Semiconductor capex to increase 24% in 2006; decline 2.7% in 2007

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

Source: Gartner Dataquest (October 2006)

2005

2006

2007

2008

2009

2010

2011

Semiconductor 
Capital Spending

$47.4B

$54.5B

$54.5B

$64.5B

$61.2B

$59.9B

$68.5B

  Growth (%)

-2.2

15.1

-0.1

18.4

-5.1

-2.0

14.2

Capital Equipment

$33.9B

$41.9B

$40.8B

$50.3B

$45.0B

$46.6B

$54.7B

  Growth (%)

-10.5

23.5

-2.7

23.3

-10.5

3.6

17.3

Overall semiconductor capital spending is projected to reach $54.6 billion in 2006, up 15.% over 2005, according to Gartner. Capital spending is projected to fall by 0.1% in 2007, and the rebound and rise by 18.4% in 2008, according to the research firm.

Increasing inventory situation, the strong potential for oversupply in both flash and DRAM, and the delta between equipment spending and semiconductor revenue growth are some causes for some concern. This market fluctuation could impact all semiconductor capital equipment companies including  Applied Materials, Credence Systems Corp, Kla-Tencor Corp, Lam Research Corp, Novellus Systems Inc, and Teradyne. 

Wafer fab equipment revenue will grow 24.6% in 2006, but 2007 revenue will decline 2.1%. Throughout 2006, total utilization rates will stay in the low 90 percent range, with leading-edge capacity remaining at about 97 percent. These high utilization rates will drive the need for additional capacity. 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.

The packaging and assembly equipment (PAE) market is forecast to grow 13.6% in 2006, and it will decline 7.4% in 2007. From mid-2005 through the first quarter of 2006, the PAE market remained strong as industry utilization rates improved. 

The automatic test equipment (ATE) market will grow 27.4% in 2006, and this segment will experience a slight decline in 2007 of 1.9%.

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