Wednesday, October 7, 2009

Leading indicators point to rapid semiconductor recovery in 2010

NEW TRIPOLI, USA: Purchases by semiconductor manufacturers for advanced chips is propelling the market for a rapid recovery in 2010, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

“Several signs are pointing to a recovery, but the most telling are our leading indicators, a compilation of economic data from two dozen countries that we have adjusted over the past 24 years to accurately predict inflection points in the semiconductor equipment market,” noted Dr. Robert Castellano, president of The Information Network.Source: The Information Network.

Capital expenditures (capex) can be an important gauge of the health of the semiconductor industry and the semiconductor-equipment suppliers. We noted previously that for 2009, conditions had improved enough for Intel, Samsung, TSMC, and UMC to raise their capex plans.

The table below shows our estimates of 2010 capex for the top chip spenders. With improved outlook for the economy and industry, semiconductor purchases are expected to be positive.Source: The Information Network.

“We nevertheless are cautious about 2010, because all we see going forward are technology purchases, rather than capacity purchases. Utilization is increasing, but with 31 fab closures in 2009, this is analogous to increased productivity due to layoffs,” added Dr. Castellano.

“The lithography sector will drag the market as the 200 $5 million i-line tools typically sold in a year as capacity purchases will not be sold. Excess equipment inventory from the 31 fab closures will also weigh down the market.”

Another indication of the improving conditions for both the semiconductor and equipment companies is how much the chip companies are willing to spend on state-of-the-art technologically advanced equipment to make their newest products.

The largest sector in the semiconductor equipment market is lithography, and revenues for 2008 reached $5.4 billion dollars according to our analysis. Advanced immersion 193nm tools that are capable of making the most advanced circuits today can cost tens of millions of dollars each. The market leader, ASML, announced in Q2 that the average selling price for its new systems was 31.1 million Euros or roughly $45 million.

ASML noted it sold four new immersion systems. Looking deeper ASML noted in its 6-K to the SEC that “In Q2 2009, ASML’s net sales of EUR 277 million included 4 new and 6 used systems.” That means the average selling price (ASP) of an immersion system is $45 million.

Interestingly, our calculations show that the ASP was $42 million in 2008. While the dollar price is exchange related, clearly ASML has not reduced prices in 2009 AND chip companies are willing to pay the price!

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