Analyst: $10B more semi capex thanks to tablets, smartphones

August 19, 2011 - Heavy demand for tablets and smartphones will require more chipmaking capacity over the next three years, roughly the equivalent of two new fabs a year and $10B in annual capex, says a Wall Street analyst.

Citi’s Tim Arcuri bases his conclusion on a number of calculations:

Smartphone units will double by 2013 to ~1B annual shipments; tablets will triple to 100M. Assuming a 25% CAGR in handset unit growth from 2011-2013, and smartphone shipments doubling during the same period, that means a lot more chips to support mobile information consumption: mobile CPUs, memory (NAND and DRAM), and wireless chips. For tablets, even if Apple’s complete domination weakens a bit, Citi sees it still accounting for more than half the market in 2013; if Apple doubles its iPad shipments, then that’s a safe number to assign for the entire sector.

Bigger demand means more advanced technology. Ever-improving performance (graphics, speed, more memory) while being mindful of power/heat constraints, means "aggressively adopting leading-edge nodes" even while pushing die sizes, Arcuri points out. Apple’s A5, used in the iPad 2 and iPhone 5, is double the die size of the A3 in the iPhone 3GS, even though it’s made with 45nm process technologies vs. 65nm, he noted. Look for ARM-based graphic CPUs (e.g. Nvidia’s Tegra) to follow a similar path. For memory, NAND will continue to make big gains, not just from smartphones/tablets but also solid-state drives; mobile DRAM bit growth will be ~50%, offset by PC cannibalization, with needs largely met simply by node-shrinks and not new capacity.

Lots of chipmakers are jockeying for the business. With Apple reportedly sniffing around new manufacturing partners, the big players (e.g. Intel, TSMC, Samsung, and Globalfoundries) especially want to get into the game, and will keep racing ahead "for at least 1-2 years until clear winners/losers are defined," Arcuri writes. With everyone pushing to add capacity to get a piece of this market, they’ll mostly likely blow past actual demand (~60k WSPM, roughly an extra fab or two per firm), "which will lead to eventual over-capacity in the space," he warns.

Capacity expansions mean investments. Driven largely by tablet/smartphone demand, Arcuri sees "healthy capex spending" for the next several years (minus macroeconomic drags), at "$30B-plus" wafer-fab equipment runrate "in 2012 and beyond." ($14B of annual capex alone will support NAND needs, vs. $11B in 2011). For the near-term, though, he’s sticking with the popular opinion of a brief trough, as the current (3Q11) WFE runrate of $21B (orders) and $26B (shipments) "clearly looks unsustainable."

Projections for NAND capacity (in K WSPM) and capex (in US $M). Assumes $35M capex per 1K WSPM added, 20% of new capex is for shrink/maintenance, and $7M in NAND maintenance per technology capex. (Source: Gartner, Citi Investment Research and Analysis)

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