Gartner Says Worldwide Semiconductor Capital Equipment Spending On Pace to Grow 66 Percent in 2004
However, Industry Must Brace for Slight Decline in 2005
STAMFORD, Conn., October 6, 2004 — Worldwide capital equipment spending is on pace to grow 66 percent in 2004. But, despite this strong growth, the industry will begin to experience a downward cycle in 2005, according to Gartner, Inc. Capital equipment spending in 2005 is projected to decline 0.6 percent.
"We expect a downcycle in 2005 driven by supply and demand issues," said Klaus Rinnen, vice president for Gartner's semiconductor manufacturing and design research group. "We do not expect a semiconductor device unit contraction, but rather a slowing in the pace of expansion, which, combined with new capacity additions, would lead to a supply-demand imbalance."
While there are concerns for 2005, 2004 is turning out to be one of the best years for the semiconductor capital equipment market. Wafer fab equipment (WFE) revenue is on pace to rise 72 percent, while packaging and assembly equipment (PAE) revenue will grow 49 percent (see Table 1). Automated test equipment (ATE) revenue will increase by 52 percent in 2004.
Table 1
Worldwide Semiconductor Capital and Equipment Spending Forecasts (Millions of Dollars)
2003
2004
2005
2006
2007
2008
Semiconductor Capital Spending
29,661
45,652
45,826
38,428
41,760
62,801
Growth (Percent)
7.5
53.9
0.4
-16.1
8.7
50.4
Capital Equipment
22,824
37,967
37,734
29,025
32,145
47,812
Growth (Percent)
10.3
66.3
-0.6
-23.1
10.7
48.7
Wafer Fab Equipment
16,742
28,829
29,085
22,387
23,932
36,360
Growth (Percent)
3.5
72.2
0.9
-23.0
6.9
51.9
Packaging and Assembly Equipment
3,060
4,553
3,915
3,333
4,433
6,107
Growth (Percent)
30.5
48.8
-14.0
-14.9
33.0
37.8
Automated Test Equipment
3,021
4,585
4,735
3,305
3,780
5,345
Growth (Percent)
39.4
51.7
3.3
-30.2
14.4
41.4
Source: Gartner Dataquest (October 2004)
Worldwide semiconductor wafer fab utilization reached 94.8 percent at the end of the second quarter of 2004, up from 93.2 percent at the end of the first quarter. An excess inventory burn that began in the third quarter broke the advance of utilization rates, leading to a first but small decline to 94.7 percent.
"As manufacturers trim production levels to reduce further excess inventories in 2004 and as added capacity comes online, these high rates will not continue," Mr. Rinnen said. "Utilization rates should drop below the 90 percent level in the seasonally weak first quarter of 2005. While seasonal demand growth in the second and third quarters will buffer the impact of capacity in motion, rates will decline in late 2005 and bottom out in the first quarter of 2006 in the low 80 percent range for all production before beginning to climb again."
The "hot spots" for growth in 2004 include the foundry market, with 96 percent capital spending growth, focusing on the logic segment. And memory-related investments, especially in dynamic random-access memory (DRAM), remain above market.
"Regionally, Asia/Pacific investments are projected to grow more than 80 percent compared with 2003 as a result of these two spending hot spots," Mr. Rinnen said. "Spending in Europe should rise about 50 percent, driven by increases in Germany, France and the United Kingdom, but also because Intel is readying its Fab 24 in Ireland. Japan should continue its expansion following the 2001 to 2002 restructuring and add another 39 percent to its 2003 investments. And lastly, spending in North America has accelerated. Growth for 2005 now stands at 30 percent, partially driven by non-U.S. company investments. Overall, spending in the Americas is muted, especially when considering recent history, as the region continues its move offshore and collaborates more with others outside the home region."
Additional information is available in the Gartner Dataquest Alert Semiconductor Capital Equipment Hot in 2004, but Likely to Cool. This report provides detailed analysis on market conditions in 2004, as well as a long ranger perspective on the overall industry. This report is available on Gartner's Web site.
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