Quick, which semiconductor region next year will have the greatest increase in
capital spending? Would you believe Japan ?
That's right. Japanese semiconductor capex in 2003 is expected to soar 31% to
$5.13 billion, according to Morgan Stanley Research, San Francisco. That
compares to an 18% capex hike in South Korea, a 15% rise in Europe, a 5% decline
in North America, and a 1% drop in Taiwan.
Even in absolute dollar terms, Japan's anticipated chip capex growth is
eye-catching. The $5.13 billion total is second only to North America's
projected $9.6 billion. Take away Intel Corp.'s expected $4.4 billion capex, and
Japan is even with the $5.2 billion capex for all other chipmakers in this
Japan's chip capex boost looks impressive because it is coming off a rock-bottom
level for the last two years. As Bill McClean, prinicipal of IC Insights, Inc.,
Scottsdale, Ariz., pointed out: "Japanese semiconductor companies have to make
major increases in capital investment if they want to stay in business. They had
so drastically under-invested in the last two years that without a dramatic
turn-around in capex, they would no longer be competitive."
Japanese total semiconductor capex in 2001 plunged 65% and fell another 23% this
year. A few examples set a stark picture: NEC capex cascaded from $2 billion in
2000 to $405 million this year, McClean said. Hitachi's capex this year of $180
milllion is only one-tenth of the $1.9 billion in 2000.
The Japanese chip capex gains look so good, not because they are world-beating,
but because other regions look so mediocre. Next year's capital investment in
Japan is still nearly one-third of that country's $14.4 billion semiconductor
capex in 2000.
Still it could help arrest a disastrous chip industry freefall.
A case in point is the emerging new IC combine of Hitachi and Mitsubishi, which
is expected to double its capex next year. As separate chip operations this
year, both had very low capex below $200 million each. But if the new chip
merger can effectively pool its capital spending, the expected $800 million is
in the same range as many frontline chipmakers around the world.
Most of the Japanese capex increases are likely to go to upgrading existing fabs
rather than building expensive new facilities. The Hitachi-Mitsubishi union is
expected to concentrate capital investment on upgrading the existing Hitachi
Tricenti 300-mm wafer fab to 130-nanometer and eventually to 90nm processing.
Toshiba Corp. and Fujitsu Ltd., who for the last six months have been waltzing
around a possible chip union, are reportedly toying with the idea of combining
on a joint fab. A Fujitsu spokesman said a joint fab is only in the talking
stage and nowhere near a decision point yet. But even this could be re-equipping
an existing facility for 300mm wafer production rather than building a brand new
One of the few new ground-up fabs is Elpida Memory Inc.'s 300mm wafer plant
nearing completion in Hiroshima.
It will take several years of continued big capex infusions to offset the
precipitous capital spending declines of the last two years. Time will tell if
the Japanese really mean business or the 2003 capex increases are only a flash
in the hibachi.