Gartner Downgrades 2008 Capex Spending Forecast
David Lammers, News Editor -- Semiconductor International, 4/16/2008
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Gartner Inc. (Stamford, Conn.) today announced a downgrade to its forecast for the semiconductor capital equipment market, predicting a 19.8% contraction for this year and a “stable but lackluster” outlook over the next several years.
| Gartner Inc. predicts a 19.8% decline in semiconductor capital investments this year, a downward revision from three months ago. |
Investments will decline to $47.53B this year from $59.26B last year. The downward revision announced today was compared with a decline of 13.2% predicted three months ago for 2008. Klaus Rinnen, director of Gartner’s semiconductor manufacturing research group, said a sharp reduction in capital spending by DRAM vendors and the “now virtually certain” U.S. recession caused the downward revision.
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| Semiconductor investments will drop to $47.53B this year from $59.26B last year. (Source: Gartner Inc.) |
Rinnen said DRAM vendors may cut spending by nearly half (47%) this year, a $10B reduction. “The long-expected cutbacks in DRAM spending have materialized. While it might sound harsh, those cutbacks may be what is needed to get DRAM supply back to where it should be. The Taiwan DRAM vendors as a group had a very aggressive plan for 2008, but they cut and chopped those plans to pieces.”
The forecast now calls for 7.4% growth in capital spending in 2009, followed by a 12.5% increase in 2010, a decline of 7.2% in 2011, followed by 8.4% growth in 2012. That compares with an average annual growth rate of just 5% for the semiconductor market between 2007 and 2012, going from $269B last year to $344B in chip revenues in 2012.
NAND market facing dangers
NAND flash spending is expected to increase 3% this year, making 2008 “the first time in history that NAND may exceed investments for DRAM,” he said. That will continue next year as NAND spending accounts for 24.9% of all 2009 capital investments, while DRAM accounts for 23.1%. Memory will continue to account for more than half of wafer fab equipment spending through 2012, after peaking at 57% of total investments last year.
Rinnen, in a telephone interview, said he has concerns that NAND vendors could get into an oversupply situation. Multilevel cell NAND flash is being used in more applications, which in effect adds bit capacity and “makes a more dangerous situation” for NAND suppliers.
“There is a very big danger of NAND oversupply. The risk is rising rapidly. We could be in the beginning stages of a similar situation to the DRAM market, where we have had these cycles over and over,” Rinnen said.
Last year, Toshiba Corp. (Tokyo) and its partner Sandisk Inc. (Milpitas, Calif.) pushed up against their NAND capacity limit in the second half, and there were discussions about allotments. That caused both companies to sharply increase investments this year, with Toshiba boosting spending plans to $3.379B, a 17% increase compared with 2007. Sandisk will increase NAND spending by 25% to $2B this year.
| Toshiba and SanDisk are increasing investments this year after maxing out NAND capacity in the second half of 2007. (Source: Gartner Inc.) |
By contrast, the alliance of Elpida Memory Inc. (Tokyo), Powerchip Semiconductor Corp. (Hsinchu, Taiwan), and the joint venture Rexchip Electronics Corp. (Taichung, Taiwan) will cut their combined DRAM spending by 41.8%. Those types of DRAM cutbacks, combined with a 20% increase in bit growth and a healthy increase in PC sales, may create a balance of DRAM supply and demand, he said.
NAND capital investments depend in part on consumer spending plans. Mark Stromberg, Gartner’s packaging and assembly equipment analyst, said, “So long as the U.S. recession doesn’t spread worldwide, there may be a rebound in the third and fourth quarters” for the companies he tracks. A shift to third-generation double-data rate (DDR3) DRAM will help the test equipment vendors some, he said.
SATS rebound underway
Jim Walker, the Gartner analyst who tracks semiconductor assembly and test services (SATS), said, “The possible good news is that a bottom may have been reached in February. March sales for Taiwanese companies have improved, exhibiting a 5-15% increase over February.”
Year-over-year monthly sales have also been positive, he said, noting that Advanced Semiconductor Engineering Inc. (ASE, Kaohsiung, Taiwan) March 2008 revenue was up 12.8% compared with March 2007, while revenue for Siliconware Precision Industries Co. Ltd. (SPIL, Taichung, Taiwan) was up 7% for the same period.
| Assembly operations are beginning to show revenue increases, driven by strong unit shipments of PCs and cell phones. |
“Year-over-year [2007 vs. 2008] growth in the first quarter for the SATS companies as a group was up almost 8% on average, indicating that the industry remains somewhat resilient to the macroeconomic conditions thus far,” Walker said.
One reason is that semiconductor unit growth will be up because of PC unit growth projected at 10.9% and cell phone unit growth projected at 8%.
“PC and cell phones alone should keep total 2008 growth positive. The transition to 65 nm is starting to impact ASIC and ASSP revenue growth as well,” Walker said.
Rinnen took a less sanguine view of semiconductor unit growth. “The industry has enjoyed six to seven years of double-digit increases in unit growth. This year, I don’t believe it will be 10%. I think we will break that streak.”
Next year should be “somewhat better,” Rinnen said, although that depends on recovery from the current recession and an improved demand-side picture.
Overall, the next few years may see an increase in the number of mergers and acquisitions, both within the equipment and materials sector and among the chip manufacturers. “Most companies are good at managing these cycles, so I am not worried about bankruptcies. However, companies with low stock market valuations may be taken over by companies with high valuations. We will see some mergers, some shakeout activities,” Rinnen said.
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Really struggling to understand why the tech stocks are rallying today. Intel is a great company and has done a great job, but downward revisions from TEL, AMD ASML, and Elpida's failure to get the 20% hike they were bragging about surely shows the Gartner report to be a more likely indicateor for the whole sector than Intel.
William Lynne - 4/16/2008 3:45:00 PM CDT
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