Equipment Sales Have Bottomed Out and Are Now Moving Up
By George Burns, Strategic Marketing Associates
The most severe recession to hit the advanced industrial economies since the 1930s is bottoming out. Coincident with this is a turnaround in chip sales which will likely continue growing this year and next. As a result, equipment sales have turned around as well. Buoyed by the need to begin equipping new fabs coming online next year, equipment sales and capital spending will see positive growth for the rest of this year and in 2010.
Led by gains in the Asia Pacific region, the three-month moving average of chip sales in May posted their third straight month of growth, growing by 5.8 percent to $16.5 billion, according to the SIA. Sales in April and May were not only positive, but also well above average.
In May, the three-month moving average of equipment sales was up for the first time in 14 months, by 1.4 percent to $949 million, according to SEMI. We expect the growth in equipment spending to continue well into next year. Capital spending, the industry's broadest measure of spending will grow by 31 percent next year.
The total value of new fab activity this year will be $13.2 billion, more than three times that of last year's $4.2 billion. We expect as many as five $1 billion plus fabs to begin construction by the middle of 2010.
By the third quarter of 2010, the pipeline of new billion-dollar-plus fabs that have been on a slow build schedule, or have been put on hold, will begin coming online. These billion-dollar-plus fabs include the second module of GlobalFoundries Fab 1 in Dresden which will begin volume production in the second half of 2010. Intel's Fab 68 in China and Samsung's Line 16 are two other examples of fabs that will begin volume production in the second half of next year. The second half of 2010 should see more than $25 billion worth of new fabs begin volume production.
The value of new fabs beginning volume production was as high as $16 and $18 billion in the third and fourth quarter of 2007 (see Figure 1 on next page). However, since then, the value of new fabs coming online has generally been quite low. (In Q1 and Q2 of this year, the total value of fabs coming online was just $350 million.) We expect the value of fabs coming online this quarter to rise to $3 billion and then fall again until the third quarter of next year.
Figure 1: Little Growth in New Fabs Beginning Production Until 2H 2010; But Rise in Equipment Spending Is Starting Now
The fabs that come online in the second half of next year should begin to have an effect on equipment makers’ bottom lines this year. This is because equipment move-in for these new fabs needs to be well underway in the first half of next year. Indeed, Samsung is already reportedly starting to place orders for its newest 300mm memory fab.
Reflecting these fab schedules, SEMI's FabFutures most recent forecast of equipment spending has equipment spending bottoming out in the second quarter of this year at $2.9 billion and then rising throughout 2010. Their latest numbers forecast almost $6 billion in sales by the third quarter of next year (see Figure 1). Strategic Marketing Associates anticipates equipment spending will be well over $7 billion by the fourth quarter.
This year, capital spending will be $23.3 billion, 43 percent below 2008 and 60 percent below its most recent peak of $60 billion in 2007 (see Figure 2). Next year's spending should see the beginnings of the next “up-cycle” with capital spending growing by 33 percent to $31 billion. The biggest growth— both on a percentage basis and in absolute terms— will be in spending by Asia Pacific companies.
Asia Pacific companies will account for 40 percent of all capital spending next year, surpassing that of U.S. companies.
Figure 2: Capital Spending Will Grow by 33 Percent in 2010
Long-term economic trends point to the economies of Asia Pacific outgrowing those of the G7 nations. The semiconductor industry mirrors this trend with chip sales growth in Asia Pacific outpacing that in the U.S., Europe or Japan. Next year, we expect almost three-fourths of the fabs (measured in value) beginning construction will be in Asia and it will be Asia-based growth that powers capital spending past the $40 billion mark in 2011 or 2012.
August 3, 2009