February 2, 2010 – Breaking down the quarterly numbers and forecasts from top chip spenders TSMC and Samsung, analysts determine the main thrust is that the anticipated spending cycle isn’t peaking in 1H10 after all, and could instead become heavier in 2H10 and spill into 2011.
The multiyear cycle
Within Samsung’s report and conference call, according to FBR Research’s Mehdi Hosseini, was the view that industrywide semiconductor capex should be around 50%-55% in 2010, spilling over into 2011, "and thus making this spending cycle a multiyear one." Even with talk of strong demand, Samsung and other major capex spenders are still not quite sure what demand will look like after the Chinese New Year. Even if demand is strong in 2Q, though, increasing equipment lead times (notably immersion lithography tools, now at 9 months and counting) realistically push out extra capacity additions until 2011.
Barclays analyst C.J. Muse expands on the Samsung 2010 capex projection, specifying the company’s stated "more than 5.5T" is more like ~7T won ($6B+) in total semiconductor spending in Korea, plus another $590M to convert its Austin 200mm DRAM plant to 300mm NAND.
TSMC also is opening its wallet in 2010, pledging a record $4.8B capex vs. $2.67B in 2009 — confirming "a foundry arms race created by the disruptive and recent presence and technological capabilities of Global Foundries," claims Muse. A reasonably balanced 60/40 split in projected 1H/2H spending could easily become more backend-weighted, he says, since "in good years companies tend to ‘borrow’ from next year’s capex budget."
Where’s the ‘W’?
Another key takeaway, from both Samsung as well as TSMC ("surprisingly," notes Muse), was the message that the memory segment is enjoying healthy growth that should extend beyond the current quarter. This is key, because many had taken comments from Lam Research’s latest quarter with strong orders as a sign that chip tool demand is peaking, sparking fears of waning demand as the year progresses.
On the contrary, comments by Samsung and TSMC indicate 2010 spending will likely be split throughout the year, perhaps weighted in 2H — suggesting that there won’t be a peak in equipment orders in early 2010 as had been feared, the dreaded "W" market cycle. "The bears [had] not recogniz[ed] the impact of supply chain constraints that transpired in the Dec. quarter, thereby shifting some of the shipment demand to the Mar quarter," wrote Muse. Lam’s take, instead, was specific to its own situation with shipments pushed into 1Q and marketshare gains at Nanya/Inotera — and sentiments from other suppliers (e.g. Varian Semi. and KLA-Tencor) seeing shipments rising in 1Q, still positive in 2Q, and optimistic for 2H109 are "more indicative of what the broader semi equipment industry is seeing and that it is too early to call a shipment peak." On top of that add an anticipated recovery in NAND memory in 2H10 as well, "and we continue to see an upward trajectory for equipment shipments in 2010 and that 2011 will be a better year for capex than 2010," Muse writes.