Analyst issues soft warning on orders, utilization in 3Q

June 22, 2006 – A combination of near-term excess capacity additions particularly for NAND flash, relatively stable demand, and peaking fab capacity utilization levels will result in a decline in semiconductor manufacturing equipment orders in the next quarter, although the slowdown won’t be quite as dramatic as some fear, according to a new analyst report.

Susquehanna Financial Group semiconductor analyst Kevin Vassily says the firm is maintaining a “slightly bearish cyclical view” on the market. An anticipated slowdown in the coming months won’t be severe or long-term — “we do not believe the wheels are coming off the bus,” he stated.

The firm predicts that 3Q equipment orders will be broadly down 10% sequentially, with a peak-to-trough order decline of about 30% — a much milder fluctuation than the recent ~65% peak-to-trough increase. Memory conversion “is still the name of the game,” with orders not declining as sharply as feared despite excessive NAND flash capacity additions. The firm estimates that only about 40% of DRAM manufacturing has been upgraded to 300mm operations, and that promises of ~40% cost/die savings on 300mm vs. 200mm, there’s still a lot of opportunity for at least PC DRAM to move to 300mm, with specialty DRAM staying behind at 200mm.

Wafer starts at foundries appears “flattish” instead of a seasonally normal 5% quarter-on-quarter growth, the firm noted. While first-tier Taiwan foundries are still doing brisk business for leading-edge processes, second-tier foundries are struggling to find customers. “This is somewhat negative for equipment companies that might be counting on renewed foundry bookings to buffer 2H orders,” the firm noted.


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