As the second half of 2005 begins, the next down cycle in the semiconductor capital equipment market is becoming more apparent, according to the latest research from Gartner Inc.
Sales of semiconductor capital equipment around the world are set to decline 11.9 percent this year, with sales totaling $33.1 billion. All segments of the capital equipment market are projected to decline, the Stamford, Conn.-based firm noted.
“While the first quarter of 2005 marked the peak of the last upcycle, declining orders over the past few months and quarters paint a picture of slower sales for the rest of the year,” said Klaus Rinnen, research of VP for Gartner’s semiconductor manufacturing and design research group, in a statement.
“Last year, equipment sales surged to correct for serious under investment in the face of strong semiconductor demand,” he explained.
“Production capacity has now exceeded demand, and equipment manufacturers are settling down to shipment levels commensurate with longer-term growth trends for the industry,” he continued.
“Therefore, we expect this to be a mild downturn,” Rinnen added.
As the semiconductor industry moves into a slower growth period in its business cycle, the equipment industry is expected to respond with lower shipment rates required for slowing capacity expansion. Semiconductor manufacturers seem to be maintaining investment disciplines and investing carefully, and in some cases strategically, to gain market advantage, the firm also said.
“We expect customers to spend cautiously, releasing orders late and hesitantly, until a strong demand trend can be established,” Rinnen predicted.
Worldwide wafer fab equipment spending is projected to decline 9.6 percent to $25.5 billion this year, dropping another 8.2 percent in 2006, then return to positive growth, up 11.4 percent in 2007 to reach $$26.1 billion.
Although utilization rates were dropping quickly in Q4 2004 and Q1, Gartner analysts said wafer fab equipment shipments remained relatively strong, resulting in new capacity coming online during the middle of this year, and dampening the need for significant additional new capacity purchases until next year.
“By the second half of 2006, increased semiconductor demand will lead to climbing utilization rates and drive a sustained capacity expansion through 2007 and 2008,” Rinnen said.
The packaging and assembly (P&A) equipment market performed better than previously expected, with worldwide P&A equipment forecast to contract 16.5 percent this year to $3.8 billion – better than Gartner’s April projection for a 23.5 percent decline.
“The P&A market will experience more positive conditions throughout the second half of 2005 as utilization rates tighten and move above the 85 percent mark,” Rinnen explained, with the improved situation in late 2005 helping drive the market into positive growth for 2006.”
In the automated test equipment (ATE) market, there has been a sharp reversal in recent months, Gartner said. What looked like a mild spending decline through this year has turned into a major spending contraction.
The ATE market is now forecast to decline 21 percent this year to $3.8 billion, with weakness throughout all regions and product segments.
However, Gartner analysts said the sudden drop in spending means the ATE market is poised for an earlier start to subsequent recovery. The ATE market is forecast to see growth of 25 percent in 2006 to $4.7 billion, which should mark the beginning of the next industry growth cycle, the firm concluded.