Outlook for semiconductor equipment industry improving, spending growth expected, Gartner says

By Suzanne Deffree, Managing Editor, News -- 6/15/2009

The outlook for the semiconductor equipment industry, one of the hardest hit semiconductor segments by the economic downturn, is beginning to improve, according to Gartner Inc.

The market research company today reported that it appears capital equipment spending has bottomed out in Q2 and predicted a gradual improvement on a quarter-by-quarter basis throughout the rest of the year and into 2010. The report came after Gartner in May revised its overall semiconductor industry expectations for revenue in 2009, improving its estimate from a 24.1% decline to a 22.4% decline.

“The impact of the economic crisis has hit the semiconductor equipment industry hard, but signs of life are returning,” said Klaus Rinnen, managing VP at Gartner, in a statement. “Undoubtedly it will be a long, slow road to complete recovery, but we are seeing the first indications of increased foundry activity to replenish inventories depleted by the cutbacks of the past few quarters.”

Also see: Foundry revenue to rise nearly 60% in Q2

Indeed, the current uptick in semiconductor sales will not be sufficient to overcome the effects of industry-wide overcapacity and low utilization rates in the short term, Gartner said. The company estimated that worldwide semiconductor capital equipment spending will total $24.3 billion in 2009, a steep 44.8%decline from 2008 spending of $44 billion. However in 2010, worldwide capital equipment spending is expected to reach $29.4 billion, a 20.9% increase from 2009, Gartner said. 2010's growth is expected to be followed by growth of 34.5% in 2011 and 19.6% in 2012 before declining 10.9% in 2013, according to Gartner estimates. (See table below.)

Gartner also reported that worldwide wafer fab equipment spending is expected to decrease 47.1% in 2009, following a drop of nearly 33% in 2008. In 2009, the etch, clean, and planarization segments will be the largest of the front-end equipment areas, followed by deposition and then by lithography. Gartner said that lithography has been hit especially hard by the downturn as sales for the most advanced 193-nm immersion tools in memory have been "lukewarm," with capital spending for memory at levels not seen since 2002.

The market research company further reported that after declining nearly 25% last year, the packaging and assembly equipment (PAE) market is expected to fall nearly 47% in 2009. A recovery for PAE will likely to be seen in the second half of this year, if recent positive economic developments are sustained, Gartner said.

Meanwhile, the worldwide automated test equipment (ATE) market is forecast to decline 32% in 2009. Gartner noted that while the test market has waded through a difficult period since 2007, it appears that a bottom is forming in Q2. As the ATE market now sits at very low market levels, with some test segments very likely realizing substantial capacity reductions, ATE could move toward a growth phase with the potential for explosive growth in the 2010 and 2011, Gartner reported.

“Over the past few years, we have seen the semiconductor and electronics industries implement impressive movements in their ability to control and manage inventories,” said Rinnen. “It appears the industry has learned a painful lesson and can implement improvements on its ability to manage capital investments and capacity and thus bring a return to profitability to all segments.”

Rinnen recommended that for the next few quarters, equipment suppliers focus on quarter-to-quarter growth and "let the annual numbers fall where they may."


Worldwide semiconductor capital equipment spending forecast, 2008-2013 (millions of dollars)

	2008	2009	2010	2011	2012	2013
Semiconductor capital spending	44,012.3	24,295.9	29,383.7	39,511.8	47,264.1	42,121.8
Growth	-30.5	-44.8	20.9	34.5	19.6	-10.9
Capital equipment	30,659.3	16,615.9	21,438	29,485	34,704.3	29,757.4
Growth	-31.7	-45.8	29	37.5	17.7	-14.3
Wafer fab equipment	24,213.9	12,818.7	16,206.9	22,400.9	26,982.7	23,582.1
Growth	-32.8	-47.1	26.4	38.2	20.5	-12.6
PAE	3,999.8	2,135.1	3,033.8	4,049.6	4,483.8	3,565
Growth	-24.5	-46.6	42.1	33.5	10.7	-20.5
ATE	2,445.5	1,662	2,197.3	3,034.5	3,237.8	2,610.2
Growth	-31.2	-32	32.2	38.1	6.7	-19.4
Other spending	13,353	7,680	7,945.7	10,026.9	12,559.8	12,364.4
Growth	-27.6	-42.5	3.5	26.2	25.3	-1.6

Source: Gartner, June 2009

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