Gartner, Inc. has made top-to-bottom revisions to its previously published capital expenditure projections for the semiconductor industry through 2012. In 2008, semiconductor capital spending is now expected to decline 19.8 percent, compared with a 13.2 percent decline previously projected. 

Key to the significant correction, according to Gartner, is the ‘shutdown’ in capital spending for DRAM memory, which is expected drop to approximately $10 billion in 2008 - about half the levels seen in 2007. Capital spending on memory capacity has become such a large portion of the total (57% in 2007) that it has a big influence on the overall trend, Gartner said.

Memory manufacturers

DRAM spending plans have declined sharply since Gartner first projected spending plans for the year. It is now projecting a drop of almost 47 percent in DRAM spending and 29 percent in total memory.

Although the news will be of little comfort to equipment suppliers with sales heavily weighted towards DRAM manufacturers, Gartner noted that the competitive investment race among DRAM vendors has finally abated after more than three years of capacity expansions that have led to a collapse in ASPs and quarterly losses for the majority of DRAM suppliers.

With the virtual shutdown of DRAM spending in 2008, Gartner now expects supply and demand to improve in the second half of the year and could provide a much improved business environment in 2009. It is expected that much of the 2008 DRAM investment will focus on replacing less cost-effective 200mm lines with more economical 300mm lines.

In terms of capital intensity, the memory market peaked in 2007 by spending more than 58 percent of total revenue for capital expansion — a level, Gartner believes, that ‘cannot be supported by the anticipated lackluster revenue growth of our current forecast. We expect memory capital intensity to drop to the low 40 percent range for this year and next.’

However, Gartner does not see a shutdown in NAND flash capital spending in 2008. Due in large part to the aggressive spending plans of manufacturing partners SanDisk and Toshiba, the market research firm expects NAND flash spending to increase 3 percent over levels seen in 2007.

Foundry manufacturers

Switching over to foundry capital spending behavior, Gartner sees continued reasons for caution as the industry adjusts to a long period of relatively stable, but lackluster, revenue growth. Foundries are expected to make up 11.4 percent of total spending in 2008 or 7.6 percent of equivalent device revenue.

A decline in foundry capital spending of 24 percent is now expected in 2008, compared to 2007, which fell 4 percent when compared to 2006.

For 2009, Gartner is projecting 7.4 percent growth in capital spending by the foundries, followed by a 12.5 percent increase in 2010. The next decline comes in 2011 of 7.2 percent, followed by 8.4 percent growth in 2012.

IDMs

The market research firm sees selected technology buys, especially by logic IDMs for 45nm process capability, and by foundries for 65nm ramps. Overall, Gartner is projecting that spending by IDMs will actually decline in 2008 and capital spending on logic will decline 7.6 percent in 2008.

Fab utilization

Turning to front-end utilization rates, Gartner noted that these continued to climb throughout 2007, peaking at 89.6 percent for all production, and reaching 94.9 percent for leading-edge production in the fourth quarter.

Capacity utilization at foundries is expected to remain in the range of 90 to 95 percent range through 2008. Leading-edge capacity utilization has recovered from its depressed state in 2007, and it is expected to run 1 to 2 points higher than the overall average for the remainder of 2008, according to Gartner.

Forecast revisions

As can be seen in Chart 1 (Wafer Fab Equipment Capital Spending (Revised April-08)), Gartner has not only reduced wafer fab equipment (WFE) spending in 2008 from its previous projections but has reduced the totals each year through to 2012.

WFE spending is expected to decline by 17.4 percent in 2008, significantly more than the 10.2 percent previously reported. Spending growth in percentage terms returns to Gartner’s previous figure in 2009 and rises slightly for 2010, before tracking the previous projection closely.  

Chart 2 (Revised Semiconductor Capital Spending Forecast (April-08)) covers the total capital spending for the semiconductor industry and highlights that Gartner has also reduced total spending figures across the period covered.

Although 2007 actually returned higher capital spending than Gartner had previously projected, spending in percentage terms will only be above its past forecasts in 2009 and 2012.