What a Roller Coaster! Fab capex—2008 Down, 2009 Up
Memory makers must accelerate capex to gain momentum for a big market to come
By Christian Dieseldorff, SEMI
In November last year, the SIA forecasted worldwide chip sales growth of +7.5 percent for 2008. Meanwhile, total worldwide capex is predicted to be down by over 16 percent, according to Gartner’s latest downward corrected forecast from February 2008.
These trends do not contradict each other. The Average Selling Prices (ASP) for NAND Flash (8Gb MLC) declined by 45 percent from December 2006 to December 2007, and ASP for DRAM (512Mb DDR2) declined by 85 percent in the same timeframe. Sandisk predicts for NAND a reduction in ASP/MB of 50 percent this year and 40–50 percent between 2009 and 2010.
With prices down, device customers are happy and keep buying, while the device makers make less money and struggle with profitability. At the point where device makers lose money, they need to scale back or postpone any large capital intensive projects, so in the current market environment device makers have pushed out spending plans “until market conditions improve.”
However, the semiconductor market is very competitive. In the run for market share, the one who is first makes the most money. In the history of our industry, this cycle repeats time after time. After a cycle with positive growth rates for capex for the device makers, we are facing now a huge slow down in 2008. But the next big upward cycle is in sight.
NAND Flash Driver demand (such as Mobile phones, MP3 players, PCs and USB Drivers) is predicted to grow to from 1.9 Trillion MB in 2007 to over 39 Trillion MB in 2011. Remember, this demand was only 3 Billion MB in 2001. The CAGR for 2007 to 2011 is over 111 percent. So, if companies want to stay in the market, they need to fasten their safety belts and prepare to ride the rollercoaster.
To keep or even gain market share, memory device makers cannot afford to postpone any projects for a long time. Spending on equipment can show a lag of 3–6 months before the equipment is fully integrated into the fab and full potential in capacity is reached. It takes even longer to build a new fab. Typically, it takes one year from groundbreaking until a building is ready for equipment move-in. Then it takes another 3–6 months until the line is ready for volume production. So, the device makers must eventually invest in order to stay in the competitive race for the long term prize.
The Fab Database reports are a bottom-up approach to market analysis, with remarkably consistent trends in the past years, showing how much of the total capex goes into fabs and where it is spent. These reports give an outlook into future developments (next 6 quarters) by listing current and future fab construction projects and equipping fabs. Much new construction and capital investment for equipping fabs are being pushed out to the end of 2008 or into 2009. This makes 2008 a very slow year. However, 2009 looks to be a very strong year, because the projects delayed from 2008 will come on top of the already planned projects for 2009.
The reports reflect a sobering assessment of the first quarter of 2008; even the second quarter does not look good for capex spending for Front End fabs. The direction of capex spending will start to change towards the end of 2008, and grow much more steeply further into 2009.
The latest edition of Fab Database reports published in February shows a decline in spending for fab construction projects of 9 percent in 2008 (a precipitous drop from +8 percent in 2007 spending). This downward trend picks up speed, and may accelerate to -20% in 2008.
Figure 1 illustrates how severely construction spending will decline in 2008, reaching the lowest point in first quarter of 2008, and then increases towards the end of 2008 into 2009. Data support a current forecast of positive double digit numbers for construction spending in 2009. Only two regions show positive growth in 2008 for construction spending, South Korea (with Samsung and Hynix) and Southeast Asia (mainly IM Flash and Chartered).
In 2008, 12 new volume fabs are expected to start construction. When fully operational, these will represent a total capacity addition of 1.53 million wafers per month (wpm) in 200 mm equivalents. The five biggest spenders on fab construction projects in 2008 are expected to be Samsung, the Flash Alliance (Toshiba/Sandisk JV), Hynix, Rexchip (Elpida/Powerchip JV) and Powerchip.
Spending on equipping fabs is illustrated in Figure 2. At the end of October 2007, the Fab Database reports forecasted a 10 percent decline for 2008 (from +9 percent growth in 2007). The analysis in the February edition confirms this, and shows an even further reduction in equipment spending to -15 percent decline in 2008. This trend may even accelerate to over -20 percent, by the time 2008 comes to a close.
In 2008, 88 percent of all spending on equipping fabs will go to equipping 300mm fabs. The Fab Database predicts nine 300mm volume fabs will begin operation in 2008. Foundries are expected to slow their spending in 2008 by about -10 percent, Memory more than -15 percent and Logic/MPU more than -30 percent.
Figure 2 illustrates an upward trend in spending on equipping fabs, towards the end of 2008 into 2009. Right now, 2009 is forecast to show double-digit growth, just as in fab construction spending. What a roller coaster!
Capacity is still growing year-over-year, but its growth has slowed, as expected, following the decline in spending on fabs equipping. While 2007 had a 20 percent growth rate in worldwide capacity, coming from Front End fabs, 2008 shows only about +10 percent additional capacity growth.
Memory keeps steadily building its capacity share, from 38% share of the market in 2007 to 41 percent share in 2008. Most memory capacity is found from Japan, who holds over 24 percent, followed by South Korea, Taiwan, and the Americas.
The Fab Capacity report and Fab Futures report make in-depth analyses of capacity (as well as technology and products) down to each fab and forecasts for the next 18 months. These tools are invaluable for understanding how 2009 looks, and learning more about capex for construction projects, fab equipping, technology level, and products.
Please visit www.semi.org/fabs for additional information on these reports.
March 5, 2008