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Forecast: Chip sales, capital expenditures to rise

The Columbian
Published: January 24, 2010, 12:00am

There wasn’t much to cheer about in 2009 from semiconductor manufacturers, with the possible exception being that it could have been much worse than it was.

o 2010 worldwide semiconductor sales will grow 13 percent over 2009 to reach $255 billion.

o Spending on semiconductor equipment is expected to come back strong, with 53 percent growth due in large part to the “Fantastic Six” semiconductor manufacturers including Intel Corp. and Taiwan Semiconductor Manufacturing Corp.

o Slimmed down PCs (Netbooks) will attract more consumer interest.

The 2009 preliminary year-ending forecast from Gartner calls for worldwide semiconductor sales to fall $29 billion or 11 percent from 2008 levels to $226 billion, which in turn was down $19 billion from 2007 levels.

This marks the first time in history the semiconductor industry had back-to-back yearly revenue declines.

o 2010 worldwide semiconductor sales will grow 13 percent over 2009 to reach $255 billion.

o Spending on semiconductor equipment is expected to come back strong, with 53 percent growth due in large part to the "Fantastic Six" semiconductor manufacturers including Intel Corp. and Taiwan Semiconductor Manufacturing Corp.

o Slimmed down PCs (Netbooks) will attract more consumer interest.

A year ago, when the semiconductor industry found itself in uncharted waters, wrestling with both a cyclical dip in business and an unprecedented economic crisis at the same time, research firms called for more than a 20 percent plunge. So an 11 percent decline in 2009 seems like “good news”.

Chip Sales

Gartner was not alone as many research firms revised their forecasts several times as market conditions continually improved throughout 2009. Gartner credits inventory replenishment, government stimulus packages, especially in China, and consumer electronic price elasticity as major contributors to making 2009 not as bad as originally forecasted. And for once, a surprisingly strong performance by memory chips (Flash and DRAM) helped bolster better-than-expected 2009 results.

Not withstanding a 2009 that was not as bad as originally forecasted, all semiconductor manufacturers have been broadly affected by the now two-year downturn, with only 27 of the 135 manufacturers tracked by iSuppli, a leading market research firm, expected to achieve revenue growth over 2008. Among the Top 10 manufacturers, only Samsung, the No. 1 supplier of DRAM and Flash, is expected to achieve growth in revenue in 2009 when the final numbers are tallied and that will only be a meager 1.3 percent.

An improving, albeit choppy, global economy and a new resiliency in the consumer market have analysts feeling more optimistic about 2010. Worldwide chip revenue is expected to bounce back to the same revenue level as 2008 at $255 billion, a 13 percent increase over 2009, according to Gartner.

Fab spending

With many chip fabs (industry parlance for factory) running at about half capacity during a good part of the past two years, spending on materials and equipment to make chips was shut down rather abruptly. While worldwide chips sales fell $48 billion, or 18 percent, over the past two years, the semiconductor equipment industry declined 46 percent in 2009 after falling 30 percent in 2008.

Not all chipmakers stopped making investment plans during the two year industry downturn. Christian Dieseldorff, of SEMI, the global semiconductor industry association of material and equipment manufacturers, points out that six companies that he dubs the “Fantastic Six” stayed active planning large investments that will come to fruition over the next two years. Two of the “Fantastic Six” have a significant presence in the Portland-Southwest Washington area, Intel and TSMC, parent of Camas-based WaferTech.

“Fantastic Six” investment plans coupled with fab utilization rates that started to climb in the second half of 2009 are much needed good news for chip equipment makers as we start a new year. Total fab spending is expected to increase to $24 billion in 2010, with the “Fantastic Six” expected to contribute more than half of the total spending, according to Dieseldorff, who points out that while an increase of 53 percent appears high, the increase is being measured against historic low spending in 2009. Even with $24 billion in spending, mainly earmarked for fab upgrades rather than capacity increases, it barely gets the chip equipment makers back to 2003 levels. With most 2010 spending on upgrades and little or no growth in capacity, coupled with an estimated 31 fab closures in 2009, there is some doubt if the chip industry can meet the 10 percent to 20 percent increase in demand in 2010 being forecast by various market research firms. The regions leading the way for construction and equipment spending is the Americas, followed by Taiwan and Korea.

Netbooks popularity

According to Bryan Lewis, Research Vice President at Gartner, personal computers are the single largest electronics application driving the semiconductor rebound in 2010, followed closely by mobile handsets. Computers sold with Windows 7, Microsoft’s new operating system that started shipping last October, had a positive impact on fourth quarter shipments. This momentum is expected to continue into 2010 as the economy recovers and IT spending increases after remaining stagnant the past 2 years. There also appears to be a major shift away from desktop PCs as more computer buyers opt for smaller and more portable PCs such as notebooks and the increasingly popular netbooks, which were introduced in late 2007. Netbooks, which will only account for about 11 percent of all PC shipments in 2010, is a rapidly evolving category of small, light and inexpensive laptop computers suited for general computing, e-mailing and accessing Web-based applications. They are optimized for low weight and low cost and since their introduction have grown in features and capabilities, making them on par with many heavier and more expensive notebook computers. Market acceptance of these small computers is such that Intel developed a specific processor chip called the Atom, optimized to run on these small computers, with other chip manufacturers following suit.

Looking beyond 2010

There’s nothing like a little self-reflection after surviving a harrowing experience and that is exactly what’s happening after the bruising the chip industry took the last two years. Many industry veterans are asking long, hard questions as they look to the future, especially on the transition to larger 450mm (18-inch) diameter wafers from 300mm (12-inch) wafers. Is it worth doing? Is it affordable? Who will benefit from it? On the face of it, a 450mm wafer is a better thing than a 300mm wafer. You can get 2.25 times more chips from a 450mm wafer than from a 300mm wafer, which is one way to improve productivity and reduce cost, once you get past the huge initial capital investment, which everyone agrees that only a few of the top 10 chip manufacturers can afford.

Nor can you ignore the huge upfront development costs that material, equipment and chip manufacturers must bear. While the industry grapples with the technology and financial headaches of the transition to larger wafers, the schedule for the first 450mm pilot line is in 2012, with production possible in 2014. This, of course, could be delayed, especially if all predictions of a 2010 industry recovery prove wrong.

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