David Lammers

A Six Flags Kind of Memory Ride
July 11, 2008

Bob Johnson, semiconductor manufacturing analyst at Gartner Inc., says there really isn’t any way around it: the equipment industry will recover when the memory makers do. Until then, it is going to be a “Six Flags kind of ride,” the veteran analyst said after Gartner issued a downward revision to its semiconductor capital equipment forecast for this year, predicting a 22.4% contraction.  

What about solar? Johnson said there are only a few semiconductor equipment companies which are “active players” in solar. “Solar is a simple process compared with semiconductors,” he said, adding that photovoltaics “won’t take up the slack” from a downturn in leading-edge chip equipment.

While some vendors are following Applied Materials’ lead into solar, he noted that Applied is leveraging its expertise in display manufacturing equipment, where the ability to process large glass substrates aimed at flat-panel TVs translates fairly easily into thin-film solar cell manufacturing. “There is not going to be enough demand from solar to make up for the ills caused by the memory pullback.”

Johnson also wasn’t biting on the hopeful idea that a rebound in foundry spending would ease this year’s pain. Memory investments will decline from ~$35B in 2007 to ~$24B this year. Foundry investments are projected to decline from $7.2B to $5.2B. “Even if the foundries turn on spending in the second half, that billion dollars or so is not going to make that much of a difference overall,” he said. TSMC is cutting from $2.5B last year to $1.8B this year. UMC will go from $900M to $600M, equaling the tepid spending levels expected from SMIC and Chartered this year.

The foundry problems started at the 90 nm node, when many customers looked at the cost of designs and decided to delay. The adoption of 90 and 65 nm leading-edge design rules has been “much slower than in the past. Design costs are going through the roof,” Johnson noted, adding that the embedded system software to run a complicated system-on-a-chip design also is becoming difficult to develop.

“The foundries have shifted their business model from one that says, ‘We will put in the (leading-edge) capacity and the customers will come,’ to one that says, ‘When the customers come we will add the necessary capacity.’” At 45/40 nm, for example, TSMC will put in a line and then wait to see how many customers will use it.

NAND is another issue. Though NAND investments are stronger than DRAM, any contraction in NAND is disappointing. The Gartner forecast calls for memory spending for 2008 to decline 32.1% from 2007, with DRAM down 40.5% and NAND flash down 17.8%. The situation is fluid as Samsung and others realign priorities between DRAM and NAND. Samsung strides over the chip industry, with plans to spend $7.5B this year, which compares with Intel’s $5.2B, Hynix’s $2.2B, and Micron’s surprisingly strong $2.14B. The combination of Toshiba ($3.53B) and Sandisk ($2B) is what is keeping Samsung running hard. Johnson said Gartner believes Samsung spent $1.3B on the Austin fab expansion in the first quarter alone.

As a result of the current pullback on memory capital expenditures, DRAM pricing will be fairly good in 2009 and 2010, but then oversupply may occur again in 2010 and 2011.

Inventory levels are high, and the world economy is a big concern. Global Insight, the company which provides macroeconomic data to Gartner, is predicting worldwide GDP growth of 3% this year and just 2.9% in 2009. “The problem is that consumers are shifting money that they might spend on electronics into filling their gas tanks,” he said. 

Oil capital Houston may not have a problem, but some of the rest of us do.

Posted by David Lammers on July 11, 2008 | Comments (0)