SMT & Inspection | December 10, 2008

Semiconductor Equipment Spending to fall to Six-Year Low in 2009

Following a dismal 2008, global spending on semiconductor manufacturing equipment in 2009 will fall to its lowest level in six years, due to weakening conditions in the chip and electronic equipment markets, according to iSuppli.
iSuppli anticipates that worldwide capital spending by chip makers on semiconductor manufacturing equipment in 2009 will decline to $35.2 billion, down 17.6 percent from 2008. This will mark the lowest level of spending since 2003, when semiconductor capital spending amounted to $33.8 billion.

The decline in 2009 revenue will extend the downturn seen in 2008. Through the first three quarters of 2008, capital expenditures were down by 15.3 percent compared to the same period in 2007. iSuppli anticipates that by the end of 2008, capital expenditures will fall to $42.7 billion, down 21.1 percent from $54 billion in 2007.

The figure presents iSuppli’s forecast of global semiconductor equipment expenditure between 2004 - 2009:

While the market for semiconductor-manufacturing gear was already showing signs of weakness in the second quarter of 2008, the extent of the market vulnerability really became apparent as the worldwide economic and financial crises flared up in the third quarter.

“At the start of the second quarter, semiconductor equipment providers were still reeling from the sharp cuts in capital expenditures from the major memory chip suppliers,” said Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli.

“Because of this, capital expenditures in 2008 already were depressed, with virtually no semiconductor supplier continuing to spend at historical rates. However, by the end of the third quarter, market demand virtually stopped as global uncertainty driven by the threat of the collapse of the financial markets threw consumers into a tailspin. Companies throughout the electronic supply chain began to report declining sales and falling profits. The impact on semiconductor manufacturing was immediately apparent, with falling factory utilizations and significant reductions in capital spending, especially for capacity expansions.”

Capital disappointment
For semiconductor equipment makers, the sudden market collapse comes as a major letdown compared to previous expectations.

While the semiconductor industry as a whole remained in an overcapacity position at the start of the second quarter of 2008, there remained a strong potential to achieve supply/demand equilibrium with just a modest increase in demand. Because of this, semiconductor suppliers and chip equipment makers were looking forward to 2009 with the anticipation of modest growth. Leading-edge chip manufacturers were rushing toward the 28/30-nanometer process technology nodes. In the background, the migration to next-generation, 450mm wafers was becoming a hot topic.

However, all these expectations flew out the window as the severity of the economic and electronics downturn became apparent in the third quarter.

Long-term impact
Beyond the downturn, an expected key growth driver for the global semiconductor equipment industry has failed to materialize: massive capital expansions for new capacity in China. China has been unable to establish a technological manufacturing base that requires the use of advanced technologies and expensive new semiconductor manufacturing equipment.

However, the chip and chip equipment market in the future will recover and achieve new growth. “The chip market eventually will rebound as the global economy stabilizes and consumers regain confidence,” Mr Jelinek predicted.


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