Industry Enters The Age Of WOW
By Christian G. Dieseldorff, Industry Research & Statistics Group, SEMI
The semiconductor industry has been there before, with large increases in investments followed by dramatic downturns. While the most dramatic downturns, 2001 and 2009, were due to, in a large part, acro-economic factors, the industry has typically observed one to two years of increased investment spending followed by a down period. This time around, the industry will achieve a "WOW" with three consecutive years of fab investment growth, a pattern not observed since the mid-1990s.
Why are things different this time? A diverse array of technology drivers promise more robust long-term growth, such as Mobile applications, Internet of Things (IoT), Automotive & Robotics, Industrial, Augmented Reality & Virtual Reality (AR&VR), Artificial Intelligence (AI), and 5G networking. Each of these new technologies inspires a big "WOW" as the industry embarks on the beginning of a promising journey of growth.
Driven by these technologies, on average the semiconductor revenue CAGR from 2016 to 2021 is forecasted to be 6 percent (in comparison to the previous 2011-2016 CAGR of 2.3 percent). For the first time in the industry's history, semiconductor revenues will exceed the US$400 billion revenue milestone in 2017. Demand for chips is high, pricing is strong for memory, and the competition is fierce. All of this is spurring increased fab investments, with many companies investing at previously unseen levels for new fab construction and fab equipment. See figure 1.
The World Fab Forecast report, published on December 4, 2017, by SEMI, is modeling that fab equipment spending in 2017 will total US$57 billion or 41 percent year-over-year (YoY) growth. In 2018, spending is expected to shoot up another 11 percent at US$63 billion. The two spending jumps in 2017 and 2018 are contributing to the "WOW" factor and to two consecutive years of record fab investments. Following historic large investments, some slowdown is expected for 2019.
Many companies, such as Intel, Micron, Toshiba (and Western Digital), and GLOBALFOUNDRIES, have increased fab investments in 2017 and 2018; however, the strong increases we see in both years are not caused by these companies but by one company and primarily one region. See figure 2.
The first jump "“ a Big WOW "“ in 2017 is the surge of investments in Korea, due mainly to Samsung. Samsung is expected to increase its fab equipment spending by 128 percent in 2017 from US$8 billion to US$18 billion. No single company has invested so much in a single year in its fabs and much of its spending is in Korea. SK Hynix also increased fab equipment spending, by about 70 percent, to US$5.5 billion, its largest spending level in its history. While the bulk of Samsung's and SK Hynix's spending remains in Korea, some will also go to China, and in the case of Samsung to the United States. Both Samsung and SK Hynix are expected to maintain high levels of investments for 2018.
The second jump "“ another WOW "“ is investment growth for 2018 in China. China is expected to begin equipping the many fabs that were constructed in 2017. In the past, non-Chinese companies made the majority of the fab investments in China but for the first time in 2018, Chinese-owned companies will approach parity, spending nearly as much on fab equipment as non-Chinese device manufacturers.
Between 2013 and 2017, fab equipment spending in China by Chinese-owned companies typically ranged between US$1.5 billion to US$2.5 Billion per year, while non-Chinese companies invested between US$2.5 billion to US$5 billion per year. In 2018, Chinese-owned companies are expected to invest about US$5.8 billion, while non-Chinese will invest US$6.7 billion. Many new companies such as Yangtze Memory Technology, Fujian Jin Hua, Hua Li, and Hefei Chang Xin Memory are investing heavily in the region. Historic highs in equipment spending in 2017 and 2018 reflect growing demand. This spending follows unprecedented growth in construction spending for new fabs also detailed in SEMI's World Fab Forecast report. Construction spending will reach all-time highs with China construction spending taking the lead: US$6 billion in 2017 and US$6.6 billion in 2018, shattering another record "“ no region has ever spent more than US$6 billion in a single year for construction. More new fabs mean another wave of spending on equipping fabs in the next few years. See figure 3
Considering all of these "WOW" factors, there is good reason to feel positive about the semiconductor industry. Even with a slowdown, the industry has and will continue to enjoy a positive outlook for long-term growth. In the meantime, hold on tight and enjoy the "WOW."