Worldwide capital equipment spending is set to grow by 66 percent in 2004. However, despite this strong growth, the industry will begin to experience a downward cycle in 2005, according to Gartner. Capital equipment spending in 2005 is projected to decline by 0.6 percent.
"We expect a down cycle in 2005 driven by supply and demand issues," says Klaus Rinnen, vice-president for Gartner's semiconductor manufacturing and design research group. "We do not expect a semiconductor device unit contraction, but rather a slowing in the pace of expansion, which, combined with new capacity additions, will lead to a supply-demand imbalance."
While there are concerns for 2005, 2004 is turning out to be one of the best years for the semiconductor capital equipment market. Wafer fab equipment (WFE) revenue is on pace to rise 72 percent, while packaging and assembly equipment (PAE) revenue will grow 49 percent. Automated test equipment (ATE) revenue will increase by 52 percent in 2004.
Worldwide semiconductor wafer fab utilization reached 94.8 percent at the end of the second quarter of 2004, up from 93.2 percent at the end of the first quarter. An excess inventory burn that began in the third quarter broke the advance of utilization rates, leading to a first, but small, decline to 94.7 percent.
"As manufacturers trim production levels to reduce further excess inventories in 2004, and as added capacity comes online, these high rates will not continue," Rinnen says. "Utilization rates should drop below the 90 percent level in the seasonally weak first quarter of 2005. While seasonal demand growth in the second and third quarters will buffer the impact of capacity in motion, rates will decline in late 2005, and bottom out in the first quarter of 2006 in the low 80 percent range, for all production before beginning to climb again."
The "hot spots" for growth in 2004 include the foundry market, with 96 percent capital spending growth, focusing on the logic segment. And memory-related investments, especially in dynamic random-access memory (DRAM), remain above market.
"Regionally, Asia/Pacific investments are projected to grow by more than 80 percent compared with 2003, as a result of these two spending hot spots," Rinnen says. "Spending in Europe should rise about 50 percent, driven by increases in Germany, France and the U.K., but also because Intel is readying its Fab 24 in Ireland. Japan should continue its expansion following the 2001 to 2002 restructuring, and add another 39 percent to its 2003 investments. And, lastly, spending in North America has accelerated. Growth for 2005 now stands at 30 percent, partially driven by non-U.S. company investments. Overall, spending in the Americas is muted, especially when considering recent history, as the region continues its move offshore, and collaborates more with others outside the home region."