Overall capital spending is projected to hit $54.6 billion in 2006, up 15.1 percent over 2005, according to Gartner (Stanford, Conn.). Capital spending is projected to fall by 0.1 percent in 2007, but it will rebound and grow by 18.4 percent in 2008, according to the research firm.

Worldwide capital equipment spending is projected to grow 23.5 percent in 2006, but the industry will soften in 2007 as spending declines 2.7 percent, according to Gartner. The industry will rebound in 2008, as capital equipment spending is forecast to increase by 23.3 percent.

The numbers are slightly difference than the previous forecast in July.

"Semiconductor capital equipment bookings have continued to surge throughout 2006 as semiconductor manufacturers quickly add capacity," said Klaus Rinnen, an analyst with Gartner, in a statement.

"However, there are a number of concerns for equipment manufacturers, such as an increasing inventory situation, the strong potential for oversupply in both flash and DRAM if an increase in demand does not materialize, and the delta between equipment spending and semiconductor revenue growth," Rinnen said. "Combined, these conditions create a scenario that could lead to a slight correction next year."

Throughout 2006, total utilization rates will stay in the low-90-percent range, with leading-edge capacity remaining at about 97 percent, according to the firm.

However, by 2007, as new capacity comes on line, utilization rates will drop slightly, although they will stay at about 90 percent throughout 2007. This will result in a slowing demand for additional capacity as the industry absorbs the shipments from 2006, according to Gartner.

As a result, wafer fab equipment revenue will grow 24.6 percent in 2006, but 2007 revenue will decline 2.1 percent.

The packaging and assembly equipment (PAE) market is forecast to grow 13.6 percent in 2006, and it will decline 7.4 percent in 2007. The orders picture for this segment "seems a bit murky at this point because some semiconductor assembly and test services (SATS) suppliers have taken a more cautious, wait-and-see approach," according to Gartner.

The automatic test equipment (ATE) market will grow 27.4 percent in 2006, and this segment will experience a slight decline in 2007 of 1.9 percent. In 2006, the market's strength is coming from all regions and most market segments, with memory and system-in-package (SiP) testers fueling the market's growth.

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