August 16, 2006 – As chip equipment suppliers enjoy solid demand for tools in recent months, sales might drop down to single-digit growth rates sooner than expected, according to a new report from Strategic Marketing Associates (SMA) and Wright Williams and Kelly Inc.

A new quarterly forecast from the two firms suggests annual sales growth of semiconductor manufacturing equipment will decelerate to about 5% by mid-2007, followed by a 17% growth rate over the next four years. June quarter equipment sales were nearly 60% ahead of the same quarter a year ago, noted George Burns, SMA president. Indeed, the firms’ new FabFutures report sees equipment spending estimates up 5.6% since the previous version in April.

However, Burns noted that the industry still follows historical cyclical patterns, suggesting a slowdown is right around the corner. The report cites weakness in 2Q earnings from big-name semiconductor manufacturers, including Intel, AMD, and Qualcomm, as well as lower growth rates for consumer electronics products (Dell and Nokia also posted slow 2Q financials). “Weaker earnings suggest that contrary to reported enthusiasm, equipment spending may actually slow,” according to the report.

Burns added that current projections show the slowdown will be short-lived, with equipment sales strengthening by mid-2008 as chipmakers add production equipment to support more advanced process technologies. Flash memory is seen as a primary growth driver for the semiconductor industry, the report notes. Consumer electronics demand also remains strong, seen with an average annual growth rate of about 19% over the next five years, more than a percentage point higher than growth for equipment sales.