Fab Capacity Back in the Black: Up 8 Percent
Fab Spending to Increase by 18 Percent in 2011, but Uncertain Outlook for New Fab Construction
By Christian Gregor Dieseldorff, SEMI Industry Research and Statistics, San Jose, California (December 7, 2010)
The latest edition of the SEMI World Fab Forecast predicts 8 percent annual growth in installed fab capacity for 2010, at least another 8 percent for 2011 and at least 9 percent for 2012. This projection is based on input of announced capacity plans and other analysis regarding needed fabs investments. After a change of -4.4 percent in 2009, installed capacity growth is expected to be level at about 8 percent in 2010 and at least 8 percent in 2011. A glimpse into 2012 shows a 9 percent increase at this point in time. These increases are modest compared to double-digit growth rates seen each year from 2003 to 2007. See Figure 1:
Figure 1: Worldwide installed capacity (without Discretes)
Examining capacity by region, World Fab Forecast data shows that Japan will maintain its leadership with over 23 percent share, followed closely by Korea and Taiwan with nearly 20 percent each. Japan is expected to lose some minor share of capacity (in single digits) in the next couple of years, while Korea will maintain steady growth of about 20 percent. The top five companies contributing to China’s increased share by 2012 are: SMIC, Intel, TSMC, Hua Li and Promos. See Table 1
Table 1: Share of Worldwide Capacity by Region (without Discretes)
Looking at year-over-year capacity growth by industry segment, since 2004, the LED segment stands out (Figure 2). The LED industry has shown huge growth rates of installed capacity, in double digits for the past six years. In the past, the Memory segment capacity addition led growth, with growth rates twice as high as foundries. This changed dramatically in 2008. Through 2012, Memory capacity is expected to increase at about the same level as foundries. The growth rate for foundries may turn out to be larger than shown at this point in time as foundry companies such as TSMC may increase their capacity output plans due to stronger demand expectations.
Figure 2: Change of Installed Capacity by Industry Segment
Fab Spending and Fab Equipment Spending Up
Fab spending is expected to increase by 18.3 percent in 2011 and by 9.5 percent in 2012 as a result of on-going technology upgrades and continued capacity growth, especially for Memory, Foundries and MPU. While spending on construction projects declines, spending on Fab Equipment is forecast to rise 23 percent, reaching about $40 billion in 2011. With $40 billion in equipment spending (for Front End fabs, including Discretes, new equipment, and used equipment), 2011 will surpass the spending levels of 2007, showing the highest spending on fab equipment in the history of the SEMI’s World Fab database. See Table 2:
Table 2: Fab Spending for Front End Facilities (including Discretes)
Without Discrete fabs, equipment spending is expected to grow by 23.6 percent, reaching about $37.5B in 2011. See Table 3
Table 3: Fab Equipment Spending Without Discretes
For 2010, the industry segment with the most growth in equipment spending will be Memory, followed by foundries. This will change in 2011: foundries are expected to grow by more than 30 percent, while Memory will grow only 20 percent. The next largest growth segment is MPU, with about 33 percent in 2010, about 15 percent in 2011 and about 30 percent projected for 2012.
New Fab Construction
Total fab spending for 2011 is pulled down by an 11 percent drop in spending on construction projects. This trend will accelerate in 2012, with a currently uncertain outlook for new fab construction starts. See Figure 3. Clearly the construction outlook is impacted by uncertainty in what new LED fab projects are announced in the next two years. From 2007 to 2010, at least 12 LED fab projects began construction annually with 22 beginning in 2010.
Figure 3: Count of New Facilities Beginning Construction
In 2010, two new Memory fabs began construction, five new fabs for Foundries, two for Logic/MPU and 22 for Discretes. Remarkably, there are 21 LED fabs out of these 22 Discrete facilities. More than half of these new LED fabs began construction in China.
Some fabs undergo expansion projects and upgrades at the same time. However, this does not mean that capacity and equipment spending move together. In 2009, equipment spending for upgrades increased by 60 percent, while spending for capacity increases declined by 59 percent. In 2010, spending on expansion projects doubled, while spending for upgrades increased by 60 percent. For 2011, equipment spending for upgrades maintains this steady growth of more than 60 percent. However, spending for capacity expansions is expected to be much lower (about 9 percent).
Bleak Outlook for New Fab Construction
A sharp decline in new fabs being built — even ignoring LED fabs — in 2011 and 2012 raises concerns for the industry. The current focus is on upgrading and ramping existing facilities; however, it takes 18 to 24 months to plan, construct, equip, qualify, and ramp a new fab. The industry may not have enough capacity in the next two years, as new fabs slowly come on line. The Memory segment has seen a change in paradigm. Back in 2006, announcements of new fab plans surfaced almost every month. Some companies planned to build a new fab every year in order to meet demand. This all changed following the last economic downturn and the financial squeeze some Memory makers are experiencing.
It appears that many companies are hesitating, waiting for more proof that the market has stabilized. In the NAND market, one of the largest growth segments, new applications and electronic devices will result in increased demand. Lower prices for NAND will even accelerate this demand and stimulate continued growth. Back in early 2008, Eli Harari, former CEO of Sandisk, commented that “You need about six new fabs by 2011 to meet the forecasted demand for NAND.” Where are these new fabs? All may change quickly, as the industry has shown its new agility.
Upcoming Industry Strategy Symposium
It’s important to stay on top of the issues in an industry as agile as the semiconductor industry. One way to do that is to attend the SEMI Industry Strategy Symposium (ISS) on January 9-12 in Half Moon Bay, Calif. ISS features presentations from thought leaders and valuable networking. Offering perspective on numerous interrelated global industry and economic trends, ISS this year will deal with: managing capital efficiency, maximizing R&D investment choices, investing in future growth, establishing sound collaboration and risk mitigation strategies, and appreciating adjacent market opportunities. For more information, visit the Industry Strategy Symposium website at: http://www.semi.org/en/P011982. The Strategic Materials Conference is January 12-14, immediately following ISS at the same location (http://www.semi.org/en/EventsTradeshows/P039600).
SEMI World Fab Forecast vs. WWSEMS
The SEMI World Fab Forecast report uses a bottom-up approach as methodology, providing 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 2011 and 2012 will look, and learning more about capex for construction projects, fab equipping, technology level, and products.
The SEMI Worldwide Semiconductor Equipment Market Subscription (WWSEMS) data tracks only new equipment. However, the World Fab Forecast and its related Fab Database reports track any equipment needed to ramp fabs, upgrade technology nodes, and expand or change wafer size, whether new equipment, used equipment, or in-house equipment.
San Jose, California
December 7, 2010