Will 2014 be the Next Golden Year? CHRISTIAN GREGOR DIESELDORFF, SEMI Industry Research & Statistics Group, San Jose, CA. Some unexpected underdogs spur spending spree Next year could be a golden year for the industry. While GDP in 2013 is generally about the same as in 2012, it is expected to rise in 2014, to 3.8 percent from 3.1 percent. Semiconductor revenue has improved in 2013 compared to 2012 and early forecasts for 2014 project revenue growth averaging about 8 percent. Semiconductor companies have adjusted their capital expenditure accordingly, and the SEMI World Fab Forecast data now indicates fab equipment spending for 2014 will reach historic highs. The SEMI World Fab Forecast report tracks over 200 projects, with details revealing that fab equipment spending declines by 1 percent in 2013, but will increase 25 percent in 2014, including new, used and in-house equipment. Overall fab spending in the first half of 2013 was slower, especially for fab equipment spending. Excluding a large purchase by GLOBALFOUNDRIES for used 300mm equipment from Promos (NT$20 to NT$30 billion) the decline in 2013 would have been -3.4 percent instead of -1 percent. Fab equipment spending is expected to be stronger in the second half of 2013, with a 30 to 40 percent increase over the first half, though the year will end with an overall equipment spending decrease of -1 percent. SEMI’s data show a different outlook for fab construction projects, forecasting a 25 percent increase in 2013 and then a drop of 16 percent in 2014. Fabs being built this year will begin equipping next year which affects fab equipment spending. Semiconductor device revenues did not grow in 2012 (dropped by about 2.7 percent), thus many companies slowed down capacity additions last year. With some improvement in the market, the SEMI data indicate that more capacity will be added in the 2nd half of 2013 and even more in 2014, for overall capacity growth of about 4 percent (FIGURE 1). FIGURE 1. More capacity will be added in the 2nd half of 2013 and even more in 2014. Underdog DRAM surges to the front of the pack Fab equipment spending for dedicated foundries remains strong in 2013 ($12B) and in 2014 ($13B) — a growth rate of 5 percent in 2014. Foundry equipment spending growth rates have been more controlled and not changing as dramatically as in other industry segments. In the years prior to the economic downturn, fab equipment spending for DRAM was the highest spending industry segment. Since 2011, however, the dedicated foundry sector replaced DRAM as the leading industry sector (FIGURE 2). Fab equipment spending growth for DRAM turned negative in 2011 and 2012, as companies consolidated or diverted memory capacity into other products such as System LSI. DRAM equipment spending dropped by double digits in 2011 and 2012 (-35 percent and -25 percent respectively). SEMI’s data show that this will change dramatically, with DRAM fab equipment spending surging by 17 percent in 2013 and at least 30 percent in 2014. Driven by increased average selling prices (ASPs), up by about 40 percent in 2013, companies will begin to see profit on DRAM and slowly invest in new capacity (FIGURE 3). FIGURE 2. Since 2011, however, the dedicated foundry sector replaced DRAM as the leading industry sector. FIGURE 3. Companies will begin to see profit on DRAM and slowly invest in new capacity. An increase of about 2 to 3 percent for installed capacity for DRAM in 2014 is small but remarkable, given that the industry has not added any new DRAM capacity for years, and actually decreased capacity between 2011 and 2013. The sector with largest growth rate for fab equipment spending in 2014 is expected to be Flash with 40 percent to 45 percent (YoY). Over the last few years, with fears of oversupply and price collapse, capacity additions for the Flash sector also stagnated. Some companies even stopped or reduced adding new capacity (for example, Sandisk in 2012 and in 2013), leading to a tight supply, but a rebound in capacity is expected in the 2nd half of 2013 and through 2014. SEMI’s reports show detailed predictions for robust spending in DRAM and Flash by several large companies. For example, Micron, which officially acquired Elpida and Rexchip in July 2013, will dedicate almost half of its total 2014 capital expenditure to DRAM. After converting several fabs from memory to System LSI, rival Samsung is also expected to change tactics, spending less on System LSI and more on Memory in 2013 and 2014. Samsung’s Flash facility in China is expected to ramp to phase 1 by end of 2014. (The World Fab Forecast report reveals more detail on this and other surprising changes for S1 facilities and Line 16.) Overall fab equipment spending for Flash alone is expected to hit a record of almost $8B in 2014. The largest contributors are the Samsung fab in China and Line 16, Hynix M12 and M11, Flash Alliance fabs and Micron fabs. MPU Joins DRAM as the next underdog After Flash and DRAM, MPU is expected to show the next largest growth in 2014, with fab equipment spending growing by over 40 percent (YoY). While MPU languished in 2011 and 2012, and even dipped into negative growth in 2013, with low utilization in some fabs, Intel is now preparing for 14nm, kicking off an MPU surge for 2014. The World Fab Forecast report gives insight into Intel’s preparations for 14nm. Semiconductor companies appear to have mastered the art of fast adaptation to chip prices and business developments. With improving prices for DRAM, similar changes steer various sectors of the industry into unprecedented growth. With GDP predictions around 3 to 4 percent, revenue expectations in upper single digits, and historic numbers for equipment spending, next year could be a golden year for many semiconductor companies and equipment manufacturers. SEMI World Fab Forecast report Since the last fab database publication at the end May 2013 SEMI’s worldwide dedicated analysis team has made 242 updates to 205 facilities (including Opto/LED fabs) in the database. The latest edition of the World Fab Forecast lists 1,147 facilities (including 247 Opto/LED facilities), with 66 facilities with various probabilities starting production this year and in the near future. We added 14 new facilities and closed 8 facilities. The SEMI 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. • CHRISTIAN GREGOR DIESELDORFF is the Senior Analyst, Director, Industry Research & Analysis Industry Research and Statistics Department at SEMI, San Jose, CA.