SAN JOSE -- Japan stunned most industry observers by becoming the world's largest semiconductor equipment market in the first quarter of 2001.
For a variety of reasons, equipment shipments in Japan surged 31.7% in Q1 from the prior quarter while other regions nose-dived, according to new data released last week (see May 23 story). But now, most industry analysts expect Japan's capital spending to plunge as well in the second quarter.
The 1Q jump was "an aberration of budget carryover," said semiconductor analyst Bill McClean, president of IC Insights Inc. "We will see those numbers dropping significantly in the next few quarters."
Chip equipment shipments jumped to $3.37 billion in Japan during the first three months of 2001--an increase of 31.7% from $2.56 billion in Q4 of 2000 and 54.8% higher than $2.18 billion in Q1 of last year, according to Semiconductor Equipment and Materials International (SEMI). For the global chip industry, semiconductor equipment purchases dropped 12.7% to $11.25 billion in Q1 vs. $12.88 billion in Q4, based on data from the San Jose-based trade group (see table below).
With Japanese chip makers operating on fiscal budgets ending March 31, many companies were still finishing up wafer fab upgrades and new facilities in Japan when the downturn intensified in the first three months of 2001, noted analysts. In addition, Japan's chip industry had lagged other regions in plant investments during the 1999-2000 boom, partly because of the country's economic recession.
When Japan's fiscal 2001 budgets were launched in the second quarter of 2000, the semiconductor industry was at its peak in terms of revenues and bookings. "There was a lot of upgrading from older 6-inch fabs to 8-inch facilities and new technologies. And, 2000 was a year for catching up in Japan," McClean observed. "Some of the surge in spending was also a statement by companies, which wanted to show they were not pulling out of the IC business," added the Scottsdale, Ariz.-based analyst.
But data collected by IC Insights and SEMI show Japan's spending spree being cut off.
"Based on the trends we are now seeing in Japan, equipment bookings are only averaging a half billion dollars in recent months, compared to about one billion in December," said analyst Elizabeth Schumann, director of industry research and statistics at SEMI. "Their bookings have been cut in half, and we would expect to see a more significant drop in shipments going forward."
SEMI's quarterly sales figures track semiconductor equipment shipments inside a regional market, meaning that investments made by Japanese companies outside of Japan would show up in other regions. A recent wave of Japanese investments in silicon foundries and joint ventures in Malaysia, South Korea, China, and Israel will also not show up in the Japan's equipment revenues.
But Japanese device manufacturers are chopping their entire capital spending plans, just like other chip makers worldwide, said McClean of IC Insights. Japanese semiconductor houses increased capital spending for equipment by 95% in 2000--second only to European companies, which hiked investments 108% last year over 1999 levels--but "as a group now we have Japan's IC makers cutting back 30% this year," McClean said.
Overall, IC Insights estimates that capital spending by chip makers worldwide will be down 21%, based on the announced plans. However, that percentage drop could go down a few more points, McClean said.
"Our viewpoint is that there are probably more cuts and downward adjustments coming--probably from companies like Infineon and Samsung, which are still fairly high," he said. IC Insights' data on the top 10 capital spenders shows Infineon Technologies AG of Munich increasing its budget 33% to $2.2 billion in 2001 compared to $1.65 billion in 1999. Samsung Electronics Co. Ltd. in Korea is currently ranked second in capital spending at $2.5 billion in 2001, a 19% decrease from $3.1 billion.
"We think the industry could end up at a decrease of 25% this year to $22.87 in equipment sales vs. $30.47 billion in 2000," McClean added. "Without a cut by Intel which is sticking to its record-high $7.5 billion capital spending budget for this year I don't think it will get much worse than a 25% drop in 2001."
Regional scorecard on chip equipment sales
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