Wafer fab equipment: Who’s spending in 2011-2012, who’s not

September 13, 2010 – For all the good cheer around semiconductor capex in 2010, some are suggesting the party’s almost over.

Gartner’s just-released forecast update pegs semiconductor equipment spending more than doubling (122%) this year — but slowing to 10% growth in 2011, and 7.4% in 2012.

But that might not be low enough. Barclays’ CJ Muse is reducing his capex estimate for 2011 to -10% (vs. +20%), with wafer-fab equipment spending slipping to ~$25B. Reason behind his new "subdued" outlook: "weakening demand outlook across the entire technology food chain," and softening trends particularly in foundry and DRAM, he writes in a recent research note. Muse says we’ve seen this pattern before: the 2004-2006 cycle, in which a strong year (60%+ in 2004) was followed by a period of digestion (flat in 2005), and then another strong year (19% in 2006).

Using "simple math," Muse calculates 3Q10 order runrates for WFE spending (US frontend equipment) of $26B-0$34B, which means $25B in total WFE spending in 2011 means frontend orders will soon reach a peak. "Orders will begin to rollover in the months of 4Q10 and potentially into 1Q11," he writes.

One thing Muse emphasizes as a big takeaway from what he calls "this demand-abbreviated cycle" is the small amount of capacity that has been added — only 0.3% in 1H10, citing SICAS statistics, and actually declining 11% since exiting 2009. Also by SICAS stats, leading-edge capacity (<60nm) added only ~500k wspm. So, no big overhang of capacity, shrinks are getting more difficult (more complicated tools for critical layers, e.g. immersion litho) means capital intensity is still growing — assuming there is a macroeconomic recovery into and through 2011, "we think this speaks to 2012 being a better year than 2011 for capex spending," Muse says. Key drivers to watch, NAND strength, DRAM demand elasticity as prices fall, and continued strong demand for smartphones and iPads, which drives business at foundries.

In general, Muse sees four trends supporting 2011:

Foundries are gearing up. There’s an "arms race" among foundries, Muse says, as GlobalFoundries and Samsung enter the fray to battle TSMC et al.

NAND demand holding up. There are three or four big projects on the boards that will be ramping up investments.

Korea rising. As the Koreans continue to rake in profits, they are spending on DRAM — more on technology (shrinks) than on new capacity.

Deep pockets in Taiwan. Nanya/Inotera will spend, too, helped by conglomerate Formosa Plastics.

Narrowing down 2011 capex trends by segment:

Logic, -5% vs. 2010. Led by Intel’s countercyclical investment cycle and 22nm ramp, but "roughly flat spending elsewhere." There looks to be less reuse at Intel, at least for lithography (with ASML upending some Nikon tools). Any negative impact could be from iPads eating netbook sales.

Capex: Logic, in US $M. (Source: Barclays Capital)

Foundry, -20%+ vs. 2010. Top foundries should see utilization rates become seasonally weak in 4Q10-1Q11. TSMC spending down -30% related to fabless pullbacks (e.g. Nvidia), though the foundry should increase yields during the timeframe. Muse notes, though, that TSMC CEO Morris Chang likely will switch on capex "at the first sign of macro clouds lifting." For UMC, spending should reduce as Xilinx shifts sourcing to Samsung and TSMC. On the other hand, Samsung LSI should increase its spending, and GlobalFoundries might only slip a little.

Capex: Foundry, in US $M. (Source: Barclays Capital)

DRAM, -15% vs. 2010. Seasonal weakness through 1Q11 as DRAM pricing rolls over, but "soft landings" for Tier 1 suppliers Samsung, Hynix, and Micron, the first two of whom should achieve or break $1/GB for DDR3 as they ramp their 4Xnm process technologies. Micron will reduce its DRAM capex (utilizing Nanya/Inotera for production), but look for Elpida/Rexchip/Powerchip to keep capex similar to 2010 levels to stay competitive. Samsung will continue to spend as Tier 2 competitors struggle for funding.

Capex: DRAM, in US $M. (Source: Barclays Capital)

NAND flash, +19% vs. 2010. Here’s where the money seems to be for 2011: NAND pricing is rolling over, Apple always needs more memory, and there are "well-financed projects" from Samsung (Line 16, $2.5B WFE), Toshiba/Sandisk ($2.0B WFE), and IM Flash ($1.5B WFE).

Capex: NAND flash memory, in US $M. (Source: Barclays Capital)


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