SANTA CLARA, Calif.--The semiconductor recovery continues to pick up steam, although there are some signs that the market is overheating, according to industry analysts at VLSI Research Inc. here this week.
At the same time, VLSI Research raised its chip and semiconductor-equipment forecasts for 2004--by a wide margin. In fact, happy days could be here again for semiconductor equipment vendors, as that market is expected to increase a staggering 40.1 percent in 2004 over 2003, according to VLSI Research.
The firm also projected that the semiconductor market would grow by 32 percent in 2004 over 2003. In 2003, the semiconductor equipment and IC markets are projected to grow 4.3 percent and 18 percent, respectively, according to the Santa Clara-based research firm.
The new forecasts are different than its previous predications. Last month, the firm projected that the fab-tool and IC businesses would grow 4.2 percent and 13.9 percent, respectively, in 2003 over 2002. At that time, the firm also projected that the fab-tool and IC sectors would each grow 21.3 percent.
"2004 is expected to be a hot year," said G. Dan Hutcheson, president of VLSI Research, during a presentation at its headquarters in Santa Clara. "Next year looks like 2000. The bad news is that next year looks like 2000," Hutcheson said in an interview with Silicon Strategies.
The semiconductor analyst was referring to the boom cycle in 2000, where demand and fab-capacity shortages dominated the semiconductor landscape. The reminiscent signs beget a sense of caution right now--if not concern--especially given the extending lead times and shortages of select components and process technologies in the market heading into 2004.
"There's a clear sign that the IC industry is overheating," he said.
Even fab-tool vendors, which have been hit hard by the downturn, are seeing a sudden demand for their products, said analyst Risto Puhakka of VLSI Research. "Everything is booked out," Pukahkka said.
Demand for fab tools is currently across the board, with the backend portion of the business leading the way. "The backend has led us into this cycle," Hutcheson said. "The backend still leads."
This is not to say the front-end chip-equipment markets are taking a backseat. "193-nm tools are booming," he said. "ALD is also hot."
In another sign that the IC market is recovering, the worldwide chip-equipment book-to-bill reached 1.11 in November and the semiconductor ratio hit 1.18 last month, according to VLSI Research.
Worldwide fab-capacity utilization hit 98.8 percent in November, according to the Santa Clara-based research firm.
In comparison, the worldwide semiconductor equipment book-to-bill ratio reached 1.03 in October of 2003, which is flat from September, according to VLSI Research. The book-to-bill ratio for ICs was at 1.15 in October, up from 1.11 in September. And capacity utilization reached 96.4 percent last month, according to the firm.
The equipment market is showing a number of positive signs. Worldwide bookings amounted to $3.009 billion, while billings were at $2.712 billion in November. Of the billings, $1.405 billion were for wafer processing equipment, $752 million for test and related Equipment, $206 million for assembly, and $348 million for service and spares, the report said.
"The chip industry is seeing a spike in demand brought about by a strong economy and consumers' growing thirst for anything electronics," according to VLSI Research. "Years of under investment have left the industry with little spare capacity. Front-end capacity utilization reached 98 percent in November, surpassing the peak in 2000."
This bodes well for the equipment market. "Chip makers are paying for delivery slots all the way out to 4Q04. They are even agreeing to pay for materials when they sign the build release. This is something that has not happened in well over a decade," according to VLSI Research.
"Unfortunately, this occurred so late in the year that it is not expected to boost equipment sales significantly in 2003. The impact will be fully felt in 2004, which could very well be a price-led upturn for the equipment industry," it said.