Companies Roar Again – Fab Spending Growth to Reach 117 Percent in 2010
Spending for Memories Surges Again, while LEDs Brighten the Future
By Christian Gregor Dieseldorff, SEMI Industry Research and Statistics, San Jose, California (June 1, 2010)
It’s no surprise that fab spending will double this year. Back in June 2009, SEMI’s World Fab Forecast already predicted higher 2010 growth rates (_60 percent) than anyone else. Now the latest report predicts 2010 fab spending will reach 117 percent in 2010. Even now, as this article is being published, some rumors are surfacing about more capex increases to be announced, which may push growth even beyond 117 percent. However, celebrating this fast growth may be overshadowed by rising concerns.
Table 1 shows Fab spending with and without Discretes (which includes LED fabs). Construction costs typically account for 15-20 percent of total fab spending.
Table 1: Worldwide Fab Spending (Construction and Equipping) over time, in US $ millions
* Discretes include LED fabs
LED Fabs Increase their Share of Discrete Spending
The solid state lighting (SSL) market is picking up. Jim Broderick (U.S. Department of Energy) recently observed that just two years ago, SSL accounted for only about 10 percent of products shown at LIGHTFAIR, whereas this year about 75 percent of products were SSL.
In fact, SEMI’s World Fab Forecast reports show that spending for LED-dedicated fabs will surge. Spending on LED fabs represented about 40 percent share of the total Discrete fab spending in 2006, but will increased to 90 percent share or more in 2010 and 2011. Obviously, the spending amounts do not compare to Megafabs for memory or foundries, but the growth rate is impressive.
Graph 1: Worldwide Fab Spending for Discretes and LED Fabs
The Spending Spree is Back
At the beginning of this year, it was clear that just a few companies would spend more than $1 billion in 2010. This has suddenly changed: some companies have announced record levels of capex plans. One may wonder where all the money comes from after the industry experienced a historically dreadful 2009.
How much of the announced capex actually goes into fabs depends upon the market situation, the product, and the company’s strategy (such as fab-strong or fab-lite). In general, 60-80 percent of announced capex goes directly into fabs. This year, however, a much higher percentage (70-95 percent) is projected to go directly into fabs. Last year most capex went for upgrades, but this year, more capex will be spent on rebuilding and building up capacity.
Table 2 lists companies who will spend more than US$ 500 Million on fabs in 2010, compared to data reported six months ago (November of 2009).
Table 2: Change of Predicted 2010 Worldwide Fab Spending by Company* since November 2009
* Currencies were converted to US$ Million, Fiscal Years were converted into Calendar Years. Elpida has majority share in Rexchip with 64%. IM Flash is Micron Intel (about half each), Inotera is Micron, Nanya (50% each). Renesas and NEC counted together. Hynix is with Wuxi
** Data from Feb 2010 report
Back in September 2009, six companies were projected to spend more than $1 billion in 2010, these companies were featured in the September 2009 article “The Battle of the Fantastic Six.” In November 2009, Hynix was added to that club. Since then, two more companies (counting Elpida with Rexchip) have joined the Billion Dollar club. These nine companies will have combined spending of over $26 billion, or almost 75 percent of all worldwide fab spending in 2010.
Graph 2 illustrates spending for equipping Front End facilities per quarter since 2006. After a severe dip in 2Q09, spending is expected to pick up. Although we experienced a strong increase in capex this year, the 2010 equipping spending (US$ 31 billion including Discrete fabs) is still below 2007 spending (US$ 38 billion) and 2006 spending (US$34 billion). By end of 2011, spending (about US$ 37 billion) for equipping facilities is closer though still lower than the 2007 level.
Graph 2: Worldwide Spending for Equipping Fabs by Product Type
Companies Roar Again – and LEDs Light Up
After a year of negative growth, installed capacity is expected to pick up again.
Table 3: Worldwide Installed Capacity with and without Discretes (in 200mm equivalent wafers per month)
Last year the industry underinvested. This year, spurred by business growth, robust demand, and strong chip prices, many companies have launched aggressive expansion plans. Most of the investments in 2010 are still for upgrades but we see investments for new capacity to increase. Foundries are expected to show an increase of installed capacity, growing 13 percent year over year from 2009 to 2010, and another 11 percent by 2011. After a year of memory loss (installed capacity decreased by more than -8 percent Year-over-Year in 2009), memory companies are starting to regain their position, rebuilding and growing. Installed capacity for memories will grow 9 percent from 2009 to 2010, and an additional 8 percent in 2011. Capacity for logic and analog, however, will grow less than 5 percent in 2010.
A New Wave of LED Facilities Lighting Up the Way
Since November 2009, SEMI has added about 26 dedicated LED facilities to its Opto/LED Fab Watch and World Fab Forecast reports. The growth rate for capacity for the LED industry is phenomenal with strong double-digit growth rates (year-over-year). LED capacity growth is expected to be more than 3 times higher than for memory and 2 times higher than foundry this year and next year (See Graph 3).
Graphs 3: Percent Change of Rate of Installed Capacity by Product Type
Following the Elation, Concerns Increase – But Someone Will Prevail
Everything grows so fast so quickly. Capex spending plans are revised upwards several times, new chip facilities are announced and an entire industry segment, LEDs, surges with new facilities and capacity growth never seen before. A key contributor to the latest adjustment in SEMI’s reports was Samsung, which nearly doubled its capex plans for 2010.
Some begin to raise concerns that chipmakers may face a backlash from their aggressive drive to boost investment. Such a move can result in another oversupply, which will erode their profitability over time.
Another concern is that certain equipment may not be able to meet the sudden rush in demand. The supply chain may be stretched and will have a hard time meeting the 100 percent or so growth. This bottleneck may slow down expansion and upgrade plans. Chip companies may compete fiercely for the services of equipment makers.
Time will tell if a new bubble is building up, or if this just a correction to meet demand after historic lows last year.
One thing seems to be clear: this is will be a banner year for the equipment and materials industry.
Please visit www.semi.org/fabs for additional information on these reports.
SEMI World Fab Forecast report provides from high-level summaries and graphs; in-depth analyses of capital expenditure, capacity, technology and products, down to the detail of each fab; and forecasts for the next 18 months by quarter. These tools are invaluable for understanding how 2010 and 2011 will look, and learning more about capex for construction projects, fab equipping, technology level, and products.
The difference between the SEMI Worldwide Semiconductor Equipment Market Subscription (WWSEMS) data and the World Fab Forecast and its related Fab Database reports is that the fab database reports track any equipment needed to ramp the fab, upgrade technology nodes, expand or change its wafer size whether it is new equipment, used equipment, or in-house equipment, while WWSEMS tracks only new equipment.
San Jose, California
June 1, 2010