By Jonathan Davis, president, Semiconductor Business Unit, SEMI
While speculation grows about the future of the semiconductor industry, it��?s clear that 2010 was a banner year for semiconductor equipment companies. Total fab spending in 2010 ($37.9 billion) was up 134% over the abysmal 2009 ($16.2 billion). So will 2011 and 2012 keep up the crazy pace of 2010? Absolutely not, yet I remain optimistic that the semiconductor industry will remain healthy in 2011 and on into 2012. Here��?s why.
General Economic Environment
The world economy is in the early stages of recovery from the worst recession in over 50 years.Following a disastrous 2009 where world GDP declined 2.7%, the World Bank estimates GDP will grow 3.3% each year from 2010-2013.The IMF (International Monetary Fund) increased its forecast for global economic growth to 4.5% for this year and 4.25% for 2011. In the U.S., Pacific Investment Management Co. (Pimco), which manages the world��?s biggest bond fund, just increased its forecast for U.S. growth next year in response to the tax policy compromise.
Can the World Bank, IMF and top financial analysts be wrong? Of course. Are there alternative economic forecasts that aren��?t so positive? Probably. But a solid consensus of moderate to healthy GDP growth for the next few years has developed.
What Fabs Are Saying
SEMI monitors capital spending at over 1,000 fabs around the world and here��?s what they are saying. Total fab spending is expected to increase by 18.3% in 2011 and by 9.5% in 2012 as a result of on-going technology upgrades and continued capacity growth, especially for Memory, Foundries and MPU. In 2011, it��?s true that spending on construction projects is declining, but spending on Fab Equipment is forecast to rise 23%��? reaching about $40 billion. 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 19-year history of the SEMI World Fab database.
At the same time, spending on fab construction projects is going down (-11%) in 2011. After the massive construction project growth from 2009 ($1.9 billion) to 2010 ($5.1 billion), less construction is not surprising. The current focus is on upgrading and ramping existing facilities, as companies try to figure out if the market has really stabilized. Unfortunately, this approach could be problematic for the industry since it takes 18 to 24 months to plan, construct, equip and ramp a new fab. The industry may not have enough capacity in the next two years, as new fabs take time to come on line.
Fab Spending for Front End Facilities (including Discretes)
In US$ Million | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 |
Construction projects | $8,358 | $4,553 | $1,947 | $5,106 | $4,519 | $3,345 |
Change % | -45.5 | -57.2 | 162.2% | -11.5% | -26.0% | |
Equipment spending | $38,103 | $25,983 | $14,311 | $32,834 | $40,380 | $45,813 |
Change % | -31.8 | -44.9 | 129.4% | 23.0% | 13.5% | |
Total spending | $46,461 | $30,491 | $16,201 | $37,942 | $44,899 | $49,158 |
Change % | -34.4% | -46.9% | 134.2% | 18.3% | 9.5% |
Next, let��?s look at fab capacity. SEMI predicts 8% annual growth in installed fab capacity for 2010, at least another 8% for 2011 and at least 9% for 2012. Granted, these increases are modest compared to double-digit growth rates seen each year from 2003 to 2007. Still, it��?s interesting. Examining capacity by region, the World Fab Forecast data shows that in 2010, Japan will maintain its leadership with over 23% share, followed closely by Korea and Taiwan with about 20% each. The U.S. is at 14.5% and Europe is at 9.1%. Looking forward to 2012, the U.S. and Europe will lose ground (decreasing by 2.8% and 6.6%, respectively), but overall the changes are not as dramatic as they could be, given that the governments in the U.S. and Europe do not provide the same types of tax advantages and subsidies as Asia. Not surprisingly, China will likely be the big winner with five companies contributing to China��?s increased share (22.5%) by 2012: SMIC, Intel, TSMC, Hua Li and Promos.
Share of Worldwide Capacity by Region (without Discretes)
Region | % of 2011 | % of 2011 | % of 2012 |
Americas | 14.5% | 14.6% | 14.1% |
China | 7.9% | 8.8% | 9.6% |
Europe & Mideast | 9.1% | 9.1% | 8.5% |
Japan | 23.8% | 22.8% | 22.1% |
Korea | 20.3% | 19.9% | 20.1% |
SE Asia | 5.0% | 5.4% | 5.7% |
Taiwan | 19.3% | 19.4% | 19.9% |
SEMI 2010
Looking at year-over-year capacity growth by industry segment, the LED segment is the stand out. The LED industry is growing leaps and bounds, 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. As you can see, since 2008, memory is no longer the leader of the pack.
Change of Installed Capacity by Industry Segment
It��?s just a whole new industry ecosystem, and deciding what kind of company to be is critical. Staying on top of the issues in this industry isn��?t easy. I��?m hoping that you��?ll attend the SEMI Industry Strategy Symposium (ISS) on January 9-12 in Half Moon Bay, Calif. ISS really looks at the forces that shape our industry, offering strategic ideas and concrete information that enables success in a tough business. ISS this year will deal with managing capital efficiency, maximizing R and D investment choices, and investing in future growth with a focus on risk mitigation strategies. For more information, visit the ISS website (http://www.semi.org/iss). The Strategic Materials Conference is January 12-14, immediately following ISS at the same location (http://www.semi.org/smc).
