Gartner cuts semi equipment forecast to -22.4%
Heading grimly into the semiconductor manufacturing equipment industry’s biggest tradeshow and conference next week, Semicon West, market researcher company Gartner Dataquest has cut its semiconductor capital spending forecast by an additional 2.6%, projecting a 22.4% decline for 2008, with little upside potential currently visible for the near term given that all segments of the semiconductor manufacturing equipment market are reporting decreased spending plans, coupled with an anticipated bursting of the capital spending bubble in memory markets, as well as continued uncertainty in the global economic picture.
The company notes that its most likely scenario has spending growth returning in 2009.
According to Gartner analysts Bob Johnson, Mark Stromberg and Klaus Rinnen in a report out today, little has changed in the company’s overall view of the semiconductor industry’s capital spending and equipment picture, which still reflects a significant decline from 2007 as companies respond to a variety of market conditions by cutting back on spending plans.
This modification compares to Gartner’s April forecast for a capital expenditure (capex) decline for 2008 of 19.8%.
By segment, the company forecasts declines across the board for all semiconductor manufacturing equipment, with wafer fab equipment (WFE) revenue to be down 21.5%, packaging and assembly equipment (PAE) revenue to decline 15.2%, and automated test equipment (ATE) revenue to will be down 20.3%.
Gartner reminds that the capital spending picture is shaped by a number of factors including economic uncertainty, which tends to make corporate planners cautious, this year being no exception. Also, a continued significant oversupply condition in the DRAM and NAND flash memory segments has led to precipitous price declines and profitability pressures for most of the memory producers, while the memory spending pattern is currently on the downside of a boom/bust spending environment, which saw rampant overcapacity in all areas of memory; this has resulted in a situation in which unit volumes produced could be moved only at fire sale prices.
In addition, a combination of slower industry growth rates and increased costs of staying at the bleeding edge of manufacturing technology could lead to cautious spending by non-memory integrated device manufacturers (IDMs) in response, Gartner said. And, the company said the foundry investment pattern could change from, “If we build it, they will come,” to “If they come, we will build it.”
Still, Gartner maintains its forecast for a capital spending recovery in 2009, as the oversupply of DRAM capacity is resolved, but has reduced its expectations for capital spending growth because the latest global economic forecasts show lingering concerns, causing expectations to be slightly below those for 2008.
Semiconductor capital spending should grow 7.6% in 2009, which would drive growth in all the equipment segments, the company reported.
That said, Gartner cautioned that its forecast could be thrown off given that the overall effect of higher oil prices on electronics spending is not clear at this time, with higher oil and energy prices possibly driving more electronics content for energy-saving devices for consumers and businesses. And increased gas prices can curtail driving and lead consumers to spend more for home entertainment systems and communications equipment. By contrast, higher energy prices and low consumer confidence can reduce discretionary spending available for electronics. The possible different net effect of these economic forces adds uncertainty and risk to the forecast.
Next, Gartner said the latest forecasts by its Global Insight service notes a possibility of a more-protracted US economic slowdown, combined with broader global economic problems that may cause worldwide gross domestic product (GDP) growth expectations for 2009 to dip below that for 2008, while support for consumer spending continues to weaken, which could lead to slower growth in demand for consumer electronic products and related semiconductor devices, particularly NAND flash.
Finally, oversupply in the NAND flash market, possibly triggered by a slowdown in demand, would likely result in drastic capital spending cuts, Gartner pointed out.
All of this leads to the downside potential for next year outweighing the upside, with a worst-case scenario of economic woes delaying recovery in annual spending until 2010, even though quarterly results should show signs of recovery during 2009.
Beyond 2009, Gartner sees an 18.2% capital spending increase in 2010, with 2011 will seeing the next decline of 9.4%, followed by 7% growth in 2012, although continued economic difficulties could change this picture dramatically.
Taking all of this into consideration, Gartner cautions that the next 6 to 12 months will be another period of uncertainty and risks for the semiconductor manufacturing and equipment industries. While its forecast for overall semiconductor industry revenue shows a mild increase consistent with prior years, it is achieved at the cost of major reductions in capital spending to bring capacity more in line with overall demand.
The bursting of the DRAM spending bubble should come as a surprise to no one, the company asserted, as the fact that it coincides with downward economic pressures and the uncertain impact on semiconductor demand adds significant risk to an already grim forecast for capital equipment.
Reviewing quarterly scenarios and looking forward to the end of this year, what happens in the equipment market in Q4 will largely determine whether 2009 is positive. The company said the most likely scenario has shipment growth returning in Q4, which sets the stage for recovery throughout 2009, with the year ending with positive growth. However, if economic conditions continue to deteriorate, and semiconductor manufacturers continue to restrain capacity growth in the face of uncertain demand through the end of 2008, then prospects for annualized growth in 2009 evaporate, even if a recovery in shipment rates occurs later in the year, Gartner said.
As such, Gartner recommends that equipment manufacturers plan for a wide range of contingencies and be ready to respond quickly when opportunities present themselves, and warned that companies should anticipate order slippages and accelerations, continued economic dislocations, and projections of doom and gloom.
The industry again finds itself in a position in which a major cyclical downturn is made worse by a global economic slowdown, and while macroeconomic conditions are out of the industry’s control, individual companies can control their operational and strategic thrusts with cost and profit management, continued innovation, and a focus on core competencies the keys for future success, Gartner concluded.