Industry Forecasts: A Few More Positive Signs

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Industry Forecasts: Positive Vibrations

At the SEMI Silicon Valley Lunch Forum on August 19, three top industry analysts confirmed the growing impression that the global semiconductor downturn has passed the low point and begun its rebound. The panel, which included Bill McClean (IC Insights), Dean Freeman (Gartner), and John Housley (Techcet) discussed recent evidence of an upturn in semiconductor production, and forecasted growth in equipment orders in excess of 30% in 2010.

Major Forces Shaping the Global IC Industry

Bill McClean, IC Insights

"The bottom of the current industry cycle was reached in 1Q09 with semiconductor industry capital spending forecast to be 33% higher in the second half of 2009 as compared to the first half! Don't be caught looking backwards, now is the time to prepare for the upturn at hand," states Bill McClean of IC Insights. He urges the industry to “Think quarterly.” McClean points out that the aftermath of every global recession is pent-up demand, with “two great years of semiconductor growth.”

Next year, he sees at least 15% growth, and possibly 20% growth. “As bad as that downturn was … but it could work in reverse, as strong upwards as it was downwards,” McClean concluded.

A Tale of Two Halves: 2009

In the first half of 2009, McClean saw the global recession at its worst. But for the second half, he sees seasonal strength for electronic system sales, IC inventory adjustments completed, and negative global GDP turning positive. Both world GDP and U.S. GDP are moving from the negative to the positive (world from -3.6% to +2.0%; U.S. from -3.7% to +1.3%). In all categories (cellphone shipments, PC shipments, IC market, IC foundry market, semiconductor capital spending), the second half of 2009 already shows a significant increase over the first half of the year.

McClean noted that for the “Top 20” leaders in semiconductors, sales increased 21% (2Q09/1Q09). He urged attendees not to look at year-to-year, but to focus on quarter-to-quarter numbers.

Panelists Bill McClean (IC Insights), Dean Freeman(Gartner), and John Housley (Techcet) with moderator Bruce Kirkpatrick (Kirkpatrick Communications.)

“We had a collapse of demand, unlike in 2001 when we were shipping above and beyond underlying demand. In this case, underlying demand fell. 1Q09 was the bottom … we raced to the bottom. It’s unbelievable what the industry has just gone through,” McClean points out, adding, “In two quarters, record declines— sequentially.”

Identifying Underlying Demand

Looking at the most pessimistic view of 2009 shipment forecasts for PC units (-12% for 2009), cellphones (-12%), and TVs (-2%), McClean shows how the 2009 unit shipments are back to 2006-2007 levels, not 2005 levels. For the quarterly IC unit volume shipment trends, the graph shows 1Q09 units hitting 2005 levels, but rising to low 2007 levels for 2Q09.

He notes that TSMC doubled their sales in one quarter, and that by Q3, TSMC sales will be back to 3Q08 levels.

McClean claims a historic low in capital spending by foundries and IDMS will lead to significant rebound in equipment orders in both 2010 and 2011. “We’re down to 12% capex as a percent of sales. We’ve never seen this before. It’s unbelievably low. We’ve seen a downturn before, and seen big double-digit declines in capital spending. What happens? The first year after, capital spending increases 23% (in 1987), 14% (in 1997), 14% (in 2003), and now, we’re [IC Insights] saying 18% for 2010 and 36% for 2011.”

Turning to memory spending trends, McClean says that the situation is “absolutely shocking.” Total memory capital spending reveals $32.3 billion for 2007 and $20.8 billion for 2008, while 2009 is forecasted at just $7.2 billion. IC capacity utilization jumped over 20 points in one quarter (from 57% in 1Q09 to 78% in 2Q09), with continuing increases for the rest of the year (forecasted at 86% for 3Q09 and 90% for 4Q09).

Summarizing, McClean says, “We’re taking capacity offline at a record amount. Not only are we not investing in new capacity, but they’re shutting older fabs ... a lot of 200 mm fabs are being taken offline. I believe SEMI said about 30 fabs. A lot of capacity offline, and not putting a lot of new capacity online. With good demand going forward, everything is electronics— medical, telecomm, computer … we’ll need more ICs, not less.” However, foundries are being conservative, so “something has to give and it’s pricing.” He claims that the IC supply, IC ASP, and IC demand create a two-way cyclical situation that will result in an upcoming “collision course.”

Bust to Boom: Opportunities for Semiconductor Equipment Manufacturers

Dean Freeman, Gartner

Dean Freeman (Gartner) characterized the financial crisis impact as “unprecedented decline followed by a bumpy recovery.” In terms of semiconductor revenue growth, 2009 will go down an estimated 18% (vs. prior 2Q09 prediction of a 22.4% drop). He predicts revenue growth of +0.4% for the period 2008-2013.

In 2Q09, the economic crisis hit semiconductor capital equipment hard. Freeman views revenue growth for all capital equipment (including test) as declining: -31.7% (to 30.7 billion) in 2008 and another -45.8% (to $16.6 billion) in 2009. The year 2009 will be a bit weaker than expected but 2010 should be a little stronger, which he believes is due to a timing issue rather than a shift in overall demand. In 2010, he sees semiconductor capital equipment revenue at $21.4 billion— up 29% from 2009.

About 140 attendees participated in this year’s “Industry Forecast” at the Silicon Valley Lunch Forum on August 19.

For wafer fab equipment, Freeman expects that “As we pull out of this downturn … [we] should see fairly strong growth in Q3 and probably moderate to strong growth … Anticipate numbers of +40-50% in 3Q09 and 18-20% in 4Q09.”

Looking at the foundry capacity utilization picture, Freeman sees these supply/demand trends:

  • Utilization rate will further increase from 68% in 2Q09 to 78% in 3Q09.
  • Demands are driven strongly from PC and baseband applications; leading edge is the strongest.
  • The 45/40nm technology will ramp up significantly in 2H09.
  • Capacity will increase by 7-8% in both 2009 and 2010; mainly for leading edge.
  • Wafer shipment will plummet by 14% in 2009 before growing 26% in 2010.
  • Annual utilization rate— 2009: 63% vs. 2010: 74%.

Forecast Growth Scorecard

Freeman sums up his semiconductor supply chain forecasts with this chart:

Freeman says that the macroeconomic forecast continues to improve and that “We’re seeing two steps forward, one step back. We’re seeing good numbers come out of most industry segments.” Semiconductors had a strong Q2 response, but extended response will depend upon “consumer pull.” Capital spending will remain depressed but some bright spots exist like foundry and logic, and he sees the start of U.S. recovery as possibly 3Q09. He sees real growth opportunities for equipment companies, but warns that these opportunities require flexibility and creative business planning. He sees three hot growth markets in solar, LEDs and Through Silicon Via (TSV) technologies.

Critical Materials Supply Chain Strategy

John Housley, TechCet Group

John Housley of TechCet Group focused his presentation on the downturn’s supply chain impacts, and offered detailed materials market forecasts.

For resist and ancillaries, Housley pointed out that more than ten companies are trying to share a $1.5 billion market, so resist consumers are still the winners. EUV is still very problematic— and very expensive. But he urged attendees to look at the worldwide estimated photoresist market size.

Although photoresist took a big hit, with annual revenue dropping from $1.4 billion in 2008 to just $950 million, he says that “the cost per puddle will increase” due to use of 193nm resist and the fact that prices are 4-5 times more for the more expensive resist.

In terms of silicon, Housley looks at the worldwide wafer area shipment index and notes the upward movement of the 3-month moving average— up 60%. For silicon carbide, he estimates that the worldwide market for semiconductor SiC will decrease from $211 million in 2008 to only $149 million in 2009— rising to $212 million in 2011. In the CMP area, he states that with more than 20 players, slurry pricing pressure exists, but one is still dominant. The copper interconnect business is dominated by just two suppliers. For High k and Atomic Layer Deposition (ALD), Housley sees growth due to leading edge RAM capacitors and MPU ≤ 45nm devices. ALD is “cool but it’s extremely expensive. Until we get the price of ALD down to where it can be used for practical applications… it will get pushed off, from generation to generation.”

Without solar, Housley predicts that front-end process materials will total $14.4 billion, a decline of 21% from 2008, breaking down: masks (21%), gases (19%), photoresist (10%), CMP (10%), other indirects (7%), wet chemicals (6%), ancillaries (6%), quartz (6%), advanced dielectrics and SOGs (5%), targets (4%), graphite (2%), ceramics (2%), electroplating (1%), and silicon carbide (1%). Chemicals and gases did not get hit as hard as other areas.

In the PV market, materials are highly dependent on device area, as in semiconductor devices. For the next several years, thin film will be limited to less than 20% of the market. Housley refutes CAGRs of 35%, saying that he expects PV CAGR of 20-25% over five years.

September 1, 2009