Capital Spending Rebound by the End of Q3

Capital Spending Rebound by the End of Q3

By George Burns, Strategic Marketing Associates

The Strategic Marketing Associates Quarterly Fab Report analyzes new fab activity and capital spending plans. Our capital spending forecast looks for a cut of $10 billion to $50 billion in 2008. This is down 17 percent from 2007 (See Table 1). And the cuts may not yet be over. Hynix, for example, is rumored to be planning further cuts to its 2008 spending.

Table 1: Capital Spending* by Regional Companies

(Billions $/Percent Change from Previous Year)

 

2007

2008

Asia Pacific

$29.5 / 25%

$23.0 / -22%

  • China

$2.0 / 31%

$2.1 / 3%

  • Southeast Asia

$0.9 / 7%

$0.7 / -28%

  • South Korea

$13.1 / 8%

$11.8 / -10%

  • Taiwan

$13.4 / 47%

$8.4 / - 38%

Europe & Mid East

$3.8 / -9%

$3.4 / -11%

Japan

$10.3 / -5%

$9.1 / -11%

U.S.

$16.8 / 3%

$14.9 / -11%

Total

$60.4 / 10%

$50.3 / -17%

* = Subject to rounding errors

Strategic Marketing Associates (June 2008)

Clearly, the biggest cutbacks are in Asia Pacific companies. Led by memory manufacturers, particularly in Taiwan, Asia Pacific companies are planning to cut their spending by $6.6 billion. This is $700 million more than their increase from 2006 to 2007.

Chinese Companies Still Spending

Chinese companies' spending peaked at $3.5 billion, accounting for 8 percent of all capital spending in 2004. Last year Chinese companies spent $2 billion, this year they will spend slightly more (3 percent) and will account for 4 percent of all capital spending. The growth in spending by Chinese companies is due to the SMIC affiliated municipally owned fabs, Wuhan XinXin Semiconductor Manufacturing Corporation, Cension Semiconductor Manufacturing Corporation and the recently created SMIC Shenzhen. We estimate these three companies will spend almost as much as SMIC itself. Absent spending by these municipal governments, spending by Chinese companies would actually be down by 9 percent.

Companies Reduce Capital Spending in Most Countries

  • Southeast Asia: Southeast Asian companies which are principally foundries account for about one and one-half percent of industry capacity and spending. Southeast Asia as a region, however, is home to 5 percent of the industry's current capacity. Spending by companies headquartered in Southeast Asia will be down by 28 percent.
  • South Korea: South Korean companies will increase their share of capital spending this year to 23 percent, even though spending by South Korean companies will be down by 10 percent this year to $11.8 billion. South Korean companies' share of industry capacity is 17 percent.
  • Taiwan: Taiwanese companies will cut their spending by 38 percent this year to $8.4 billion. Their share of capital spending will fall from 22 percent last year to 17 percent this year. Taiwan accounts for 17 percent of the industry's fab capacity.
  • Europe: In the period from 1995 through 2003, European companies accounted for 10 percent of all capital spending. Since then, from 2004 to 2008, their share of capital spending fell to 7 percent. About 30 percent of the capacity in Europe and the Middle East is owned by offshore companies, principally by U.S. companies. This year, European and Middle Eastern companies will spend $3.4 billion, down 11 percent from 2007.
  • Japanese Companies: Japanese companies plan to spend $9.1 billion this year, down 11 percent from $10.3 billion last year. Japanese companies will account for 18 percent of all spending this year, much less than in the period from 1995 through 2003 when Japanese companies accounted for 25 percent of all spending.
  • U.S. Companies: Companies headquartered in the U.S. accounted for 35 percent of all spending in the period from 1995 through 2003. Compared to 2007, U.S. companies will cut spending by 11 percent to $14.9 billion this year and their share of all capital spending will be 30 percent.

In summary, looking at the data by country, capital spending will increase only in China by a modest 3 percent, with dramatic decreases in Taiwan (-38 percent) and Southeast Asia (-28 percent). South Korea, Europe, Japan, and the U.S. are expected to have only a 10–11 percent spending drop.

Asia Pacific will account for 45.7 percent of all capital spending in 2008, with the U.S. at 29.6 percent, Japan at 18.1 percent, and Europe at 6.8 percent. Breaking down the data for Asia Pacific countries reveals that South Korea leads with 23.4 percent of expected worldwide capital spending. Taiwan is at 16.7 percent, with China at 4.2 percent and Southeast Asia at 1.5 percent.

The most recent SIA reports on chip sales for March and April show that the three-month moving average of chip sales grew by 3.5 percent and zero, respectively. This is near the long medium term average for these two months, which is a big improvement over the industry's recent performance—in which the growth of chip sales has under performed the seasonal average for the past several months. If the growth of chip sales remains at average levels, or exceeds the average in the May and June reports, we can expect a recovery in capital spending by the end of the third quarter and growth in capital spending by as much as 20 percent in 2009.

George Burns of Strategic Marketing Associateswrote this article for SEMI Global Update.