We break down wafer demand so you don't have to!

PHOENIX, USA: Wafer demand grows at a compound annual growth rate of about 8-9 percent, but you could be making a big mistake if you think capital investment in fab capacity will be successful by sticking with an 8-10 percent investment rate every year.

Wafer demand growth is anything but stable, regardless of its CAGR. There is almost a 50-point spread between the peak growth year to the worst year of decline. Even if we throw out the worst year (-23 percent decline in 2001) and the best year (25 percent growth in 1995) the change in wafer demand growth rates range from -2.7 percent up to 24.9 percent.Source: Semico Research, USA.

The challenge in forecasting this market is the fact that there are thousands of semiconductor products that do not move in concert. In 2012, wafer demand for NAND flash products will increase by over 30 percent, while DSP wafers will experience a decline. The industry's wafer manufacturing facilities utilize over four different wafer sizes and numerous process technologies. When leading companies attempt to grab market share, often times the result is the creation of inventory gluts and shortages. Add supply chain bottlenecks into the mix, technology and product migration, and capacity planning becomes a nightmare.

Intel is ramping its 22nm product lines, and the foundries are filling their 32nm/28nm capacity. At the same time we continue to see growing demand for mature capacity for MEMS, image sensors, power management, discretes and opto chips. Put all this together, and a CAGR of 8 percent means very little when it comes to your capital investment planning.