More positive indicators for semicon equipment market

NEW TRIPOLI, USA: Expected announcements that capex was increasing are giving hope that the equipment downturn has bottomed out, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

We noted in our TheStreet.com column on Tuesday that “Singapore-based foundry Chartered Semiconductor raised its 2009 capital budget forecast by a third on growing demand, and we expect similar positive activity coming from Taiwan-based foundries TSMC and UMC as they report this week.”

Well, Taiwan's United Microelectronics Corp. (UMC) reported on Wednesday that it was, in fact, raising its capex morning for CY09 from less than $400 million to $500 million. Taiwan Semiconductor Manufacturing Co (TSMC) also revised upward its 2009 capex budget to $2.3 billion. Previously, it estimated a capex of $1.9 billion for the year.

For UMC, revenue increased 108.8 percent quarter-over-quarter and wafer shipments increased 134 percent sequentially to 898 thousand in the second quarter, compared to 384 thousand 8-inch equivalent wafers shipped in the first quarter. The overall utilization rate for the quarter was 79 percent, compared to 30 percent in the previous quarter and 85 percent a year ago.

For TSMC, the world’s largest foundry, revenues for the second quarter were up 87.9 percent sequentially. TSMC recorded wafer shipments of 1.97 million 8-inch equivalent units in the second quarter, up 121 percent from 892,000 units in the first.

We stated in our TheStreet.com column last Thursday that the chip market recovery had begun, but tightened purse strings was keeping the semiconductor equipment market from exhibiting comparable up and down cycles characteristic of the semiconductor market.

We stated that “In January 1995, 11.4 percent of revenue generated by semiconductor manufacturers was spent on new processing equipment. Forward to May 2009 and only 3.8 percent of semiconductor revenue was spent on equipment.”

As shown in the chart below, up until 2001, the semiconductor and the semiconductor markets moved in tandem, exhibiting a peak and a valley every three years. After 2001, things changed –- the semiconductor market continued strong growth until late 2008 while the equipment market was essentially flat until mid-2008.Source: The Information Network

For 2009, we forecast that the semiconductor equipment market will drop 46 percent. In contrast, we forecast the semiconductor market will drop 26 percent in 2009. Most importantly, growth in the equipment market will continue through 2012, increasing 20 percent in 2010 and 49 percent in 2011.