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Semiconductor Capital Equipment Spending to Drop 19 Percent Next Year

Spending on capital equipment by semiconductor companies will decline 19.2 percent to $35.2 billion in 2012 because of excess inventory and slower economic growth, according to researcher Gartner Inc.

This year chip suppliers were expected to spend $43.5 billion on semiconductor equipment, which includes wafer fab and packaging and assembly equipment, as well as automated test equipment (ATE), Gartner reported.

Many foundries have been investing in new equipment for 28 nm chip manufacturing and spending on 45 to 19nm technologies is slowing, according to Klaus Rinnen, managing vice president at Gartner.

Gartner expects the slowdown in capital equipment spending will last for the remainder of 2011 and into the first half of 2012. However, by the second half of next year, Gartner expects the supply and demand to be more in balance. As a result, DRAM manufacturers and foundries will need to begin to boost spending to meet rising chip demand as the PC market rebounds and consumers begin spending once the economy stabilizes a bit, according to Gartner.

Chipmakers will reduce spending on semiconductor equipment next year, but spending will rise in 2013.
LThe next growth year is expected to be 2013, when capital spending will increase by 18.4 percent, Gartner reported.

Revenue from wafer fab equipment (WFE), the largest semiconductor equipment segment, has been slowing since the second quarter of this year and will continue to decline because of semiconductor excess inventory and slowing chip sales.

WFE revenue is forecast to grow 9.4 percent in 2011, but fall 19.6 percent in 2012, according to Gartner. Chipmakers have been investing in leading-edge fabrication equipment for immersion lithography, etch, deposition involved in double patterning, and leading-edge logic processes.

Revenue from worldwide packaging and assembly equipment (PAE) revenue is projected to decline 1.4 percent in 2011 and drop another 17.5 percent in 2012. Orders for PAE have softened more aggressively than previously expected as supply comes in line with expectations, according to Gartner.

The ATE market is expected to remain essentially flat in 2011, with revenue growth at 0.4 percent. The market has been driven by the continued demand of system-on-chip and the advanced radio frequency segments of the market. ATE sales will decline about 18 percent next year, Gartner predicted.

Rinnen said the reductions in capital spending are needed to “reset supply side fundamentals” in the industry. He added that there is oversupply of DRAM and foundry capacity and slight oversupply of NAND flash.

“As we emerge from the reset, supply will be tighter and pricing should return more to its historical trends,” Rinnen predicted. “Depending on how much the industry overreacts, especially if economic recession fears kick in, we could see temporary supply limitations.”

Rinnen noted that the ratio of capital expenditures of chip suppliers to sales has declined over the last year because of a slowdown in semiconductor sales. “The question is how much spending is enough to secure the reduced sales growth expectations in the future. For sure not the roughly 24 percent we used to spend 10 years ago,” said Rinnen.