December 17, 2004    Volume 11, No. 22

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Loss of 50 Percent Of U.S. Commercial Mask Industry Raises National Security Alert


The U.S. photomask industry has launched a new research and development consortium, but it might be too little, too late as the beleaguered industry is failing under competitive assault. The photomask industry received a $1.75-million line-item plus-up from Congress in the recently passed defense appropriations bill to start a technical R&D program. Consortium organizers are piecing together a research strategy aimed at trying to reverse a steep decline that industry executives believe is risking the national security interests of the United States.

Not all is well in the photomask sector. One of two remaining independent U.S. photomask companies -- DuPont Photomasks -- is in the process of being acquired by Japan's Toppan Printing Co. The acquisition is being reviewed by the multi-agency Committee on Foreign Investment in the United States (CFIUS) headed by the Treasury Department to determine if national security interests are threatened, according to sources. But the sale is expected to be approved in January, because if it isn't "DuPont has no choice: without a strong partner -- and there are no strong partners in the United States -- it will be four paws in the air," says one Washington technology industry representative. "You're looking at a situation where it's a lose-lose for DuPont and for national security."

The loss of DuPont Photomasks as a U.S. entity is raising concern in the Washington national security community because photomasks are essential in creating all semiconductor chips. When DuPont Photomasks becomes a wholly-owned subsidiary of Toppan, there will be only one remaining merchant mask house left in the United States: Photronics. IBM, Intel and Micron will keep their captive mask operations for their own fab lines, but, combined, the four remaining mask operations will not be able to fund the investment in R&D needed to stay in the game, say mask industry executives.

"Foreign governments have targeted mask infrastructure as a key technology and are subsidizing their industries," says the Mask Industry Working Group. DuPont and Photronics have seen their combined share of the market fall steadily, accounting now for 29 percent of the global market. When DuPont Photomasks is under Toppan's control, the last remaining U.S. player -- Photronics -- will account for about 18 to 19 percent of the global market for masks, while the combination of DuPont and Toppan will account for about 30 percent of the global market of $2.5 billion.

Photomasks represent the leading edge of the semiconductor industry. The photomask is the only area in the semiconductor fabrication process where raw data is handled for laying down a complex pattern for circuitry. "Once a design is compromised, no amount of security from that point forward will ensure the integrity of the product," says a presentation developed by the Mask Industry Working Group.

"It's like giving away the keys to the kingdom," says one Washington semiconductor industry official. Adds another: "We're at risk of losing the intellectual property needed for chip fabrication. We're inviting mischief from a national security point of view."

Mask makers know the design of every integrated circuit that is produced. "The concern is if you have a person who is not trustworthy getting into your data, how do you know that what comes out is what you wanted?" asks one Defense Department official involved in semiconductor technology. Others note that during the Cold War, U.S. intelligence agencies introduced flaws into technologies that the Soviet Union thought it was acquiring clandestinely.

Thomas Reed, author of "Into the Abyss," documented cases where the United States provided the Soviets with computer chips that passed all quality acceptance tests but would later fail. "Are we prepared to have the same thing happen to us?" asks one industry official. The Mask Industry Working Group says: "We did it to the Soviets during the Cold War. The result: the Soviet economy suffered and their military could not trust any of the technology they had acquired. Other countries can do this to the U.S."

One way for the Department of Defense to insure the security of its circuits is through its recently consummated contract with IBM for a "Trusted Foundry." That secret foundry in Vermont is dedicated to producing chips for the military and the intelligence agencies. But executives in the photomask sector say DOD is still vulnerable. "There are people in NSA who are willing to see the NSA mask shop go away as they transition to the Secure Foundry," says one mask industry official.

But if that happens, the government's trusted foundries (including two for radiation-hardened chips) "are going to be at the mercy of foreign mask manufacturers just as the rest of the chip industry is going to be at the mercy of foreign mask manufacturers," says Martin Peckerar of the University of Maryland and one of the organizers of the photomask consortium while he was director of the Electronics Science and Technology Division at the U.S. Naval Research Laboratory in Washington, D.C.

The Defense Science Board is expected to address some of these issues in a report due out in January on the health of the semiconductor industry and the DOD's role in assuring its viability. But some of those associated with the DSB study aren't sure that the right issues will be addressed. Sources say the DSB panel is wrestling with how the Pentagon can realistically improve the business climate in the United States for semiconductor equipment and production. It's unclear how DOD could possibly create incentives for industry to build new semiconductor plants in the United States as opposed to China.

Nevertheless, in an October 2003 memo to the secretaries of the military departments, the chairman of the Joint Chiefs of Staff and all the senior-most appointed officials in the Pentagon, DOD deputy secretary Paul Wolfowitz wrote that DOD "should ensure the economic viability of domestic IC sources." Wolfowitz said: "The health of the defense IC supplier community depends on the health of the larger commercial IC base. One important enabler of the larger commercial base is balanced policies that do not unnecessarily restrict U.S. sources from the global economic market. Therefore the DOD will support policies that provide a level playing field internationally for the procurement of commercial products."

Foreign governments remain committed to pursuing aggressive industrial policies that favor their domestic producers, by providing them with long-term financial commitments to research and the transition into production. Patient and technically competent foreign companies with financial support from their governments are waiting for fragile U.S. companies to hiccup with their next generation of technology or business strategy, and when they do, they pounce.

"There really is no level playing field in terms of high tech competence and you need to do something to level the playing field," says Peckerar. "Unfortunately, the only agency that has dealt extensively with this type of activity is DOD and it's the only agency that has the start of a knowledge base to deal with it and yet the DOD doesn't want to get involved in it," he says. "They don't want to see their core budget diminished"

The argument for a strong federal commitment to the photomask industry and others like it is plagued by the industry's rush toward globalization. "If X-Y-Z chipmaker calls a government agency head or an undersecretary, they say, 'That's the way we do business nowadays -- it's a given,' " says Peckerar. "That's the problem that we've been up against all along."

Peckerar believes there should be a government office or an organization that can respond to these kinds of economic threats. "There was an undersecretary in the Pentagon for Economic Security, but that office was abolished. So there isn't a good vehicle or a good mechanism to handle this."

The Photomask Industry Working Group was hoping to receive substantially more money than the $1.75 million provided by Congress, due to the increasing costs associated with staying at the leading edge of the technology "We have been petitioning the DOD that this is a strategic technology that they need to support," says Scott Mackay, spokesman for the Mask Industry Working Group and an executive with Photronics Inc. "We have been briefing anybody we can get a hold of as much as possible, but we haven't gotten access to the top level guys who can make it happen and the bottom level guys are saying their budgets are fixed. That has been our struggle." The Role Of The U.S. Photomask Industry In National Security (Selected portions of a PowerPoint briefing by the Mask Industry Working Group)

Why the Mask Industry is Critical To U.S. National Security:

  • Semiconductors impact every aspect of a warfighter's mission: secure communications; surveillance/intelligence; smart weapons and precision targeting, navigation and guidance.
  • Mask technology sets the performance, capability and reliability of semiconductors.
  • If the integrity of masks used to make semiconductors in mission critical systems was compromised, U.S. national security would be at risk.

Today All Sources of Mask Writing Tools Are Foreign

  • This was not true three years ago, when a U.S. company, Applied Materials, dominated the field.
  • In semiconductors, the technology migration path has been from the U.S. to Japan to Korea/Taiwan to CHINA.
  • What if in the future we have to let the Chinese have access to our most sensitive data?
  • Once we lose mask infrastructure technology, it will be virtually impossible to recapture leadership.

U.S. Mask Industry Is Losing Market Share to Japan, Why?

  • The Japanese government has made masks a priority.
  • Heavy government subsidy over the past five to seven years.
  • Development focused on 'key' technology -- electron beams (write and repair) and inspection.
  • Strong partnerships fostered between equipment suppliers, mask makers and mask users.
  • Through consortia, Japanese mask makers gain early access to tools and capabilities, which enables them to erode U.S. market share.

Foreign Government Technology Subsidies Hurt U.S. Companies

  • Japan: Supports both advanced and commercial developments through cost sharing -- MIDI, NEDO, SELETE, ASET -- $270 million per year.
  • Europe: Provides grants for competitive proposals -- MEDEA+ approved projects can receive EU-wide, national-level and local funding; Funding is also available through the EU Framework Program.
  • United States: Funds basic research only; commercially oriented work left to industry which is pressured to focus on near-term returns.

What Has the Mask Industry Done in Response?

  • Applied internal resources at a formidable rate:
  • Industry investment in tool development runs at about $1 billion per year or 20 percent of gross revenues;
  • Semiconductor industry averages 8 percent;
  • Manufacturing sector average 3.2 percent.
  • Pursued all available external funding at NIST's Advanced Technology Program, DARPA and International Sematech.
  • Came together as an industry group to address the issues.
  • Intense competitors are cooperating because the stakes are so high.
  • Realized that success requires a focused government effort to help counter the assistance provided to our foreign competitors.

Where We Need Help:

  • Advanced blank supply: All advanced mask material comes from Japan, which favors Japanese mask fabs, R&D alliances and early support agreements between Japanese mask fabs and blank suppliers.
  • We need a domestic mask blank supplier.
  • Advanced mask lithography infrastructure:
  • Lithography- Recapture e-beam leadership and keep pace with evolving laser-based tools;
  • Inspection -- Enable U.S. to maintain market leadership in the face of Japanese spending to leapfrog;
  • Repair -- Develop technology to support repair geometries that are shrinking faster than line size.
  • Suppliers -- Assist merchant shops in acquiring early access to advanced tooling to stay on the advanced development roadmap.

How The Government Can Help

  • Accelerate the development of state-of-the-art mask making tools by purchasing alpha tools and supporting R&D.
  • Support the formation of a domestic mask blank source.
  • Incentives to merchant mask fabs for acquiring state-of-the-art tools.

Expected Impact of Government Support

  • Tool manufacturers will be able to pull in development times by six to 18 months; one semiconductor generation is 18 months.
  • A domestic source of advanced mask blanks will be established.
  • Tool manufacturers will be able to respond effectively to foreign-government subsidized competitors.
  • National security will be maintained through continued ability to control what goes into the chips and what is known about the design of the chips by our adversaries.

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