Earlier in the year, many OEMs believed that although memory orders were very strong and not sustainable, the belief that foundries and logic IDMs would fill in the void in the 2H meant that order taking would in reality be fairly spread across the quarters.

I had noted that as we approached the half-year point, this looked increasingly doubtful, with recent news appearing to validate those comments.

SEZ noted in typical no-nonsense style that:

‘In the DRAM segment in particular, a significant portion of planned full-year capital expenditures was executed in the beginning of this year. As a result, orders from memory makers declined significantly from the middle of the second quarter. Independent market researchers currently expect that order volume from the memory market - which contributed to approximately three-fourths of SEZ Group's first half-year sales in 2007 - will not recover before the end of this year.'

In recent years, under the leadership of Kurt Lachenbucher, SEZ has bucked the concerning trend of executives talking only in Sarbanes-Oxley speak or worse (is that possible?) in a way that means that they actually say very little at all about the business conditions faced by the company going forward. Indeed, they only often provide a retrospective analysis that helps just about no one!

Anyway, SEZ should be applauded for the plain talk.

Interestingly, the company also noted in a financial statement that it expects foundry orders to pick up as soon as fab utilization rates have improved. This was also another point I raised, highlighting that a pickup in foundry business conditions also requires high fab utilization rates before triggering any meaningful spending.

From SEZ's perspective, that is expected to come back in the next few months, pretty much at the end of 3Q, suggesting a 4Q revival only for 2007.

This was expected, and I believe other OEMs need to take account of this pushout when giving any guidance on foundry order patterns. Unlike some OEMs, SEZ has a large installed base of tools in 300mm foundries, so their picture is perhaps more reliable than bit-foundry players. We shall see!

That leaves the rescue party to the logic IDMs such as Intel and AMD who can be relied on to be reliable throughout the year with CapEx needs.

Both have just announced further CapEx cuts for the remaining part of the year. AMD needs to conserve cash and so is pulling back on the Fab 38 tool conversion, while Intel has cited better fab productivity for the pullback, though another reason for this could be that they are conserving cash and trying to hold back sliding gross margins!

Could anything help the OEMs that now find themselves in a deep hole until 4Q07?

I don't see anything on the horizon, and the foundries may be late but could be back in strength all the same, it became apparent when talking to some fabless guys and IDMs during SEMICON West that are now more dependent on foundries. There would seem to be a good amount of order momentum going the foundry way as far as customers are concerned and much of this is at the 65nm node, which would require the foundries to purchase leading-edge tools.

TSMC has got plenty of 300mm capacity waiting to fill this growing need but don't rule out the possibility of UMC coming back with strong orders as a few people I spoke to are placing strong orders with them now to take advantage of the year-end consumer spending. Think mobile phones for one aspect of this consumer trail!

We are in a digestion period as Eric Meurice noted in ASML's conference call last week, especially in respect to memory manufacturers. However, there is a lot more to be said about that and ASML in a later blog, but there is no doubt that memory will continue to be a key earnings focus for OEMs in 2008, whether people like that or not.

That is probably why I didn't experience the doom and gloom mentality at West this year!  It's a poor 2H but 1H was great, backlogs look good, though these will decline rapidly with shipments and push-outs now from IDMs, Memory, and Foundry, but overall the year will be as good as last, and that was good for OEMs.