by James Montgomery, News Editor
An infusion of new fresh investments from chipmakers, particularly memory firms, has caused Gartner Inc. to hike its outlook for capital spending in 2006 — but better growth this year will come at a steep price for the near future of the equipment industry.
Adjusting its numbers, Gartner now says that capital equipment spending is on pace to increase nearly 25% in 2006 to $42.35 billion, nearly double the 14.3% it forecasted in April, and three times the growth rate it expected at the start of the year. Overall semiconductor capital spending is seen rising 16.6% to $55.28 billion, vs. 8.8% growth forecasted in April and a slight -0.4% decline predicted in January.
Most of the improved outlook is for wafer fab equipment (WFE), with worldwide spending seen growing 25.4% to $32.6 billion this year, an improvement from 11.2% in April projections and just 3.3% forecasted in January. Next year Gartner sees WFE spending peaking in 1Q07, and then declining through the year as chipmakers digest new capacity coming online, ultimately shrinking 4.4% through all of 2007 to $31.42 billion.
Gartner slightly lowered its outlook for backend equipment, however. Packaging/assembly equipment sales are seen growing 17.5% this year to $4.93 billion, vs. 19.8% growth projected in April and 22% in January projections, and will slump 8.6% to $4.50 billion n 2007. Automated test equipment growth is still seen at roughly 29% this year to $4.88 billion, paced by memory and system-on-chip (SoC) testers. But in 2007, instead of a 27% hike as forecasted in April, Gartner now expects a -1.2% decline in ATE sales to $4.80 billion.
Overall capital investments are still largely controlled this year, but once again capacity overinvestment in both DRAM and NAND flash memory is causing alarms. Combined, the two memory segments now account for more than 44% of all anticipated equipment — but relative revenue for those memory devices amounts to only 22% of semiconductor revenues, according to Klaus Rinnen, managing VP for Gartner’s semiconductor manufacturing and design research group. “This seems like a sure-fire road to potential overcapacity and future reductions in expenditure,” he said, in a statement. In a presentation, Rinnen noted that memory spending will peak at >40% of total wafer fab equipment spending from 2005-2006 — combined, DRAM and flash capacity additions were 49% of total additions in 2005 (37% DRAM, 12% flash). By 2007, the combined additions will be about 41%, with DRAM pulling back to 24% of total and flash increasing to 17%.
Also being watched are inventory levels, which Gartner says have swelled to near-warning levels again, nearly where they were in 1Q05. The firm’s “semiconductor inventory index” clocked in at 1.08 in 1Q06, rising above expectations to the high range of what the firm deems normal inventory levels at 0.95-1.10. Any further rise in 2Q could lead to a cutback in production in 2H06, and inventory levels could increase into the “moderately inflated” level (1.10 to <1.20) if chip demand does not materialize as anticipated.
The wave of spending in 2006 is expected to reverse into a small retraction in 2007, but it will quickly ramp back up again into a strong 2008, according to Gartner. The firm forecasts a -3.3% decline in overall semiconductor capital spending to $53.27 billion, down from a 1.2% growth projection sent out in April, and moderate 9.9% growth from the firm’s year-opening forecast. The capital equipment market is seen declining -4.5% in 2007 to $40.4 billion, as chipmakers cut back spending in response to slowing device production growth. However, the decline will be relatively short — the firm sees the decline starting in 2Q07, but with growth returning in 2008 with 20% growth.
Keeping options open, Gartner aimed alternative projections for 2006 and 2007 wafer fab equipment spending that are both more positive and negative than what it calls the most likely scenario (with 60%-70% probability). At worst, 2006 WFE spending will be about 19% higher than 2005 (deemed a 15% probability), followed by a 10.6% decline in 2007 (20% probability). At the high end, WFE spending could accelerate to 32.3% growth this year (15% probability), and eke out a 2.1% gain next year (also a 20% probability).
Worldwide semiconductor capital and equipment spending forecasts (US $B)
Category: 2005, 2006, 2007, 2008, 2009, 2010, 2011
Semiconductor capital spending: 47.40, 55.28, 53.47, 64.30, 61.28, 60.19, 69.77
Growth (%): -2.2, 16.6, -3.3, 20.3, -4.7, 1.8, 15.9
Capital equipment: 33.94, 42.35, 40.44, 50.34, 45.56, 46.77, 55.60
Growth (%): -10.5, 24.8, -4.5, 24.5, -9.5, 2.7, 18.9
– Wafer fab equipment: 25.97, 32.56, 31.42, 38.42, 35.64, 35.79, 42.48
Growth (%): -8.4, 25.4, -4.4, 23.4, -7.2, 0.4, 18.7,
– Packaging, assembly equipment: 4.20, 4.93, 4.50, 5.69, 4.95, 5.35, 5.92
Growth (%): -12.3, 17.5, -8.6, 26.3, -13, 8.1, 10.6
– Automated test equipment: 3.77, 4.86, 4.80, 6.23, 4.97, 5.64, 7.21
Growth (%): -21.2, 28.7, -1.2, 29.9, -20.2, 13.4, 27.9
Other spending: 13.46, 12.93, 13.03, 13.96, 15.72, 13.42, 14.18
Growth (%): 27.5, -3.9, 0.8, 7.1, 12.6, -14.6, 5.6
WaferNews source: Gartner Dataquest