It may have been a good year for semiconductors, but it was a great one for the equipment industry.

The industry finished 2004 with a 52.5 percent growth rate in revenues, and at $51 billion marked the highest level of sales since 2000, according to a new report from VLSI Research.

VLSI expects the semiconductor industry to continue to grow in 2005, but at a lower rate, forecasting IC revenue growth at nearly 9 percent while equipment revenue growth will slow further to 3.8 percent for the year.

The analyst firm disagrees with some observers forecasts for an industry downturn in 2005. 

“For a downturn to occur, normally there would need to be excesses such as higher inventories, declining IC prices, and declining revenue per square inch of silicon produced (RPSI),” VLSI said in a statement. “These conditions are currently either minimal or non-existent.” 

VLSI pointed out that inventories have declined since the summer and IC prices have remained strong going into 2005.  In addition, RPSI has steadily increased over the course of 2004.

According to VLSI, the industry remains healthy when this particular metric is above the level of $30 per square inch of silicon, and in November it was at a “very profitable level of $41.”

The industry’s quick response to rising inventories brought front-end utilization down to 79 percent in Q4 of 2004. But VLSI said utilization will rise again once the inventory correction is over.

“Unrealized capacity is extremely low, reflecting the overly conservative nature of the times,” VLSI said. “Unlike in 2000, there won’t be massive amounts of capacity added as unrealized capacity is put into production, which then must ramp to pay for depreciation.”

Unlike 2000, the chip making industry today is “very healthy” with very little unrealized capacity, meaning that the equipment side will remain positive with low single digit growth. One wild card still in the mix is yield, which could drive down utilization further than VLSI’s forecast, the analyst firm said, sending equipment into negative territory.

By: DocMemory
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