2010 Fab Spending Accelerates to 65%, but no New Fab Plans in Sight
By Christian Gregor Dieseldorff, SEMI Industry Research and Statistics, San Jose, California (November 24, 2009)
It appears that 2010 will be a much better year for the semiconductor industry. 2010 fab spending is expected to increase 65% over 2009 levels. However, with new fab plans put on hold, one major concern surfaces: Are we are doing enough to meet future demand?
Revenue Predictions Look Good
In November 2009, leading market research firms changed their forecasts dramatically. VLSI Research pointed out that lower capacity, combined with low inventory, is likely to keep chip prices high next year. The Semiconductor Industry Association (SIA) adjusted their sales forecast to be more optimistic, projecting about $242 billion in 2010, or 10.2% growth. Gartner also recently revised its forecast for 2010 revenue to bounce back to $255 billion (an increase of 13%). Future Horizon even talks about explosive growth for the total IC industry over the coming couple of years, believing the industry will grow 22% in 2010.
The coming year appears to be a year of recovery, but plans for new fabs remain on hold. The SEMI World Fab Forecast report shows that most companies will not invest in new facilities or significantly in new capacity in 2010. Companies show more interest in investing in equipment used for technology upgrades.
2010 Fab Forecast: 65% Growth on Fab Spending
The World Fab Forecast looks into how much money is needed for projects such as ramping up a facility (R&Ds, Pilot and Volume Fabs), upgrading, or expanding a facility. These figures include all equipment (new, used, or in-house), as well as money from any outside sources such as governments or outside investors. The World Fab Forecast published in June forecasted a growth rate of 60% growth in money spent on equipping facilities in 2010. In August, the 2010 forecast improved some to 63% growth; now data indicates an increase of 65%.
For 2009, spending improved in the second half of the year; and this growth is expected to continue into 2010. This trend is based on announced capital expenditures by a number of semiconductor manufacturers over recent months. The largest six spenders in 2010 – dubbed “The Fantastic Six” in our previous article – are Samsung, Intel, TSMC, Flash Alliance, GlobalFoundries, and Inotera. For example, TSMC increased their capital expenditure three times in 2009 and we expect that the spending in 2010 will be at least same or higher. Samsung recently announced that it will invest 5.5 trillion won in memory chips in 2010 (up from 4 trillion won this year) an effort to raise its DRAM share to 45% according to Korea Times. In our last report published mid-August, we estimated spending of GlobalFoundries in 2010 to be in the range $1.2 to $1.4 billion. This was revised upward in our November report, when GlobalFoundries announced even higher capital expenditures than previously estimated, of $1.7 billion, for 2010.
Source: World Fab Forecast, SEMI, Nov 2009
Spending on fab construction projects in 2009 is expected to be below $1.6 billion (as reported in the August 2009 report), which is the lowest level in more than 15 years. Construction spending in 2010 is expected to increase by about 70% to $2.7B (August report showed $2.8B), with about 23 construction projects (same as in last report) starting.
Declining Number of New Fab Construction Projects
One year ago, in November 2008, the SEMI World Fab Forecast reported that 2009 would show a decline of about -25% for money spent on equipping fabs. In that report a total of 19 facilities (14 new fab constructions plus the continuation of five projects put on hold after the shell was built) were projected to commence or resume in 2010.
As 2009 comes to an end, there have been no additional plans announcing new fab construction projects for 2010. We expect the five fab projects (only a shell exists) previously delayed due to market conditions to resume activity in 2010. Of the 14 other fab projects, only one has a higher probability to begin construction next year. The situation of new fab construction project this year stands in stark contrast to the predictions of one year ago.
Installed Capacity: Flat Growth Rate since 2008
Before the economic crisis hit in 2008, companies had plans to invest in new fabs to meet growing demand. The SEMI World Fab Forecast predicted a growth rate for installed capacity of about 4% to 5% for 2009 and about 7% to 8% for 2010, with total capacity growth of 12% growth from 2008 to 2010.
Now at end of 2009, we know that a total of 49 facilities have closed or will close by the end of 2010. This translates into a decline of -4% to -5% in total installed capacity for 2009. This decline is unprecedented over the last 20 years as the semiconductor industry did not even experience a year-over-year decline in installed capacity following the “Dot Com Bubble” in 2001 and 2002.
Looking to 2010, installed capacity is forecasted to grow by 4% to 5% compared to 2009. This trend, however, translates to no capacity growth from 2008 to 2010.
By the end of 2009, utilization rates are expected to be in the 80% to 95% range. Semiconductor International Capacity Statistics (SICAS) expects utilization rates to peak at 93% in 4Q09. The organization says that with semiconductor manufacturing capacity falling and demand increasing, the chip industry is becoming close to being sold-out.
With various market research organizations expecting semiconductor revenue growth of 10% to 22% in 2010, it seems unlikely that demand will remain flat next year. So as most companies focus their investment in technology upgrades, the future growth rate of installed capacity appears not in sync with demand.
It typically takes 1 to 1 1/2 years from groundbreaking until a fab can begin to ramp production capacity. However, with a number of new construction plans shelved over the past year, additional capacity over the next year or so will be limited. Should the industry show consistent stability and growth, device makers may change their plans quickly and new fab construction may mushroom to meet the need for more capacity in 2010 and 2011. In this competitive industry, the one who is first, benefits the most.
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 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, expand or change its wafer size regardless if it is new equipment, used equipment, in-house or transferred equipment, while WWSEMS tracks only new equipment.
Please visit www.semi.org/fabs for additional information on these reports.
San Jose, California
November 24, 2009