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Firm cuts IC expenditure projections for '08, '09

Posted: 10 Oct 2008 ?? ?Print Version ?Bookmark and Share

Keywords:IC forecast? capital spending? consumer market?

Gartner Inc. is expecting that the IC industry capital spending will decline 25.7 percent in 2008 and 12.8 percent in 2009, before growing to 16.7 percent in 2010.

Gartner is the recent market firm to slash its capex forecast amid a global economic slowdown and ongoing overcapacity in the chip memory sector.

"Capital spending is sliding across-the-board, with all segments seeing a decline in capital spending in 2008 and 2009," said Gartner analysts in a report. "The oversupply in memory, along with a low turnover consumer market caused by uncertain economic pressure offers little hope for an upside until 2010," it added.

Shrinking scenario
Bob Johnson, one of the Gartner analysts who made the forecast, said the capex decline for 2008 will be the highest for the chip industry since 2002, when overall expenditures decreased by 35 percent after shrinking by 30 percent in 2001.

"The chip industry's capital intensity has been reset from around 20 percent of revenues in late 1990s and early 2000s to about 15 percent going forward," Gartner said. It added that this event will have a significant impact on the IC equipment companies' future profitability.

The projection calls for global IC capital spending to be roughly $33.5 billion in 2008 and $30.5 billion in 2009. Capex will suffer from a CARG of -2.1 percent from 2007 until 2012, based on the forecast. "The industry will not match 2007 capex of $44.7 billion until the end of the forecast period in 2012," Gartner noted.

Sliding lower
Gartner first predicted that IC capital spending would decline 19.8 percent in 2008. The firm in July modified the predicted decline to 22.4 percent.

Revenues for the wafer fab equipment segment will decline 26.1 percent in 2008 and another 11.9 percent in 2009, according to Gartner's forecast. The firm sees the packaging and assembly equipment segment to decrease 18 percent in 2008, but will increase 1 percent in 2009. "The ATE segment will fall 26.7 percent in 2008, but will grow 5 percent in 2009," the report noted.

"The IC market needs to brace for a longer downturn while the device makers adjust supply to meet slowing demands," Gartner said. It added that the industry needs more mergers and acquisition activities. "The industry is ripe for consolidation, not just in the memory sector, but also in the fabless and consumer sectors," the analysts claimed.

The need for resilience
"Equipment suppliers will have to endure a slower-than-expected 2009 and be prepared for potentially fewer customers to be available when the industry recovers," Gartner said.

"IC unit shipments will increase by nearly 10 percent in 2008, but falling average selling prices are causing revenue growth to be closer to 4 percent," it added. "Long-term growth rates for the semiconductor market have been moving toward sustained single-digit rates for some time, a trend that is likely to continue," it noted.

Johnson said the chip industry revenue and spending will soon recover on a quarterly basis by 2H 09, but that 1H numbers will be low enough to drag the industry into negative growth for the year.

"The logic and mixed-signal firms have been on a gradual downturn for the last couple of years," he added. "The trend would have probably bottomed out in 2008 if not for a global economic slowdown," he noted.

Slow memory growth
"Commodity memory revenue growth will be virtually stagnant until 2012," Gartner said, despite increasing unit volumes and continued capital investment. "DRAM revenue is expected to decrease 44 percent in 2008 and 14 percent in 2009," it added. "NAND flash revenue will slide 23 percent in 2008 and 22 percent in 2009," the firm noted.

Gartner said it expects capital spending by chip foundries to fall 29 percent in 2008 and another 15 percent in 2009. "Foundry spending will continue to be stagnant as the competition for leading devices becomes stronger," it added. The firm noted that fabless companies will remain conservative in shifting to the next-generation technology node, and in most cases skipping nodes to amortize design and mask costs over two generations.

Spending by IC assembly and test services companies, which Gartner included in the total capex forecast for the first time, will decrease only 10.8 percent in 2008, according to the forecast.

Late last month, Needham and Co. lowered its forecast for 2009 IC capex to negative 16.1 percent from negative 2.5 percent.

Last week, Semi reduced its 2009 chip capital spending forecast to a decline of 5 percent to 10 percent after saying it expected the market to be roughly flat. Semi expects that 2008 capital spending will decrease 20 percent.

- Dylan McGrath
EE Times

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