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With fab utilization rates above 90 percent and IC shipments projected to grow by 8 percent in 2008, the 15 percent reduction in capital expenditure (CapEx) is expected to push Average Selling Prices (ASPs) higher over the next five years and result in a sustained period of tight supply, noted IC Insights in its Mid-Year McClean Report Update.

CapEx is now expected to reach $51.7 billion in 2008, down from $60.9 billion in 2007. The market research firm noted that its original projection given at the end of 2007 had CapEx down 9 percent but believes that CapEx will now be down 15 percent in 2008.

However, in the fast-moving industry, SanDisk has this week lowered its spending plans for both 2008 and 2009, while Nanya has cut CapEx plans for the second half of the year. It is likely that other companies may follow suit, prompting further downward revisions in the coming months.

But IC Insights thinks that there is little room for further cost cutting especially at 300mm fabs that were seeing utilization rates of 96 percent in 1H08. Unit growth rates have remained strong, suggesting that further cuts by chip makers, especially in the memory sector, would lead to lost revenues and market share.

According to the market research firm, CapEx as a percentage of semiconductor sales went from an average of 27 percent in the late 1990s to 21 percent in the early part of this decade. However, this figure is currently only at 18 percent for 2008. IC Insights is forecasting that capital spending as a percentage of sales will average only 17-18% between 2008 and 2012.
 
IC Insights said that all these key factors were putting the industry on a ‘collision course.’