Worldwide semiconductor capital spending is on track to reach $44.8 billion this year, a rise of 50.9% compared with 2003, says Gartner.
The international research firm says the state of the semiconductor industry is an important indicator as semiconductors are a key building block in the IT industry. As demand for semiconductors remains high, manufacturers are more inclined to invest in new facilities and plants.
US chipmaker Intel said this week that its inventory of silicon chips had increased due to an internal miscalculation, although demand was holding up well. However, other manufacturers continue to report high demand.
"The surge in new equipment sales in 2004 is a direct result of demand visibility and capacity tightness," says Klaus Rinnen, VP of Gartner`s semiconductor manufacturing and design research group.
Rinnen says capacity increases are keeping pace with unit demand, but equipment orders are slowing. "It seems the industry is attempting to more closely match its supply and demand ramps to maximise much-needed profits."
The other segments in the industry are projected to show spending increases of more than 60% in 2004. The wafer fabrication equipment market is estimated to rise 63.4%, while the packaging and assembly equipment market is expected to grow 63.2%. The automated test equipment market will increase 64.2% in 2004.
Gartner says the combination of cautious investment in 2003 and rising production continues to drive use rates upward. Worldwide semiconductor wafer use reached 94.3% at the end of the second quarter of 2004, up from 93.2% at the end of the first quarter. Leading-edge utilisation reached 99% by the end of the second quarter, indicating that the most advanced fabrication facilities are running flat out.
"These high utilisation rates provide ever-increasing momentum for growth in the market. The industry needs more capacity to continue meeting increased device demand, and the industry is finally reacting to the need with a degree of urgency."
On a regional basis, Asia/Pacific will show the heaviest investment with almost 44% of the market, followed by the Americas region with 23% of total spending. Japan will account for 21% of spending, and Europe and the Middle East will represent 12% of overall spending.
"Economic growth in the US and China continues to be of high importance for accelerating global semiconductor growth," says Rinnen. "In the US, much will depend on the Federal Reserve Board`s ability to move the economy from recovery to sustainable growth. In China, virtually everything will turn on the ability of the central leadership to downshift the economy without stalling it."
Gartner`s long-term view of the industry shows a cyclical decline starting in the fourth quarter of 2005, as the industry repeats its historical over- and under-investment pattern. The current acceleration of spending has increased the industry`s risk, says Gartner. Long-term financial commitments for new wafer fabrication facilities have risen.
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