July 8, 2005 – As the 2H05 begins, the next down cycle in the semiconductor capital equipment market is becoming more apparent, according to analyst Gartner’s recent report, “Semiconductor Capital Equipment Sales Face Soft Demand in 2H05.” Gartner will present a detailed industry outlook on July 11 at next week’s SEMICON West 2005 show.
Worldwide semiconductor capital equipment sales are on pace to decline 11.9% in 2005, with sales totaling 33.1 billion in 2005. All segments of the semiconductor capital equipment market are projected to decline in 2005.
“While the first quarter of 2005 marked the peak of the last upcycle, declining orders over the past few months and quarters paint a picture of slower sales for the rest of the year,” said Klaus Rinnen, research VP for Gartner’s semiconductor manufacturing and design research group. “Last year, equipment sales surged to correct for serious under investment in the face of strong semiconductor demand. Production capacity has now exceeded demand, and equipment manufacturers are settling down to shipment levels commensurate with longer-term growth trends for the industry. Therefore, we expect this to be a mild downturn.”
As the semiconductor industry moves into a slower growth period in its business cycle, the equipment industry is expected to respond with lower shipment rates required for slowing capacity expansion. “Overall, it appears semiconductor manufacturers are maintaining their investment discipline and investing carefully and in some cases strategically to gain market advantage,” Rinnen said. “We expect customers to spend cautiously, releasing orders late and hesitantly, until a strong demand trend can be established.”
Worldwide wafer fab equipment spending is projected to decline 9.6% in 2005. This market is forecast to decline in 2006 as well and return to positive growth in 2007.
Although utilization rates were dropping quickly in the 4Q04 and the 1Q05, Gartner analysts said wafer fab equipment shipments remained relatively strong. “This will result in new capacity coming on line during the middle of 2005 and will dampen the need for significant additional new capacity purchases until next year,” Rinnen said. “By the second half of 2006, increased semiconductor demand will lead to climbing utilization rates and drive a sustained capacity expansion through 2007 and 2008.”
The packaging and assembly (P&A) equipment market has performed better than previously expected. Worldwide P&A equipment is forecast to contract 16.5% in 2005. This is better than Gartner’s earlier projection in April of this year for a 23.5% decline.
“The P&A market will experience more positive conditions throughout the second half of 2005 as utilization rates tighten and move above the 85% mark,” Rinnen said. “The improved situation in late 2005 will help drive the market into positive growth for 2006.”
The short-term outlook for the automated test equipment (ATE) market has had a sharp reversal in recent months. What looked like a mild spending decline through 2005 has turned into a major spending contraction. The ATE market is now forecast to decline 21% this year, with weakness throughout all regions and product segments.
However, Gartner analysts said the sudden drop in spending means the ATE market is poised for an earlier start to subsequent recovery. The market is forecast to see growth of 25% in 2006, which should mark the beginning of the next industry growth cycle.