Reversal of fortunes
Semiconductor capacity utilization can give an indication of not only the state of the semiconductor industry but also prospects for the semiconductor equipment markets, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.
Because of the downturn in the overall economy in 2009, capacity utilization – the number of semiconductors made as a ratio to the plant (fab) capacity - dropped precipitously in Q1 2009 to 55.6% from 89.7% in Q1 2008, according to SICAS statistics from the Semiconductor Industry Association.
“Clearly semiconductor manufacturers would not be building new fabs at $3 each to expand capacity when more than 40% of their plants are idle. Thus, equipment purchases by these manufacturers would not be for capacity expansion but for new technology usually planned several months out, as it can take up to a year for a company to make a purchase, have the equipment installed, qualified, and then ramped for production,” noted Dr. Robert Castellano, President of The Information Network.
In Q2 2009, as the economy improved and these companies sold off excess inventory, capacity utilization jumped to 76.7%. In the chart below, we call this row “actual” capacity utilization as reported by SICAS.
Closer examination shows that total semiconductor fab capacity dropped 12.4% between Q2 2008 and Q2 2009 as a result of 20 fab closures in 2009. If we calculate capacity utilization based on capacity for Q2 2008 (before the fab closures) and actual chip production in Q2 2009, capacity utilization would be only 67.2% in Q2 up from 51.5% in Q1 based on capacity in Q1 2008 and actual production in Q1 2009. In the chart below, we call this “normalized” capacity utilization.
Obviously, capacity expansion is the furthest thing on semiconductor manufacturer’s minds in 2009. That leaves us with technology expansion. Again looking deeper into capacity data, if we look at the leading-edge semiconductors, those made with dimension less than 80 nanometers, “actual” capacity utilization rose from 69.9% in Q1 2009 to 90.8% in Q2 2009. For these advanced chips, capacity increased 0.7% between Q2 2008 and Q2 2009. The capacity utilization of only 69.9% in Q1 2009 needs further interpretation. If we again compare capacity in Q1 2008 with actual production in Q1 2009, “normalized” capacity utilization would be 85.6%. So, capacity utilization in Q2 2009 only increased 5.2%.
We forecast the semiconductor equipment market will drop 46% in 2009. What’s the basis of our forecast? Semiconductor manufacturers are bringing up capacity utilization in the overall semiconductor market, but equipment is almost totally being purchased for technology expansion at the 80nm and below feature sizes, and that expansion so far this year is only 5.2% for leading-edge semiconductors. The capacity for the leading edge semiconductors represented 42% of the total capacity in Q2 2009.
Foundries are a different story. Our semiconductor forecast growth for full year 2009 will be minus 17%. We expect the foundry sector to under-perform the semiconductor market by 2 or 3 percentage points, thus down 19% or 20% from 2009. Why? In Q1 2009, the semiconductor market dropped 30% year over year. However, the foundry sector dropped more than 50%.
Foundry capacity, both “actual” and “normalized”, grew 66.0% and 56.5%, respectively, between Q1 and Q2 2009.
“They are catching up for a dismal Q1 and hence they will only underperform the overall semiconductor market by 2 to 3%,” added Dr. Castellano.
| Leading Edge Semiconductors “Actual” Capacity Utilization | 69.9% | 90.2% | 20.3% |
| Leading Edge Semiconductors “Normalized” Capacity Utilization | 85.6% | 90.8% | 5.2% |
| Foundries “Actual” Capacity Utilization | 50.1% | 83.1% | 66.0% |
| Foundries “Normalized” Capacity Utilization | 49.8% | 78.0% | 56.5% |
