April 19, 2006 – After hitting a low point at the end of 2005, capital equipment investments by semiconductor firms is expected to pick up again in 2006 with 14% growth, nearly twice as much as earlier predictions, according to new forecasts from Gartner Inc.
Gartner originally projected an 8.6% increase in equipment capex this year, but now sees a 14.3% increase thanks to increases in spending plans in the memory segment, especially from aggressive second-tier DRAM producers, stated Klaus Rinnen, managing VP for Gartner’s semiconductor manufacturing and design research group. Since December, the top 20 semiconductor manufacturers have tacked on nearly $6.3 billion to their capex budgets — nearly two-thirds of that attributable to memory manufacturers, responding to increased demand for DRAM and NAND flash devices.
On the whole, though, most semiconductor manufacturers are maintaining discipline and investing cautiously, placing orders only when required by end-market demand. “Seasonal demand patterns will determine equipment spending trends for the near future,” he stated.
Most of the $2.4 billion in extra funds flowing directly to equipment suppliers this year will be for frontend fab tools, a segment now seen growing at an 11% clip to $28.88 billion, vs. initial expectations of 3.3%, according to Gartner’s projections. The firm essentially flip-flopped its outlook for fab tool investments this year and next year, initially pegged at an 11% increase in 2006 and slowing to ~3% growth in 2007.
Capex projections for the backend segment remain essentially unchanged, with packaging/assembly equipment rising 20% this year, and automated test equipment (ATE) up nearly 30%. Backend capacity is still tight, due to issues with raw material supplies and new environmental regulations, as well as demands brought by the transition to advanced packaging methods such as quad-flat no-lead, system-in-a-package, flip-chip, and 3D (stacked) die, according to Rinnen. Also, substrate capacity has become particularly tight for BGA, flip-chip, and CSP packages.
Demand for testers for systems-on-chip and memory, especially flash, will swing ATE sales to a 30% climb in 2006 after a 21% drop in 2005, according to Gartner, adding that increased outsourcing of test to SATS companies also is contributing to the ATE growth cycle.
Overall equipment utilization rates remained at around 90% in 1Q06, and will stay above the 90% mark throughout the year, Rinnen added.
Gartner also hiked expectations for 2008, the perceived next cyclical peak for the industry. Overall capital equipment investments and frontend fab tool purchases are seen increasing >30% in 2008, with 15%-25% gains in backend segments. Gartner expects 2009 and 2010 will see substantial contraction in the industry, with 8%-10% declines in frontend capex each year, and 10%-30% drops in backend segments.
The outlook also has brightened for total chipmaker capex (not just equipment). Gartner now expects 8.8% growth in 2006 to $51.72 billion, instead of roughly flat projections in December. Gartner has lowered its outlook for total capex in 2007 to 1.2% ($52.34 billion), but sees an even more robust comeback in 2008, with a 33.9% increase to $70.01 billion. That will be followed by two years of decline: -7.5% to $64.85 billion in 2009, and -8.2% to $59.53 billion in 2010.
WORLDWIDE SEMICONDUCTOR CAPITAL AND EQUIPMENT SPENDING FORECASTS (US $M)
2005 2006 2007 2008 2009 2010
Semiconductor capital spending 47,521 51,716 52,344 70,079 64,852 59,527
(% growth) -2.0 8.8 1.2 33.9 -7.5 -8.2
Capital equipment 33,937 38,779 41,791 54,756 47,727 43,223
(% growth) -10.5 14.3 7.8 31.0 -12.8 -9.4
Wafer fab equipment 25,967 28,875 29,943 40,588 36,363 34,283
(% growth) -8.4 11.2 3.7 35.5 -10.4 -5.7
Packaging and assembly equipment 4,197 5,028 5,648 7,064 5,704 5,095
(% growth) -12.3 19.8 12.3 25.1 -19.3 -10.7
Automated test equipment 3,773 4,875 6,200 7,105 5,660 3,845
(% growth) -21.2 29.2 27.2 14.6 -20.3 -32.1
Other spending 13,584 12,937 10,553 15,323 17,125 16,304
(% growth) 28.7 -4.8 -18.4 45.2 11.8 -4.8
Source: Gartner Dataquest