July 26, 2011 – Based on meetings and observations from this year’s SEMICON West, analysts Satya Kumar (Credit Suisse), Tim Arcuri (Citi), and CJ Muse (Barclays) — all panelists from the Thursday morning Bulls/Bears session — have some top-takeaways list for the industry: why WFE spending is slow, why it’s only a short pause, and which will comes first, EUV or 450mm.

The correction’s worse than thought… The consensus is that order pushouts are significant, causing caution among suppliers and weakness in 2Q11 and especially 3Q11. Kumar now projects 3Q11 orders will be below $30B-$34B (normalized) to $23B (annualized). Citi’s Tim Arcuri sees the "run rate" at around $20B, well below the $29B he deems "normalized." Wafer fab orders are down nearly -50% from peak levels in 4Q10, similar to the 2004 correction, he notes.

Kumar is lowering his full-year semi capex outlook again, just weeks after dropping his view to 7% growth (~$31B) from 15%-20%; now he’s thinking more like flat to up 10% to $29B-$32B. Likewise, Barclays’ CJ Muse is lowering its 2011 wafer-fab equipment outlook to $31B (7% growth), down from $33B. He’s maintaining his 2012 outlook of a "muted decline" of -3% to $30B.

Who’s to blame for the softness? Foundry spending is slowing and even pushing out orders, everyone seems to agree (analysts and suppliers). Arcuri points specifically to 28nm yield problems encountered by key foundry customers (QCOM, XLNX, NVDA) and delay of TSMC’s Fab 15, though he thinks "most of these issues could be resolved quickly, and we could see fab projects resuming soon" if end demand keeps up. Muse calls out TSMC and UMC for 2Q11 pushouts, and GlobalFoundries "and others" in 3Q11; GloFo’s problems extend beyond yield issues to its management uncertainty, he adds, and there’s confusion about investing in both Dresden and Malta operations. And there’s "no sign of life yet in DRAM spending" thanks to sluggish PC unit growth and ratcheted-down bit growth estimates, notes Muse: "any hope for DRAM recovery in 2H11 (as hoped for by AMAT, LRCX, etc. as of a few months ago) has evaporated, we believe, driving a more subdued 2H11 outlook."

Kumar, meanwhile, says weakness "is across the board," including not just foundry and DRAM but even NAND, all with softening orders over a six-month period (March-Sept.), and with all top equipment purchasers "showing signs of caution."

…But it’s just a pause. While all signs point to a soft 3Q for suppliers, this could only be a short-term correction. Total fab capacity is still -6% lower than 2008’s peak, while IC units are 33% higher, and only ~25% of announced new fab capacity has been equipped so far, Arcuri points out. That aforementioned run-rate gap (~$20B vs. $29B normalized) "is clearly unsustainable," he says, so he predicts a bottoming-out in 4Q11.

Muse too believes in a short-term "pause" in semicap, though his window of inflection for an orders rebound is a little wider, possibly leaking into 1Q12. The $40B WFE order runrate in 4Q10 was clearly a peak; today’s ~$22B runrate (by his calcs) is similarly too low, so there’ll be a ramp-up to get to $30B WFE in 2012.

Everyone’s seeing softness. ASML’s 2Q11 orders were