By Christian Gregor Dieseldorff, SEMI Industry Research and Statistics (Feb 25, 2009)

Investment levels are the lowest in over a decade. Spending on fab construction projects in 2009 is expected to be under $2 billion— the lowest level since 1999. Spending on equipping Front End facilities (fabs, pilots, R&D) is expected to decline by 55% to under $12 billion in 2009, which is the lowest level since 1994. For 300 mm fabs alone, spending will decline by about 58% to below the $10B— the lowest spending level over the past six years.

In 2008, a total of nine facilities (fabs, pilots and R&Ds) began construction; however, most of them have experienced delays and push outs into 2010. In this difficult economic period, four facilities begin construction in 2009, with the biggest construction spenders being Intel and AMD -The Foundry Company (now called GlobalFoundries).

All regions show double-digit declines in construction spending in 2009 except the Americas (Figure 1). While experiencing some of the lowest construction spending levels over the past few year, the Americas will actually see spending grow, spurred by Intel and AMD.

We expect eight facilities to begin operations in 2009: three are in Europe/Mideast and three are in China, one in the Americas, and one in Taiwan. Overall, however, there will be no capacity growth for 2009, though capacity growth, in the range of 9% to 10%, could resume in 2010. Capacity began to decline in 4Q08 and could reach a bottom in 1Q09 with a change rate of more than -15% (QoQ). For 1Q09, capacities across all device product types experience a double digit decline, except for overall foundry capacity, which will decline by about -3% (see figure 2). In 2010, a total of 18 facilities may begin operations.

Figure 2: Total Capacity by Product Type and by Quarter

The Memory industry is hit hardest, and in response, we see acquisitions, mergers, and even bankruptcies. In the latest development in the DRAM sector, Qimonda filed for insolvency in January 2009. It shut down manufacturing in the U.S. and drastically cut capacity in its Front End fab in Dresden for 1Q09 to 25%. In the coming weeks, we expect mergers to finalize such as Micron’s merger with Nanya and Inotera, and Elpida’s deal with Powerchip and their Rexchip JV (established November 2006). This will change the landscape of the Memory industry, because restructuring takes time, we will need to wait for a while to see any positive impact on spending levels.

Since coming out of the 2001 downturn, the Memory segment has dominated spending levels and capacity growth in the industry. With the Memory sector undergoing severe changes, it will require some time before positive growth re-emerges. At a time like this, bold plans by AMD and Intel stand out.

AMD (GlobalFoundries) plans to spend $2 billion for capacity expansion over several years at Fab 38 in Dresden, Germany, plus $4.6 billion at its Luther campus in upstate New York (which includes spending on Fab 4X, starting construction in 2Q09 with planned production start in 2012). Intel announced an investment of $7 billion for upgrades and capacity expansion for 32 nm technology at its facilities in Arizona, New Mexico and Oregon. Many of the above projects start by mid 2009, representing over $13 billion in investments through 2011, of which $11 billion will be spent in the US.

Intel’s and AMD’s plans signal the largest investment in the U.S. in several years. The last American investments of this scale were Intel’s Fab 32 and IM Flash’s Lehi and Manassas fabs, a total of $6 billion, with construction beginning in 2005 and production starting in 2007.

Bill McClean, president of IC Insight, pointed out at the beginning of 2009 that we need to look at quarterly growth rates and trends. Our data for spending on fab construction projects and money spent on equipping Front End facilities support this. The data suggests spending levels could begin improve by double-digit quarter-over-quarter by year end following the sharp decline the industry is currently experiencing. The unknown is what level growth could reach in 2010.

In terms of a recovery, the industry will experience a slow comeback as time is needed to restructure and re-invent itself. Every recession is followed by a release of pent-up demand, so we all must wait for the various massive government stimulus packages to improve consumer confidence, which is vital for the recovery. It will get better!

SEMI World Fab Forecast* report provides 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. These tools are invaluable for understanding how 2009 will look, 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.

Feb 25, 2009

* The SEMI World Fab Forecast tracks money spent on Front End semiconductor fabs that are equipping, which includes R&D and Pilot fabs, fab construction projects, investments for capacity, and investments for technology and product upgrades. The World Fab Forecast and its related Fab Database reports track any equipment needed to ramp the fab, upgrade, expand or change its wafer size— regardless if it is new equipment, used equipment, or transferred equipment. The SEMI Worldwide Semiconductor Equipment Market Statistics (WWSEMS) data tracks new equipment only.