Gartner Says Worldwide Semiconductor Capital Equipment Spending to Increase 24 Percent in 2006, But Industry to Decline 3 Percent in 2007

STAMFORD, Conn., October 5, 2006 — The semiconductor capital equipment market is experiencing robust growth in 2006, however recent softness in the semiconductor equipment book-to-bill ratio indicates that the rapid pace of investment is beginning to slow, according to Gartner, Inc.

Worldwide capital equipment spending is projected to grow 23.5 percent in 2006, but the industry will soften in 2007 as spending declines 2.7 percent (see Table 1). The industry will rebound in 2008, as capital equipment spending is forecast to increase 23.3 percent.

“Semiconductor capital equipment bookings have continued to surge throughout 2006 as semiconductor manufacturers quickly add capacity,” said Klaus Rinnen, managing vice president for Gartner's semiconductor manufacturing and design research group.

“However, there are a number of concerns for equipment manufacturers, such as an increasing inventory situation, the strong potential for oversupply in both flash and DRAM if an increase in demand does not materialize, and the delta between equipment spending and semiconductor revenue growth,” Mr. Rinnen said. “Combined, these conditions create a scenario that could lead to a slight correction next year.”

Table 1
Worldwide Semiconductor Capital and Equipment Spending Forecasts (Millions of Dollars)

	2005	2006	2007	2008	2009	2010	2011
Semiconductor Capital Spending	47,395.1	54,552.9	54,491.7	64,499.8	61,226.9	59,984.3	68,498.5
Growth (%)	-2.2	15.1	-0.1	18.4	-5.1	-2.0	14.2
Capital Equipment	33,936.7	41,924.2	40,787.6	50,295.2	45,018.0	46,647.8	54,707.8
Growth (%)	-10.5	23.5	-2.7	23.3	-10.5	3.6	17.3
Wafer Fab Equipment	25,967.1	32,349.6	31,659.7	38,561.5	35,374.1	35,861.5	41,641.6
Growth (%)	-8.4	24.6	-2.1	21.8	-8.3	1.4	16.1
Packaging and Assembly Equipment	4,196.5	4,767.6	4,412.9	5,608.7	4,753.9	5,241.3	5,976.2
Growth (%)	-12.3	13.6	-7.4	27.1	-15.2	10.3	14.0
Automated Test Equipment	3,773.1	4,807.0	4,715.0	6,125.0	4,890.0	5,545.0	7,090.0
Growth (%)	-21.2	27.4	-1.9	29.9	-20.2	13.4	27.9
Other Spending	13,458.4	12,628.7	13,704.1	14,204.6	16,208.8	13,336.5	13,790.7
Growth (%)	27.5	-6.2	8.5	3.7	14.1	-17.7	3.4

Source: Gartner Dataquest (October 2006)

Wafer fab equipment revenue will grow 24.6 percent in 2006, but 2007 revenue will decline 2.1 percent. Throughout 2006, total utilization rates will stay in the low 90 percent range, with leading-edge capacity remaining at about 97 percent. These high utilization rates will drive the need for additional capacity. However, by 2007, as new capacity comes on line, utilization rates will drop slightly, although they will stay at about 90 percent throughout 2007. This will result in a slowing demand for additional capacity as the industry absorbs the shipments from 2006.

The packaging and assembly equipment (PAE) market is forecast to grow 13.6 percent in 2006, and it will decline 7.4 percent in 2007. From mid-2005 through the first quarter of 2006, the PAE market remained strong as industry utilization rates improved. However, in the second quarter, the market realized a significant decline in sequential quarterly PAE sales. The orders picture for PAE seems a bit murky at this point because some semiconductor assembly and test services (SATS) suppliers have taken a more cautious, wait-and-see approach. Gartner analysts expect end-user device demand will soften as 2006 comes to a close.

The automatic test equipment (ATE) market will grow 27.4 percent in 2006, and this segment will experience a slight decline in 2007 of 1.9 percent. In 2006, the market’s strength is coming from all regions and most market segments, with memory and system-in-package (SiP) testers fueling the market's growth. Despite a solid first half of 2006, there has been a weakening in orders since then. Growth indicators from test service providers suggest pockets of weakness, although utilization rates for some segments, such as LCD drivers, remains high.

Additional information is available in the Gartner report “Semiconductor Capital Equipment Demand Still Strong, but Will Soften in 2007." The report is available on Gartner’s Web site at http://www.gartner.com/DisplayDocument?ref=g_search&id=496978&subref=simplesearch.

This research is produced by Gartner Dataquest's Semiconductors Manufacturing and Design program. This research program, which is part of the overall semiconductor research group, provides a comprehensive view of the entire semiconductor industry, from manufacturing and design to device and application market trends. More information on Gartner's semiconductor research can be found in the Gartner Semiconductor Focus Area at http://www.gartner.com/it/products/research/asset_129175_2395.jsp.

Contact:


Christy Pettey
Gartner
+1 408 468 8312
christy.pettey@gartner.com


About Gartner:
Gartner, Inc. (NYSE: IT) is the world's leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is the indispensable partner to 60,000 clients in 10,000 distinct organizations. Through the resources of Gartner Research, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 4,000 associates, including 1,200 research analysts and consultants in 80 countries. For more information, visit www.gartner.com.