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Chipmakers to curb equipment shopping spree in '07

Posted: 24 Jan 2007 ?? ?Print Version ?Bookmark and Share

Keywords:industry forecast? semiconductor equipment? semicon equipment? IC equipment market? semicon equipment market?

Coming off a near-record year in 2006, the semiconductor equipment industry may be entering rougher waters in 2007, analysts said at the recent Industry Strategy Symposium (ISS) in California.

At the ISS, VLSI Research Inc. slightly lowered its growth forecast for the IC equipment industry in 2007. Gartner Inc., IC Insights Inc. and Semico Research Corp. separately gave lackluster, single-digit forecasts for worldwide capital spending, but the research houses also projected a rebound in 2008.

Part of the problem could be a potential bombshell from Samsung Electronics Co. Ltd. The world's largest buyer of capital equipment is projected to cut its capital spending by 15 percent in 2007, according to a report issued by Susquehanna Financial Group LLC. The report projects Samsung's overall capex budget at $6 billion this year, down from $7.05 billion in 2006.

Samsung, the world's largest supplier of DRAMs and NAND flash, is getting hit with a double whammy, as both of those memory types may be in oversupply. That is prompting a pullback in capital spending, according to Susquehanna.

Overall, most analysts foresee a flat to a slightly up year for capital spending. "It's going to be a slow year, but not a bad year," said Brett Hodess, an analyst with Merrill Lynch & Co. Inc.

Susquehanna issued arguably the most bearish forecast, saying that overall capital spending would decline by 5 percent in 2007 after having jumped 16 percent in 2006. Last year was "an equipment-heavy year, with wafer fab equipment spending up nearly 30 percent," said Daniel Berenbaum, an analyst with Susquehanna. "We expect a rebalancing toward bricks and mortar in 2007, which contributes to our expectation for wafer fab equipment spending to decline 8 percent."

A slow year in semiconductor equipment could accelerate the shakeout now going on in the industry. Last week, metrology-equipment giant KLA-Tencor Corp. kicked off the merger season by acquiring cash-strapped and loss-ridden rival Therma-Wave Inc. for $75 million. Then, Tokyo Electron Ltd. (TEL), the world's second largest supplier of semiconductor production equipment, announced it had acquired Epion Corp., an emerging supplier of gas cluster ion-beam technology.

Rumors are running rampant that TEL has been pondering the idea of buying Novellus Systems Inc. Novellus is also a possible private-equity buyout target, sources said. Other companies appear to be takeover targets, such as Asyst, Brooks Automation, FEI, Unaxis, Varian, Veeco and a host of others.

Sea change
Just which company is next on the merger block is unclear, but without a doubt, a sea change is taking place in the semiconductor equipment world. Until recently, IC makers procured equipment in the various cycles on a whim and without paying relative attention to the growth forecasts in the industry. During the slow times, IC makers were caught with too much capacity, causing unhealthy, boom-to-bust cycles. But more recently, chipmakers are generally procuring equipment on a more rational basis, leading to flatter cycles, moderate growth rates and less turbulence.

This is not to say that cycles are a thing of the past. In some cases, there are cycles within cycles. Last year, Richard Hill, chairman and chief executive of Novellus, summarized the order patterns for the semiconductor equipment industry in 2006: "In like a lion and out like a bobcat."

In other words, fab tool orders were strong in the first half of 2006 and noticeably slowed in the second. But for 2007, orders are projected to be somewhat muted or slightly up in the first half. After that, it's anybody's guess.

"I don't think anybody can see past six months," said Michael Martinez, vice president of corporate marketing at equipment supplier Aviza Technology Inc.

So, the forecasts for capital spending and equipment are all over the map. One of the few bulls is Strategic Market Associates, which projects that capital spending will jump 9 percent to $60 billion in 2007. The firm expects 29 fabs to come online and begin volume production this year. The value of those fabs when fully equipped will exceed $44 billion.

Most see little or no growth for 2007. VLSI Research predicts the equipment market will grow at 4.8 percent. "Orders are cooling," said Risto Puhakka, president of VLSI Research. "This is the year the industry takes a breather."

Semico Research estimates that capital spending was up 16 percent in 2006, but it projects that worldwide expenditures will grow only a modest 4 percent in 2007. Fab capacity is already in place after a massive buildup in 2006, said Jim Feldhan, president of Semico. "I think we'll see TSMC and others turn off the spigot," he warned.

Gartner expects worldwide capital spending to grow a mere 1 percent. "Weakness in semi demand could trigger rapid cutbacks in capex," said Klaus Rinnen, an analyst with Gartner. There will be some big spenders in 2007, said Bill McClean, president of IC Insights. "Some of the second-tier DRAM makers in Taiwan are getting aggressive," he said.

Spending in China and India is expected to be a disappointment. At one time, China was projected to build some 30 fabs, while India was expected to be the next big semiconductor production base. But India will see "little or no change" in its fab count, McClean said. And "thirty fabs in China? Baloney. That is not going to happen."

The outlook is brighter for 2008, which is expected to break the one-year record of $60.3 billion set in the boom year of 2000, according to the firm. Next year, capital spending is projected to jump 24.5 percent, to $68.5 billion.

"The next record capex total in 2008 should be on more solid ground, with no enormous surge, like in past boom years," said Robert Lineback, an analyst with IC Insights. Now for the bad news: "We are currently forecasting a 1 percent decline in 2009, after the 2008 cyclical peak year for the semiconductor industry," Lineback said.

- Mark LaPedus
EE Times

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