Commentary from Dr. Robert N. Castellano, The Information Network
NEW TRIPOLI, USA: Recovery in both semiconductors and equipment has begun from lows reached in early 2009. However, as shown below, semiconductor sales (dotted line) are nearly back to where they were in September 2008 when the downturn in the industry started. Revenues in October 2009 were down only 5.5 percent from the September 2008 level.
On the other hand, semiconductor equipment sales in November 2009 are down 42.3% from levels reached in March 2008, the start of the downturn in the equipment market.
Semiconductor and semiconductor equipment revenuesSource: The Information Network
As I noted in my TheStreet.com column back on July 27 2009, “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.” Through October 2009, that figure is now at 3.4 percent.
There have been very bullish forecasts about the semiconductor equipment market for 2010 in recent weeks. SEMI (Semiconductor Equipment and Materials International) issued a press release on December 1 forecasting a 53 percent increase in 2010 following a 46 percent decrease in 2009.
Gartner issued a release on December 11 forecasting a 56.6 percent increase in 2010 following a 48.1 percent decrease in 2009.
Both forecasts are based on technology purchases for 2010. SEMI in a different press release suggested that there will be no new fabs built in 2010 and pointed out that there were also no new fabs built in 2009.
These comments beg the question how will the equipment market grow 50+ percent in 2010 with no new fabs and no new capacity additions when it dropped nearly 50 percent in 2009 with no new fabs and no new capacity additions? Which leads to a follow-up question will technology purchases alone sustain 50 percent growth.
Reaching 50+ percent growth will result in nearly $20 billion in wafer fab equipment purchases for technology improvements, $7 billion more than in 2009 for a net zero growth in new fabs built.
We need to look to the lithography sector a bit more closely, as it historically makes up about 25 percent of equipment purchases - in 2008 the lithography sector recorded revenues of $5.4 billion according to our analysis while the total wafer processing market was $22 billion.
But, will the lithography market grow 50+ percent in 2010 to maintain its historic 25 percent of the wafer processing equipment market? Intel is already purchasing immersion lithography tools from Nikon. In 2009, we estimate that 59 immersion steppers were sold, primarily by ASML. In 2010, more than 90 will need to be sold to generate 50+ percent growth. That’s a lot of tools priced at $45 million each!
Interestingly, Cymer (CYMI), a major supplier of lasers for immersion lithography tools was downgraded on December 23 by GC Research from Overweight to Neutral. Also, on October 15, ASML (ASML), the lithography market leader, was downgraded by Citigroup from Hold to Sell.
One would think that with a projected growth of 50+ percent we would have seen the reverse. Our analysis points to a growth in the semiconductor equipment market of less than 20% in 2010 but with 50+% growth forecast in 2011. Time will tell.
As I stated on TheStreet.com on July 31, 2009: “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.”