Strong 2011 Equipment Market Forecast Complicated by Buying “Pause”

Strong 2011 Equipment Market Forecast Complicated by Buying “Pause”

SEMI Consensus Forecast Estimates Equipment Sales Rising 12% to $44.3 Billion

By Dan Tracy, senior director, SEMI Industry Research & Statistics

During SEMICON West, the mid-year edition of the SEMI Capital Equipment Forecast was released that estimates 2011 semiconductor equipment sales to reach $44.33 billion, a 12.1 percent increase over 2011.  Following last year’s 148% market increase, this year’s market growth will likely result in 2011 being the second highest spending year in history (after 2000) and the highest spending year ever for Wafer Processing equipment.

While the outlook remains positive, there may be a very brief interval of lower equipment sales, as some device manufacturers temporarily postpone orders due to worldwide financial uncertainty. At SEMICON West (July 12-14), Novellus Systems CEO Rick Hill portrayed the order postponements as a “pause” in an otherwise robust semiconductor environment.  During the Executive Summit at West, Rick Wallace, CEO of KLA-Tencor, and Steve Newberry, president and CEO of Lam Research, mentioned a softening of the market in the next couple of quarters, then resumed growth in 2012.

“My view: we are in the midst of a multi-year growth cycle, but given the rate of growth we’ve had over the past 18 months, it’s only natural there would be a period of consolidation,” said Wallace at SEMICON West.

In the face of some weakness in IC sales, some foundries are currently experiencing lower utilization rates and some memory makers are a bit wary of adding capacity.  The worldwide semiconductor industry growth forecast for 2011 has been lowered from 10% to 5%, according to IC Insights. Two of the world's leading foundries, TSMC and UMC posted declines in sales for several consecutive months due to weaker global demand. In a conference call to investors on July 28, TSMC chairman and CEO Morris Chang said that capital spending for 2011 will be US$ 7.4 billion, down from the $7.8 billion projected earlier in the year.

Semiconductor Equipment Sales Forecast for 2011

In 2011, new semiconductor equipment sales are expected to reach $44.3 billion, placing equipment sales at 14% of forecasted semiconductor revenues. The forecast indicates that, following a 148% market increase in 2010, the equipment market will expand by 12% in 2011. The year 2011 is likely to be the second highest spending year in history, finally surpassing the last peak set in 2007.  2011 is also anticipated to be the highest spending year ever for Wafer Processing equipment.

Year-to-date billings for semiconductor equipment reached about $24 billion globally through June, while the three-month average bookings remained relatively stable, around $3.8 billion, over the first six months of the year. Driving equipment investments are primarily technology upgrades, with incremental investments in capacity expansions at existing facilities. Another interesting trend is the increasing dominance of a relatively small number of device manufacturers to the new equipment market. Nine companies spent over one billion dollars in 2010; only four device manufacturers spent over a billion dollars in 2009. Eight companies are expected to spend over a billion dollars in 2011, compared to the 17 that spent over a billion dollars in 2007.

Equipment Sales: Segment and Region Breakdowns

The mid-year edition of the SEMI Capital Equipment Forecast is based on analysis of capex announcements, year-to-date data, and inputs from semiconductor equipment suppliers around the world. According to the forecast, Wafer Processing equipment, the largest product segment by dollar value, is expected to increase 19% in 2011 to $35.1 billion. The forecast predicts that the market for both Test and Assembly equipment will contract in 2011, with semiconductor Test equipment forecasted to decline by almost 6% (to $3.9 billion) and Assembly and Packaging forecasted to decline by 18% (to $3.2 billion). Even with the decline in spending forecasted for this year, the amount of spending on Assembly and Packaging equipment is expected to remain above the average spent (~$2.4 billion/year) from 2004 through 2007.The following results are given in terms of market size in billions of U.S. dollars and percentage growth over the prior year:

Forecast by Equipment Segment and by Region

 Forecast by Equipment Segment and by Region

Source: Equipment Market Data Subscription (EMDS), SEMI

Growth is forecasted for all regions in 2011. Taiwan is expected to be the largest market for equipment spending in both 2011 and 2012.  In 2011, North America will be the second largest market in equipment spending ($9.3 billion), with an almost 61% increase in spending over the previous year. Forecasted spending increases in 2011 will be particularly dramatic in North America and Europe owing to Intel’s and GlobalFoundries’ aggressive CAPEX plans. Additional projects driving the North American market include IBM Microelectronics investments in Building 323, while Micron/IM Flash Lehi and Manassas fabs and Samsung’s Austin’s fabs are all equipping this year. In addition, ST Micro is investing in Crolles 2, France.  Korea will be the third largest market in terms of equipment spending ($8.0 billion) due to significant investments by Samsung and Hynix.

In 2012, the new equipment market is expected to experience a slight decrease of about 1%, with Wafer Processing equipment spending declining 2%.  However, low single-digit growth in both the Test and Assembly equipment markets is expected.

The SEMI Industry Research and Statistics group provides timely market and trend information for market research, competitive analysis, and sales forecasting. We focus on the global semiconductor capital equipment, selected materials markets and fab forecasting data. Please visit www.semi.org/marketinfo for additional information.

August 2, 2011