of 8.3%, equating to total annual revenues of above $3.5 billion by 2025. The primary drivers are twofold: a growing installed base and growing tool complexity making it harder to keep tools up and running.
The largest technology segment in 2020 was vacuum subsystems, which accounted for 47% of total service and support revenues. Process power, wafer handling, and fluid management represent shares of 12%, 7% and 7%, respectively.
Revenues from service and support come from three areas: spare parts, labor for repairs and maintenance, and retrofits/upgrades. The percentage of spare parts from the original subsystem supplier is approximately less than two thirds – the other third coming from unauthorized copies.
OEMs have tightened their grip on service and support in recent years, making it increasingly difficult for subsystems suppliers to work directly with chipmakers. This strategy results in high additional costs and, in some cases, delays in service response times for chipmakers. On the other hand, OEMs argue the benefits of having service delivered directly through them outweigh the negatives. However, many chipmakers are feeling the pressure as service and support costs spiral, and their choices are becoming limited.
The original critical subsystems suppliers are often excluded from engaging with chipmakers, so the only viable options for chipmakers are to use in-house service teams or work with third-party service providers. While some of the third-party service providers are reasonably large and offer excellent services, they are often small and don’t have the scale to operate globally. This situation means that, at least for now, the OEMs have the upper hand. However, the size and growth prospects for service and support for critical subsystems means this will continue to be a fiercely fought market.
For more information about critical subsystems, visit VLSI Research.
John West is managing director at VLSI Research Europe.
