10 Significant Trends from ISS

The industry's leading analysts presented their outlooks for 1998 at SEMI's Annual Industry Strategy Symposium (ISS), held January 4-7 in Pebble Beach, Calif. Most importantly, analysts emphasized the importance that the Asian currency crisis is having on industry dynamics. Attendees could take with them 10 key messages regarding the current and near-term economic conditions:

1. Gradual recovery of semiconductor market in 1998
2. Fab overcapacity remains, spending is focused on technology transitions and 300 mm R&D
3. Economic crises in Korea and Japan not likely to find rapid resolution
4. Japan's personal computer (PC) demand drops in 1998, rest of Asia/Pacific also down
5. Rising volatility and uncertainty in PC market, despite new drivers such as sub-$1000 PCs
6. DRAM market could remain soft until mid-1999
7. High-tech fundamentals remain strong (accounted for 45% of economic growth in the United States over past three years)
8. Semiconductor industry experienced highest unit growth (up 23%) in 1997 since 1984
9. DUV lithography transition buffers slowdown in 1997-98
10. Revolution in new materials is occurring, faster "time to quality" and larger R&D budgets are required

Catto further estimated that the largest inhibitor to U.S. growth could result from Japan pulling the United States into a recession, or interest rate increases resulting from the U.S. government's possible overreaction to rising wages. In 1998, the Asia/Pacific region is expected to grow the fastest, at 6% real increase in GDP. Fundamental strengths in the region -- high savings rate, open markets and emphasis on education -- remain in place. Growth in Europe, increasingly driven by exports to Eastern Europe and Russia, the United States and Asia/Pacific, is growing stronger.

Bill McClean, president of IC Insights (Scottsdale, Ariz.), forecast a 16% growth in the semiconductor market in 1998, with a 14% increase in unit shipments. Key to this forecast is a 14% increase in the DRAM market relative to 1997's drop by 20% from 1996's level. McClean projected continued high rises in DRAM bit volume, which grew by 80% in 1996, 81% in 1997 and is expected to rise another 77% this year. IC Insights reported that the top 10 capital spenders in 1997 spent an average of 27% of sales (Table 1), with Intel more than doubling the spending of LG Semicon, the second largest spender.

Table 1. 1997 Top 10 Worldwide Semiconductor Capital Spenders ($M)

IDC (Framingham, Mass.) expects PC unit shipments to nearly double from 1995's level of 59 million to 114 million in 2000. Growth is fueled by individual and small business needs, Internet growth and sub-$1000 PCs. According to Eric Lewis, manager of Personal Systems Research at IDC, economic troubles in Asia will squash PC sales. Lewis suggested that deep-rooted problems in South Korea among very large, highly leveraged companies will take time to resolve. Japan, the source of loans throughout Asia, holds the key to recovery. China remains largely unaffected for the time being.

Clark Fuhs, director and principal analyst of semiconductor equipment, manufacturing and materials of Dataquest (San Jose, Calif.), called for a secondary dip in fab equipment revenues in the second quarter of 1998. He forecast semiconductor equipment capital spending of $43 billion this year, down slightly from 1997's level of $44.7 billion. Fuhs emphasized that spending this year will focus on 300 mm starts and upgrades of existing fabs as too many new facilities began operation in 1997 (46 fabs), expected to drop to 30 new fabs being brought on-line this year. Fuhs further pointed out that accelerated shrinks in DRAM devices are exacerbating the overcapacity issue. Dataquest does not expect capacity DRAM spending to drive the semiconductor market before mid-1999. One technology trend, the transition to DUV steppers and scanners (Fig. 2), is helping semiconductor equipment growth, which is expected to reach $22.7 billion in 1998, up only 2% over last year's level.

2. The rapid transition in lithography systems is buffering the equipment market slowdown.

Dan Rose, president of Rose Associates (Los Altos, Calif.), emphasized the increasing pressures on materials suppliers to develop and ramp-up production of new materials quickly, while meeting purity specifications and cost targets. Rose suggested that low R&D budgets among materials suppliers (typically 5% of sales) will likely cause missed schedules by semiconductor manufacturers attempting faster technology transitions and first moves to 300 mm processing. Materials changes are dramatic in front-end materials, expected to grow by 10% in 1998 (Table 2). These include the moves to copper interconnects, low-k interlevel dielectrics, 248 nm and 193 nm resists, prime polished to epi wafers and 200 mm to 300 mm wafers.

Table 2. Worldwide Wafer Fab Materials Forecast ($M)