Electronics Production | May 07, 2009
Global semiconductor manufacturing utilization to rise in 2Q
The global semiconductor manufacturing industry is expected to take one small step back from the precipice in the second quarter, as utilization rises for the first time in a year, according to iSuppli.
Utilization of worldwide semiconductor capacity is expected to rise to 60% in the second quarter of 2009, up from 49% in the first quarter. This will mark the first quarterly sequential increase in total semiconductor utilization since the second quarter of 2008. “The expected rise in utilization rates in the second quarter signals the semiconductor industry has entered into the recovery phase,” said Len Jelinek, director and chief analyst, semiconductor manufacturing for iSuppli. “Semiconductor suppliers already have cut their fab workforces and have shut down pieces of manufacturing equipment that they have identified as excess gear that is not needed to serve the present low level of demand. These actions are paying off, boosting utilization rates at these fabs.” Because of these headcount reductions and equipment shutdowns, total semiconductor manufacturing capacity declined to 732 million square inches of silicon in the first quarter of 2009, down from 756 million square inches of silicon in the fourth quarter of 2008. With capacity having come into better alignment with demand, utilization is expected to rise to 75% in the third quarter of 2009 before experiencing a modest decline in the fourth quarter. After remaining flat in the first quarter of 2010, utilization will resume a sequential ascent during the following quarters. On the demand side, semiconductor manufacturers late in the first quarter reported minor improvements in order rates. “The results of these actions will be manifested in the form of improving margins for semiconductor Integrated Device Manufacturers (IDMs) and pure-play foundries in the second quarter,” Jelinek said. “Depending on how effectively they’ve cut costs and adjusted to reduced demand, companies will be able to show their investors solid financial improvements, especially in terms of cash flow.” For the overall semiconductor industry, rising utilization sets the stage for more solid chip pricing in the future. This could help the chip industry to return to revenue growth in the coming quarters. Figure 1 attached presents iSuppli’s forecast of global semiconductor fab utilization. The five stages of grief Chip production often is the focus of efforts to restore profitability among semiconductor firms because the way companies operate their factories and build their products is always the first place that controllers target for significant cost reductions. To manage this downturn, semiconductor manufacturers around the world are engaging in their customary five-step recovery program, as illustrated in Figure 2 attached. “In the first phase of the downturn, semiconductor capacity and utilization remains at a high level, although demand for chips is beginning to decline,” Jelinek observed. “The global semiconductor industry was in this phase in the second and third quarters of 2008. “In the second phase, amid dramatic reductions in demand and an inability among chip suppliers to forecast the time of a sustainable recovery, companies are forced into making decisions regarding factory operations. At this time, suppliers institute their first cut in the manufacturing workforce, usually in the form of reductions in machine operator staffing.” In the semiconductor manufacturing industry, it’s optimal for chip makers to operate on a 24/7 schedule in order to serve customers in a timely fashion. This forces chip makers to selectively shut down tools that are identified as excess equipment not needed to serve the current level of demand. Equipment depreciation is suspended on tools that have been shut down. The semiconductor manufacturing business was in this second phase during the period from December 2008 through February 2009. Enter stage three The action of shutting down some fab tools has two significant impacts on the metrics used to measure semiconductor manufacturing operations. The first result is that capacity decreases, although the tools that have been shut down have not been physically removed from the fab floor. The second impact is that factory utilization rises. This represents the third stage of the recovery, which is the current state of the global chip manufacturing industry. Depression turns to acceptance In phase four, as the semiconductor manufacturing industry recovers, chipmakers actually can achieve better margins than before the downturn. This is accomplished through a judicious use of working overtime by the existing staff to cover any short-term shortfall in capacity. During this period, fab utilization will continue to rise. iSuppli expects the semiconductor industry to enter this fourth stage in June 2009. Eventually, as chip makers see the return of backlog that can be used to generate an accurate manufacturing forecast, they will release their suspended manufacturing assets. This has the effect of increasing capacity with minimal actual capital investments. Although chip makers will restart the tool depreciation as the tools return to service, a portion of the depreciation has already been taken. This is stage five, when capacity utilization recovers to levels seen before the downturn. iSuppli expects stage five to commence around the end of second quarter of 2010.
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