2010 total fab spending growth could reach 61pc; abrupt reduction in installed capacity through 2010

Christian Gregor Dieseldorff, SEMI Industry Research and Statistics

CALIFORNIA. USA: Updated information from the World Fab Forecast shows the growth rate for total fab spending could be about 61 percent in 2010 (down from 90 percent previously report in mid-May) from a very low 2009 (Table 1). The 2009 spending will reach such low levels that any adjustment or change in 2010 capital spending plans can drastically alter forecasted growth rates.

Table 1* Equipping Fabs: Any equipment related expenses for Front End Facilities including using new or used equipment.Source: SEMI

In 2009, all regions will experience severe cuts in spending. However, the cuts are much less for the Americas and Europe/Mideast because of a boost from Intel and Globalfoundries.

Since the last publication in mid-May, over 60 companies have been evaluated worldwide by directly consulting, visiting (in Japan), and reassessing projects, so updates to 130 facilities have been made. This resulted in downward reductions in 2010 spending, in almost all regions, up to $3.5 billion as some projects have been pushed out further or investment plans continue to slow.

Table 2 lists the largest spenders with $1 billion and higher in total spending (both construction and equipping) for Front End fabs.

Table 2Source: SEMI

Spending for equipping memory facilities
Spending for equipping Memory facilities (Flash and DRAM) represents the largest share in 2010 with about 47 percent, up from about 40 percent in 2009 (2008 share was about 60 percent) (see Fig. 1).

The share of foundries is expected to be about 23 percent and MPU at about 17 percent. Logic is expected to double its spending in 2010, increasing its share from about 8 percent in 2009 to 10 percent in 2010.

Fig. 1Source: SEMI

The foundry business has significantly improved off of the 1Q 2009 lows. For example, TSMC has reported increased revenue in 2Q09 and boosted 2009 capex. This trend changes the decline in 2009 foundry spending to about -10 percent where all other product segments experience deeper double-digit negative growth rates.

Will there be enough capacity in the future?
Total installed capacity worldwide could decline by about 2.5 percent in 2009 mainly due to fab closures. In 2010, the installed capacity is expected to see a growth of about 4.5 percent above 2009; however, if we compare 2010 with 2008, the result is only a 2 percent increase in capacity.

Fig. 2 illustrates the change in plans for installed capacity from mid 2008 to current (mid 2009) projections.

Fig. 2Source: SEMI

Based on promising demand forecasts and drives to obtain market share, capacity investment plans were much more aggressive one year ago, with installed capacity projected to approach 19 million wafers per month (wpm) by the end of 2010.

Of course, this has changed since then with many projects pushed out, put on hold or even cancelled. Today, the World Fab Forecast projects only about 16 million wpm capacity by end of 2010, a reduction of 3 million wpm from projections one year ago.

This is quite an abrupt reduction in capacity brought on by the global economic crisis. Some analysts have raised concerns about not having enough capacity in the future. If demand starts to accelerate, in line with an economic recovery, capacity will simply not be able to keep pace given the currently projected low-levels in capital spending. If there will be enough capacity or not remains to be seen.

The World Fab Forecast keeps close track of any planned projects resulting in any change of installed capacity.

Source: SEMI

Definite need for rethink on India's fab strategy!

I am intrigued to see lots of great things happening in the Indian semiconductor industry, and equally frustrated to find certain things that I feel should happen, not really going the way they should!

Yes, India is very strong in the semiconductor related chip design services. However, do keep in mind folks that design services have been impacted a bit by the recession as well! There have been calls from several quarters for India to now start thinking beyond its chip design services. Therefore, are there any areas that India can look into within the semiconductor space?

Leverage strength in software
Certainly, value add in products are heavily influenced by the embedded software in addition to features of the chips, says S. Janakiraman, former chairman, India Semiconductor Association (ISA) and President and CEO-R&D Services, MindTree. "The Google Android is a great example of that. India should leverage its strength in software to enhance its value add to semiconductor companies," he adds.

Innovation is now shifting from the development of new technologies to the creation of unique applications.

"Mobile browsers and management of remote appliances to save power at home/office are examples. We need to innovate new applications that can drive the need for more electronic gadgets, and in turn, the need for more semiconductors," notes Jani Sir.

Rethink on Indian fab strategy?
One of my earlier posts focused on whether an Indian investor could buy Qimonda's memory fab, and somehow kick-start the India fab story! I did find support from many quarters on this idea, but till date, I don't think anyone from India has made a move for Qimonda. At least, I haven't heard of any such move.

Nevertheless, some folks within the Indian semiconductor industry and elsewhere have called for India to rethink on its fab strategy.

What should it be now? Or, shall we just discard this and go on, as India has been doing fine without fabs so far? Perhaps, the last option is easier!

According to Janakiraman: "Perhaps, we should consider where semiconductor technology will be after five years from now, and prepare grounds for that through encouragement of fundamental research, as well as shuttle fabs to enable prototyping. We should skip the current node of technology and make an entry into the one that will be prevalent after few years." Now, that's sound advice! Will it be easy to achieve?

"That may not be as easy to achieve for the private enterprises considering the cost involved," adds Janakiraman. "It has to be a mission of the nation to create that infrastructure and later privatize."

According to him, it is not unique to India. "Every country, be it Taiwan or China, have done it. The only other way is to heavily subsidize and support fabs like those in Israel or Vietnam, but it will be tough to choose a partner in a democratic country like ours, wherein every investment and subsidy is seen with a colored vision," he says.

To sum up, a fab for our country will be fundamental to gain leadership and self reliance. It cannot be ignored totally, although we can take our own time to reach there. Janakiraman adds, "We don't have a choice other than paying a price to reach there, now or later!"