STAMFORD, Conn.--A strong acceleration in chip demand at the end of 2003 is expected to spill over and drive capital spending in 2004, according to a quarterly forecast from Gartner Inc. here today (December 19, 2003).
Worldwide semiconductor capital spending is projected to hit $37.1 billion in 2004, up 27.9 percent from $28.9 billion in 2003, according to market research firm Gartner. In 2003, worldwide semiconductor capital spending is expected to increase 5.7 percent over 2002.
Capital equipment spending is expected to total $29.5 billion in 2004, up 35.9 percent from $21.7 billion in 2003. Capital equipment spending is supposed to grow 5 percent in 2003 over 2002. The worldwide capital equipment market includes wafer fab equipment, packaging and assembly equipment and automated test equipment, according to the Stamford-based firm.
The backend segment continues to drive the current fab-tool recovery. The packaging and assembly equipment market is expected to jump 37.7 percent next year, from $2.9 billion in 2003, to $4 billion in 2004. In 2003, the packaging and assembly market is projected to grow 24.7 percent over 2002.
After a major slump, the automatic test equipment (ATE) industry is projected to grow 46.4 percent next year, from $2.4 billion in 2003, to $3.5 billion in 2004, according to Gartner. In 2003, the ATE industry is expected to grow 8.7 percent over 2002.
This is not to say that growth has stalled for front-end wafer-fab equipment (WFE). The WFE market is projected to grow 34.1 percent in 2004 to $22 billion, up from $16.4 billion in 2003, according to the report. In 2003, the WFE market is supposed to grow a mere 1.6 percent over 2002.
"The outlook for 2004 is bright," said Klaus-Dieter Rinnen, managing vice president for Gartner's semiconductor manufacturing and design research group, in a statement. "The return of a corporate investment cycle, a PC upgrade cycle that is gaining steam, a broad-based recovery in end-user applications, low inventories and tight manufacturing capacity all are converging to provide for strong growth in all equipment segments."
There is also good and bad news for the industry. Chip demand continues to increase, inventory levels remain at healthy levels, and average selling prices (ASPs) are stabilizing, he said. But capital spending remains stalled as device manufacturers remained cautious in 2003.
The combination of cautious investment and rising production has driven utilization rates upwards across the board. Gartner estimates that 2003 will end with worldwide utilization about 90 percent and leading edge utilization in excess of 95 percent.
"These trends should continue through 2004 and well into 2005 as manufacturers finally begin to invest heavily in response to increased end market demand and improved profitability," Rinnen said. "The industry needs more capacity if it is going to continue to meet increased device demand. However, running a fab at high utilization rates leads to high margins and profits, something the industry has been in short supply of for the past few years. As a result, semiconductor manufacturers are playing a risky game-- maximizing profitability, while assuming they can wait until the last minute to commit resources for new capacity," he said.
"For 2004, global capital spending is expected to increase by 28 percent, however, the big question is will the orders for new equipment be released fast and early enough to avoid shortages on the device market," Rinnen said.
"While we have seen encouraging increases in the order rate for new equipment in the past few months, it is still too early to tell. There is still the question as to whether the equipment industry can respond fast enough to the anticipated demand for new equipment. However, it has proven time and time again that it can rapidly ramp its shipment rate in response to an explosion of orders, and we expect it will do so again, provided the explosion occurs," he added.