Semicon West: What a difference a year makes

Last year, the annual Semicon West fab tool tradeshow may have been one of the depressing gatherings in human history. The semiconductor market had actually turned the corner by then, having gone through the worst of the steep downturn, but nobody was really sure about that at the time. The numbers of attendees and exhibitors were noticeably down, and there was much trepidation in the faces of the people who did attend. Job seekers outnumbered tool buyers by 25 to one.

What a difference a year makes. As the show kicks off Tuesday (July 13), the semiconductor equipment market is enjoying a tremendous rebound, albeit compared to the dismal business levels of 2009. Still, the chip equipment  book-to-bill ratio published by the trade group SEMI has now been above parity for 11 consecutive months. Market research firm Gartner Inc. is now predicting that semiconductor revenue will be up 27 percent compared to last year, and SEMI estimates that the market for semiconductor manufacturing materials will be up 17 percent while the equipment market improves by a whopping 104 percent.

Here are a few other rosy tidbits from Monday's SEMI/Gartner Market Symposium:

• Gartner's updated forecast calls for capital spending to improve by 83.5 percent in 2010, reaching nearly $26 billion.

• Gartner predicts the chip equipment market will grow through 2012 before declining in 2013.

• Record growth in terms of percentage is likely for chip equipment in 2010, led by 193-nm immersion lithography steppers.

• SEMI estimates that the market for packaging materials will rise 12 percent in 2010 and another 5 percent in 2011.

• SEMI projects that photoresist revenue will improve by 23 percent this year, with 193-nm resists accounting for 40 percent of the market.

• SEMI predicts that worldwide chip revenue will top $300 billion next year.

• Spending on constructing and equipping front-end fabs this year will be up 121 percent compared to last year, according to SEMI.

• Nine chip companies plan to spend at least $900 million on capital expenditures in 2010, up from three companies last year, according to SEMI.

Still, it's not all fun and games. There are a few troubling signs, hidden way below the record growth projections.

Christian Dieseldorff, an analyst who tracks fabs for SEMI, said he hasn't seen such a sudden rush of record investment by so many companies in his 25 years in the semiconductor business, noting that many companies will more than double their capital spending this year compared to last year.

But Dieseldorff warned that while there are 21 new fab construction projects slated to break ground in 2010, there is currently only one publicly announced fab set to begin construction in 2011. "That concerns me," Dieseldorff said.

Even with the huge projected growth, spending on chip equipment in 2010 is still expected to be below 2006 levels, Dieseldorff said.

Dieseldorff and others question whether the mad rush of capacity expansion will throw the industry's supply/demand balance out of whack. "I am concerned that this could create equipment supply bottlenecks," Dieseldorff said. "I am also wondering where all the money is coming from."

"The amount of capacity I see being added at 45- and 32-nm concerns me a little bit," said Dean Freeman, a research vice president at Gartner. Freeman likened the situation to the 1990s, when DRAM companies and foundries added a great deal of capacity, creating a glut, in order to increase market share.

Don't expect revelers at the 2010 Semicon West to be derailed by this type of caution. While these trends  bear watching, this year's show is likely to be much more a celebration about the good times at hand.