SAN FRANCISCO — Weak consumer demand, overcapacity and other factors could set the stage for further capital spending cuts in the semiconductor industry this year.
Some are already looking to shave their forecasts. For example, Morgan Stanley originally projected that capital spending in the semiconductor industry would grow between 5 and 10 percent in 2003 over 2002.
Steven Pelayo, an analyst with Morgan Stanley here, was projecting 8-percent growth to about $28 billion in 2003 over 2002. Now, however, Palayo is looking at only 2 to 3 percent growth in terms of IC capital spending for the year.
"I'm worried about it," he said. "We're in a weak demand market," he told SBN.
There are also worries that a "flat 2H '03 will not be as strong as 1H '02, leaving risk of a down 2003 capex," the Morgan Stanley analyst said. "By region and end market, we continue to worry most about DRAM and Japan," he said.
There are some positive indicators, however. "Taiwan foundry utilization is up. Chip inventories are lean. And DRAM prices are stable to up," he said.
It remains ugly for fab-tool vendors, which have been hit hard by a severe downturn starting in 2001. Most, if not all, tool vendors have announced losses and layoffs.
What is especially troubling is there are no signs of long lead-time equipment orders, while vendors are offering steep discounts for their gear, especially 300-mm tools, according to Morgan Stanley. Sources also said tool vendors are offering huge discounts in China just to get the business.
"Looking at 2003, we believe visibility for an industry recovery is still limited and capital spending growth for the year will be modest at best," Pelayo said. "As such, we believe that only technology buys will continue to drive near-term equipment decisions, and thus, equipment vendors that offer leading edge tools will continue to outperform," he said.
"Furthermore, as we have articulated in the past, we believe that back-end semiconductor capital equipment should see healthier demand patterns in 2003 compared to their front-end peers, and thus, test and assembly equipment vendors should see slightly healthier revenue growth than their front end peers," Pelayo said.
