The forecast: Chilly at first, then warming

By Hank Hogan

Spring may be around the corner, but the prediction is for a chill to continue for at least the first half of the year. After that, things might warm up. That’s the consensus forecast with regard to semiconductor equipment sales. There are those, however, who think the outlook is much bleaker. On a brighter note, cleanroom consumables used for semiconductor manufacturing–silicon wafers, wipes, gowns, and so on–should grow.

The difference arises because consumables are needed for daily production, while equipment is a capital expenditure. Thus, the former tracks semiconductor run rates and those look good.

“The expectation of a number of analysts following the semiconductor industry is for growth in both semiconductor units and revenues in 2008. Demand remains strong for electronics in general, thus semiconductor devices and the materials needed to fabricate such will grow in sync with that demand,” says Dan Tracy, senior director of industry research and statistics for the semiconductor trade organization SEMI (San Jose, CA).

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The latest SEMI predictions are for a 12.4 percent growth rate in 2008 for world-wide wafer fab materials, a category that includes wafers, chemicals, gases, and other items. That’s healthy, even if it is down slightly from the 15.3 percent estimate for growth in 2007.

In contrast, capital equipment spending is forecast to decline, at least for the first half of 2008. Based on data from 60 North American equipment companies, SEMI has been showing a book-to-bill ratio of less than one for months. The ratio has bounced between 0.8 and 0.9 since mid-2007, meaning that fewer new orders were booked than those that were shipped, or billed. Equipment orders for Japanese manufacturers have also declined over that same time frame.

Gartner (Stamford, CT), a technology-oriented market research company, predicts a 9.9 percent spending decrease, with sales falling from $44.8 billion in 2007 to $40.3 billion in 2008. Three-quarters of that spending will be in wafer fab equipment. The 10 percent decline is in line with SEMI’s recent book-to-bill ratio. Gartner expects sales to pick up in the second half of the year as DRAM memory chip supply and demand come into balance.

A number of reasons are cited for this lessened spending, not the least of which is that last year was a good one for equipment sales. “Even with the declining orders since early 2007, 2007 will be the second highest spending year for semiconductor equipment, second only to 2000,” says Tracy.

He adds that the ramp in 300-mm wafer technology has driven equipment spending and wafer sales over the last half decade. This year will be the tipping point, with 300-mm fab capacity finally surpassing that of 200 mm.

Not all firms are as upbeat as Gartner. Advanced Forecasting (Saratoga, CA), a semiconductor market analysis company, issued a warning about the upcoming year. President Moshe Handelsman notes that his firm uses only quantitative tools to generate its predictions, which it sells to clients. For that reason, he won’t go into detailed numbers, but the situation could be significantly worse than current expectations, says Handelsman. “The numbers are really negative.”


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