IC Insights` McClean suggests `98 fab spending still high

Speaking at a SEMI-sponsored meeting in Burlington, MA, Bill McClean, president of IC Insights, Scottsdale, AZ, suggested that the semiconductor industry is in an unprecedented mode of overcapacity and pricing softness. Although 1998 capital spending could decline by as much as 10 percent, he said, it still exceeds the “optimal” 20 to 21 percent of sales level, and the overcapacity situation could be exacerbated as a result.

IC Insights` current forecast estimates 1998 semiconductor capital spending at 25.9 percent of IC sales, down from a record 32.2 percent in 1996 and 28.4 percent in 1997. The 1998 levels “will still drive to overcapacity,” said McClean. “It should be 21, or 22, or even 25 percent. In corrections in the past, in 1985 and 1990, it`s gone down to 18 percent.”

Moreover, fabs built in recent years are only now starting to come on line. “Companies that spend through downturns gain share in the upturns,” said McClean. “But if everyone spends through the downturn, there won`t be any upturn. It`s a big game of chicken.”

Both 1996 and 1997 saw a decline in IC unit prices (10 percent and 15 percent, respectively), an unprecedented occurrence. IC Insights predicts that 1998 will bring yet a third decline in unit prices, currently seen at 6 percent, but possibly as much as 10 percent. “The pricing out there is just brutal — 64 MB DRAMs are at $10 or less,” commented McClean.

One future bright spot, said McClean, is the 300-mm market, which he said will grow rapidly once the first fab is up and running. He predicts that over half the equipment sold in 2002 will be for 300 mm.