Thursday, November 29, 2012

Why Applied Materials is wrong about semiconductor equipment market for 2013

USA: Applied Materials took the wind out of most people’s sails before Thanksgiving when CFO George Davis said that Applied sees the market for wafer fab equipment ranging from $26 billion to $30 billion, down from a range of $30 billion to $32 billion in 2012. He notes that the expected 5 percent -15 percent drop is consistent with most other market forecasts.

Let’s look beyond the box and ignore “other market forecasts” that change every few months. For example, Gartner said last month it expects chip equipment sales to decline 0.8 percent in 2013.

The market research firm estimated that fab tool sales will be about $31.4 billion in 2012, down 13.3 percent from 2011. Earlier this summer, Gartner foresaw an 8.9 percent decline in 2012, followed by 7.4 percent growth in 2013. Isn’t it sickening when companies report forecast in 10th of percent to sound impressive only to change it, in this case an 820 percent change for 2013 -- +7.4 percent to -0.8 percent? Ya get what you pay for!

Anyway, part of Applied Material’s hypothesis is that 20nm will be 25,000 or 30,000 wafer starts in 2013 and they note they have no visibility for the second half of 2013.

Our contention is that 20nm will be 40,000 or 45,000 wafer starts in 2013. We are the first to admit that this is non-empirical, but is based on detailed analysis of the mobile gadget space.

But the empirical data comes from our Proprietary Leading Indicators (PLIs), which we have utilized and fine tuned since 1995.  Our PLIs, which correlate with semiconductor equipment billings supplied by SEMI, started diverging in June 2012.  In other words, our PLIs continued to show an increase since June while SEMI’s billings have shown a decrease, and a pretty significant decrease at that.

Calculating the difference in reported billings since June, we see that 13.4% more revenues should have been generated in 2012 than were recorded.  Again, these were calculated against our time-proven PLIs.  If all the parameters for our PLIs have been consistent since 1995, then equipment sales should have been consistently increasing since June 2012.

Clearly the rationalization by semiconductor manufacturers in pushouts of equipment are related to the dreaded FUD (Fear Uncertainty Doubt) factor associated with problems in Europe, the election in the U.S., and now the Fiscal Cliff scenario.

But, none of these factors influenced our PLIs over the past six months (which have been increasing), and since he have historically seen a correlation between our PLIs and equipment billings for the past 17 years, then we should see pent-up demand for an additional 13.4 percent of fab equipment bought in 2013.  Combine that with our analysis of the mobile space and the NAND market, and we see positive equipment growth in 2013.

The global economy may be ready to turn the corner, according to recent economic reports coming out from China, Germany, and the US.  We just have to convince the semiconductor manufacturers.

- Dr. Robert Castellano, The Information Network, USA

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