During its annual Semicon West market briefing Wednesday morning analysts from the market research firm said that the equipment industry in reality is enjoying the upside of its original 2004 forecast. And while the risk of overcapacity is growing, the chip industry shouldn’t reach that state at least for another 12 months, said Klaus Rinnen, Gartner Dataquest managing VP.

The market researcher doesn't anticipate a downturn until sometime around mid- 2005.

Dataquest suggests that capital spending this year will be in the range of 45.6 percent to 61.6 percent growth over last year, with the likely figure to be 50.9 percent. It anticipates wafer fab, packaging and assembly and automated test equipment spending specifically to grow 63 percent. Rinnen suggested that based on recent order activity, that number would definitely exceed 50 percent.

For 2005, the firm anticipates capital spending to grow 13.4 percent, with equipment spending to rise 15 percent year over year.

Chip inventories have remained in an ideal range since Q3 of 2002; inventories were lean heading into this year. Rinnen said. Fab capacity utilization remains well above 90 percent this quarter, with leading edge capacity utilization hovering near 100 percent, according to Dataquest figures.

Q1 of this year saw the first upward movements in chip inventories following a tightening of supply. "It seems the industry is still trying to optimize its investment with demand," Rinnen observed. "But it will slip," he added.

So who is doing all that spending and adding capacity? Not too surprisingly, the cap ex charge is lead by the DRAM makers and the large IDMs and foundries. "The leaders are outpacing the industry; the big are getting bigger," Rinnen said.

Intel Corp. remains the second largest capital spender in 2004 with $4 billion in planned expenditures, following Korean DRAM maker Samsung, with planned expenditures of nearly $4.5 billion. Intel, interestingly, will only see its cap ex jump 8.1 percent year over year, compared to Samsung's 33.7 percent and smaller rival Advanced Micro Devices' 163 percent increase. The MPU giant remains a counter cyclical spender.

The foundries, on the other hand, are making up for under investment in the downturn, Rinnen observed. "Foundry spending is hot this year," he noted.

Taiwan Semiconductor Manufacturing Co. will see its cap ex climb 100 percent in 2004 from what it spent in 2003, climbing to approximately $2.4 billion. No. 2 foundry United Microelectronics Corp. meanwhile has plans to spend $2 billion this year on capital expenditures, a rise of 170 percent from last year. Chartered Semi has also raised its planned capital expenditures this year 170 percent to a little more than $1 billion.

"Foundry spending is aggressive, but as we see it, it is very much needed," Rinnen said, noting that foundries cut their capital expenditures year over year in 2003.

By: DocMemory
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