2012 stall could pave the way for a record-breaking 2013
by Christian Gregor Dieseldorff, SEMI Industry Research & Statistics
September 7, 2012 — Consumer and business sentiment has become more important than ever before in the semiconductor industry. As we near the end of the third quarter in 2012, pessimism about the economy prevails given the challenging financial situation in the US, a slowing Chinese economy, and the on-going European debt crisis.
At the beginning of 2012, the outlook for semiconductor revenue was more optimistic, with predicted average growth of about 4 to 6 percent. The macroeconomic situation inspired caution and semiconductor revenue outlook changed to an outlook of flat to 2 percent for this year, with various key companies announcing changes in their revenue outlook. For example, in July, Intel cut its 2012 sales growth target to US$ 55.6-58.7 billion, up 3 to 5 percent from 2011, though Intel expects a stronger second half of 2012. TSMC cut its revenue growth rate by about 1 to 2 percent, expecting a slowdown in 4Q12 and into 1Q13. In July, STMicroelectronics announced it will cut capex for 2012 by 25 percent because of a lower outlook.
Meanwhile, struggling Japanese MCU and Analog/Power-maker Renesas considers options to stay in business, such as consolidating business units or pursuing a fab-lite strategy. Fujitsu announced it will pursue a fab-lite strategy, and recently announced the closure of one assembly and test facility and the transfer of ownership of two other facilities to J-Devices Corp. Also since mid-2012, a number of companies have announced more layoffs — including Siltronic AG, Nokia, Cisco, ON Semi, Google’s Motorola Mobility and Rambus.
2013: Another golden year?
While various industry segments appear to be tapping the brakes, others are revving their engines, hoping for an improved 2013. Increased demand for mobile devices, such as new smartphones, ultraportable PCs, and tablets may push semiconductor revenue higher by 10 percent, making 2013 another golden year.
Semiconductor revenue and capex rise and fall together, such that fab equipment spending generally trends along a similar path.
Frontend fab equipment spending, by product types.
(Source: SEMI World Fab Forecast Reports, August 2012)
In terms of fab equipment spending, 2007 and 2011 were golden years. Although spending in 2012 will decline, it may still turn out to be the third largest spending year on record for overall fab equipment spending.
SEMI’s fab database shows about 200 facilities equipping (including Discrete and LED fabs), suggesting that 2013 has the potential to be another golden year — perhaps an all-time record — with 17 percent growth, almost $43 billion.
Frontend fab equipment spending. (Source: SEMI World Fab Forecast Reports, August 2012)
Key drivers for fab equipment spending in 2012 are the foundries, led by TSMC, Globalfoundries, and UMC with over $10 billion combined spending. Their dominance continues in 2013 with about another $10 billion in spending.
Frontend fab equipment spending by product types, showing largest spending types.
(Source: SEMI World Fab Forecast Reports, August 2012)
Examining fab equipment spending by product type, the DRAM sector is still struggling with declining average selling prices. The industry lost German maker Qimonda in 2009, Powerchip exited DRAM in 2011, and ProMOS is struggling. In order to avoid further ASP declines, DRAM makers ceased investments in new capacity and those who could afford it focused investment in new technologies and upgrading existing fabs. After the bankruptcy of Elpida, at the beginning of 2012, global capital expenditure for DRAM declined to very low levels. This is not expected to change in 2013.
Flash investments also slowed in 2012. For example, at the beginning of 2012, Sandisk announced a pause in Fab 5 capacity expansion. At the end of July, Toshiba announced it will cut its NAND production by 30 percent. However, SEMI data indicates that Flash investments will pick up again in 2013, with big spenders Samsung (mainly Line 16), SK Hynix, Flash Alliance, and Micron.
Samsung turns attention towards System LSI by converting existing Memory fabs into System LSI and building new ones. Spending on a grand scale, Samsung is predicted to pour over $5 billion in 2012 and over $6 billion in 2013, all into this product type.
Although more fab projects have begun than estimated last year, the overall number of fab construction projects has declined year-over-year. Looking at how this affects investments, in 2012 investments for construction projects are expected to decline by 4.4 percent (from about $6.4 billion to $6.1 billion). In 2013, another 10 percent drop will bring fab construction spending to about $5.5 billion.
Foundries perform much better than other industry segments in terms of installed capacity growth. Foundries are even more necessary given industry consolidation and as more IDMs change to a fab-lite or fabless business model. Examining installed capacity by product type, Flash will overtake DRAM in 2012.
Cutbacks in Flash production in 2012 have improved average selling prices so companies will likely increase Flash capacity in 2013 to meet anticipated demand growth. DRAM capacity investments are at "maintenance level," so no increase of installed capacity is expected in 2013. Samsung’s heavy investments in System LSI will singlehandedly grow SLSI capacity (its $4 billion conversion of Austin, TX fab from Flash to 28nm SoC logic devices).
While 2012 may not bring positive growth, it may still end up reigning among the top performing years. As the industry continues to consolidate, with more companies moving towards a fab-lite or fab-less model, traditional foundries continue to expand and some big IDMs ramp their foundry services. Investment "engines" may be idling in the near-term, and those investments could gear up for a smooth acceleration into 2013, driven by high demand for mobile devices.
SEMI Industry Research and Statistics Group: A worldwide dedicated team
Since the last fab database publication at the end of May 2012 SEMI’s worldwide dedicated analysis team has made 296 updates to more than 230 facilities (including 52 Opto/LED fabs) in the database. The August edition of the World Fab Forecast, lists over 1,150 facilities (including 300 Opto/LED facilities), with 76 facilities starting production this year and in the near future.
The SEMI World Fab Forecast uses a bottom-up approach methodology, providing high-level summaries and graphs; and in-depth analyses of capital expenditures, capacities, technology and products by fab. Additionally, the database provides forecasts for the next 18 months by quarter. These tools are invaluable for understanding how the semiconductor manufacturing will look in 2012 and 2013, and learning more about capex for construction projects, fab equipping, technology levels, and products.
SEMI’s Worldwide Semiconductor Equipment Market Subscription (WWSEMS) data tracks only new equipment for fabs and test and assembly and packaging houses. The SEMI World Fab Forecast and its related Fab Database reports track any equipment needed to ramp fabs, upgrade technology nodes, and expand or change wafer size, including new equipment, used equipment, or in-house equipment.
Also check out the Opto/LED Fab Forecast.
San Jose, California
September 4, 2012