Components | January 19, 2012
Fearless into a 'Doomsday' Year
Christian Gregor Dieseldorff, SEMI Industry Research and Statistics, examines Fab spending and capacity into 2012 and beyond.
The Mayans were highly skilled astronomers, whose “Long Count” calendar marks the end of a 5,126-year era. According to some interpretations of the ancient Mayan calendar, the world is going to end on December 21, 2012 of the Gregorian calendar (used in many countries such as Americas and Europe) because a series of events may lead us to “doomsday.” Some in the media are gearing up for a countdown to this mysterious prophecy. Could the ancient calendar really influence our modern digital world? The worldwide economy and, therefore, the semiconductor industry depend more upon consumer sentiment and confidence. Will a new “fear factor” affect 2012? Natural and human-made disasters have certainly affected 2011. How much companies invest in Fab spending depends on their revenue outlook, which in turn is dependent on the consumer. Economic uncertainties and political situations will influence consumer confidence and therefore any revenue outlook. In addition, natural disasters can interrupt supply chain at any economic situation with consumer confidence high or low. This could affect the price and availability of consumer goods. Economic and Political Situation Affecting Consumer Confidence The housing/debt crisis continues to drag into 2012, while the European debt crisis may worsen in 2012. The European Central Bank warned on December 19, 2011 that a perilous year is ahead. The interdependency of the global economy becomes apparent as world stock markets react sensitively to the recent developments in Europe. In addition, analysts expect the annual price for Brent crude oil to reached $111 per barrel in 2011, the highest annual price in 150 years. It looks like oil prices may stay high: in mid-December, OPEC oil ministers met in Vienna and decided to keep oil production at current level of 30 million barrels per day. Also, according to the Bureau of Labor Statistics, the average annual unemployment rate in the US was 9.2 percent in 2009. Two years later (2011), annual average unemployment is still about 9 percent in the US (8.99 percent at the end of November 2011). Unemployment worldwide is still at high levels. In 2012, many countries are facing elections such as U.S., China, Russia, France, India, Mexico and Finland. Natural Disasters Japan’s devastating earthquake and tsunami, and then flooding in Thailand affected the semiconductor industry. Thailand produces about half of the world’s supply of hard disk drives (HDDs). Flooding interrupted factories, and HDD shortages had an unexpectedly strong impact on some industry segments. Most computers sold for December were already built before the flood, so the full impact will not be seen until the first quarter of 2012. Some companies (such as Intel) have already warned of lower revenue in the fourth quarter of 2011, blaming HDD supply shortage. The more-expensive alternative to HDD is the SSD (solid state hard drives using Flash memory chips); however, short lead-time orders of SSDs were not enough to revive the NAND Flash market. Impact of Economic Uncertainties on Fab Spending Typically, the first quarter of each year brings seasonal decline in semiconductor industry revenues and a drop in capital expenditure. Given the current economic uncertainties and the potential impact on the consumer, we expect fab equipment spending to decline by about 11 percent in 2012. The declines in the first half of 2009 and the first half of 2012 appear to follow the same trend, with both years showing positive growth in the second half. However, the change rates for 2012 are not as sharply negative and growth will be much higher in the second half. Spending on Fab equipment is expected to drop in the first half of 2012, but will sharply increase in second half of the year to approach $10 billion by the fourth quarter. Total equipment spending for 2012 is forecasted to decline by about 11 percent, though 2012 spending will be at a much higher level than three years ago. 2012 Fab Equipment Spending Still Third Largest in 10 Years Spending in 2011 was so high that even with next year’s projected decline of 10.6 percent to $35 billion, 2012 will be the third highest spending in the last ten years. SEMI’s historic fab data shows total fab spending for 2011 to be about $39 billion. The next highest year was 2007 with $38 billion, so 2012, at about $35 billion, should reach third place. This “decline” scenario is still about $2 billion higher than 2010 spending. Worldwide, Korea is the only region expected to show growth in fab equipment spending in 2012, mainly due to expected spending by Samsung. Wild Cards: Samsung, Hynix The current forecast of about 11 percent decline in fab equipment spending for 2012 depends largely on the investment of the largest spenders. Most of companies have not published their plans for 2012 yet, though some companies such as GlobalFoundries have already outlined their strategies. However, Samsung, Hynix, and maybe Intel and TSMC are the wild cards. If their investment plans increase larger than anticipated, fab spending for 2012 may improve and the overall spending decline may be about 4 percent according to our analysis. Samsung is expected to spend more in 2012 than in 2011— fitting with its atypical spending history, spending more when other companies spend less. The company is gearing up for increased demand for iPad, iPhone, and other mobile electronics. Samsung has also allocated much more spending for System LSI/Foundry-business, more than ever seen before. Samsung is expected to increase installed capacity for its System LSI and Foundry business by over 30 percent in 2012, up from about 530,000 wafers per month (in 200 mm equivalents) at end of 2011 to about 700,000 by the end of 2012. Installed capacity for memory is expected to increase by about 10 percent in 2012.Samsung also announced a new Mega fab in China, which could break ground in 2Q12, meaning that expenditure for fab equipment will be seen in mid-2013. The first expectation for Hynix was that their spending would drop about 10 to 15 percent (YoY), or will it? There is some expectation that Hynix may actually increase spending by up to 18 percent, mainly to boost its NAND production. At the end of November 2011, SK Telecom signed an agreement to purchase 21.1 percent of Hynix share (effective 1Q12) worth about $3 billion, which may enable Hynix to increase its production and gain more market share. Intel’s revenue for 4Q11 was below expectations, due to HDD supply shortage, but still spectacular at US$13.7 billion. Looking back over recent years, Intel reduced capex from $5.2 billion in 2008 to $4.5 billion in 2009 in response to market conditions. In 2010, capex increased again to $5.2 billion; and in 2011, the company spent at an all-time record of $10.2 billion. Most of this expenditure will go into upgrading existing fabs. Intel’s profit in 2010 and 2011 was phenomenal, so even though 2012 will slow down, Intel may still look good. The company plans to ramp its 22nm fabs with tri-gate transistors, and targets 14nm production for 2014. Intel began construction of 450mm-ready fabs (D1X (D1E), and Fab 42). No major fab equipment spending for 450mm is expected in 2012 or 2013. It is likely that capex in 2012 will be lower than in 2011, but still be very high. We understand that Intel will make its next quarterly announcement on January 19, 2012, so its 2012 capex plan should be available at that time. TSMC showed an enormous capex increase in 2011a historic high of $7.3 billion. TSMC just broke ground on the third phase of Fab 15 and, and in mid-December 2011, purchased new land in Taiwan for the next generation of leading edge fabs. TSMC is expected to cut capex for 2012, mostly in the second quarter. TSMC is also pursuing 450mm fabs very aggressively; however, we do not expect any major fab equipment spending for 450mm until after 2013. Due to rapidly declining average selling prices, DRAM makers cut capex in 2011. Reduced capacity caused a better control on supply, stabilizing the spot price. In addition DRAM makers continue to upgrade to leading edge technology nodes. We expect fab spending for DRAM to pick up in second half of 2012. The NAND market also sees an over supply. It was hoped that rush orders for SSDs would lift the NAND contract price, but they were not high enough. However, we expect steady spending on Flash fabs though spending in second quarter of 2012 will decline some. After a year of spending sprees, foundries have also cut capex, beginning in the second half of 2011 and expected to into the first half of 2012. Spending has picked up for System LSI /Foundry fabs surpassing spending for DRAM the first time, mainly due to investments by Samsung. We expect fab equipment spending for System LSI/Foundry to be in the $5-6B range for Front End Fabs in 2012. Counting GlobalFoundries as a Foundry/Dedicated, spending for MPU is mainly driven by Intel, who will most likely adapt their spending to the demand, a seasonal slowing in the first half of the year. Who Adds More Capacity? The SEMI World Fab Forecast tracks installed capacity by fab, showing changes when fabs close and when product type or wafer size change. Despite the economic situation, 300mm installed capacity is expected to keep growing at a steady pace in 2012. In 2011, the installed for 300mm grew by about 13 percent (YoY), we expect a small slow down to about 11 percent in 2012 and increasing to about 12-14 percent in 2013. System LSI capacity will increase most by end of 2012 with about 19 percent (YoY) and we expect System LSI to surpass Analog by 2013. The increase of System LSI capacity is led mainly by Samsung’s push into this segment. Memory/Flash is the segment expected to show the second largest capacity increase in 2012 with about 14 percent, followed by Foundry with over 8 percent. Discrete/Power is in fourth place with almost 6%. The largest contributors to the increase for Discrete/Power are STMicroelectronics followed by Infineon. DRAM is expected to growth by about 3-4 percent in 2012. DRAM capacity is currently higher than NAND capacity, though by mid-2012, installed capacity for NAND will surpass DRAM for the first time. Most equipment spending for DRAM goes into technology migration; in NAND, spending goes for both capacity expansion and technology upgrades. Summary: A Rosy Second Half of 2012 Compared to three years ago, spending and capacity are much higher. After a dip in the first half of 2012, the industry spending should pick up by mid-2012. Spring induces warmer weather and more construction work and other economic activity. Politicians working elections in the US and in other countries will promise a better future, perhaps lifting consumer confidence and sentiment. By the second half of 2012, everything may look rosy again – unless Doomsday, December 21, 2012, looms larger than expected. We won’t be factoring a Doomsday scenario into our forecast, and a bit later this year, look for our 2013 forecast. ----- Author: Christian Gregor Dieseldorff, SEMI Industry Research and Statistics
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