Weak dollar will impact semiconductor supply chain markets

NEW TRIPOLI, USA: Since last March, the dollar has weakened considerably, which will have an impact on market share leadership, according to the report “Chemicals And Materials For Sub-100nm IC Manufacturing,” recently published by The Information Network.

Market share leadership in a business sector has strategic benefits for a company. It gives them the opportunity to issue press releases and publish pie charts in their annual reports because customers prefer to buy from them over competitors.

More significantly, it means that customers often come to them for solutions because they are more convinced by leaders. Customers look up to leaders to provide them with decisions and solutions to their needs and wants. In addition, market leadership shows the financial community that the company is worth investing in.

“A weak dollar means that goods sold in dollars are less expensive,” noted Dr. Robert Castellano, president of The Information Network. “Companies with a large portion of foreign sales will benefit as their products are cheaper, providing an impetus to buy more.”

When global market shares are compiled by us analysts, they are typically calculated in dollars. If the product is sold by a foreign company in that country’s currency, it is then converted into dollars to total up market shares. This is usually a challenge because there are a variety of methods that could be used, such as the average conversion rate throughout the year or the conversion rate on December 31.

Either will only give an estimate of dollar revenue. The only accurate way is if a company converts each sale into dollars at the time of purchase. Complicating the conversion are multinational companies who sell in different currencies in each country they have an office.

In the semiconductor equipment and materials sectors, which we analyze, market leaders held razor thin leadership positions in 2008, and exchange rates will play a big part in global positions in 2009.

Shown in the table are 2008 market share differences between the top two leaders in three major chemical and material sectors and two equipment sectors for companies who are US based versus foreign based.Source: The Information Network, USA

The differences were 2.1 percent and less. With the top leaders are in different countries, swings in exchange rates will readily tip the scale.

A weaker dollar will generally benefit US companies in the calculation of global market share because revenues generated in a foreign currency will be converted to fewer dollars.

Based on the strength of the dollar for 2009, we suspect market share leadership in to be held by Air Products, Honeywell Electronic Materials, OM Group, Lam Research, and Applied Materials. In a competitive environment, market share is sometimes also a matter of luck and dependent on customers’ performance. If a customer underperforms and stops buying, it will impact revenues of all its vendors up the supply chain.

More positive indicators for semicon equipment market

NEW TRIPOLI, USA: Expected announcements that capex was increasing are giving hope that the equipment downturn has bottomed out, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

We noted in our TheStreet.com column on Tuesday that “Singapore-based foundry Chartered Semiconductor raised its 2009 capital budget forecast by a third on growing demand, and we expect similar positive activity coming from Taiwan-based foundries TSMC and UMC as they report this week.”

Well, Taiwan's United Microelectronics Corp. (UMC) reported on Wednesday that it was, in fact, raising its capex morning for CY09 from less than $400 million to $500 million. Taiwan Semiconductor Manufacturing Co (TSMC) also revised upward its 2009 capex budget to $2.3 billion. Previously, it estimated a capex of $1.9 billion for the year.

For UMC, revenue increased 108.8 percent quarter-over-quarter and wafer shipments increased 134 percent sequentially to 898 thousand in the second quarter, compared to 384 thousand 8-inch equivalent wafers shipped in the first quarter. The overall utilization rate for the quarter was 79 percent, compared to 30 percent in the previous quarter and 85 percent a year ago.

For TSMC, the world’s largest foundry, revenues for the second quarter were up 87.9 percent sequentially. TSMC recorded wafer shipments of 1.97 million 8-inch equivalent units in the second quarter, up 121 percent from 892,000 units in the first.

We stated in our TheStreet.com column last Thursday that the chip market recovery had begun, but tightened purse strings was keeping the semiconductor equipment market from exhibiting comparable up and down cycles characteristic of the semiconductor market.

We stated that “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.”

As shown in the chart below, up until 2001, the semiconductor and the semiconductor markets moved in tandem, exhibiting a peak and a valley every three years. After 2001, things changed –- the semiconductor market continued strong growth until late 2008 while the equipment market was essentially flat until mid-2008.Source: The Information Network

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.

Growing signs that semicon equipment market recovery has begun!

NEW TRIPOLI, USA: Rises in the book-to-bill ratio by North American and Japanese semiconductor equipment manufacturers is giving hope that the downturn has bottomed out. BUT THERE’S A PROBLEM, according to the report “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

Positive signals are pointing to a recovery:

SEMI reported this week that North America-based manufacturers of semiconductor equipment posted $323.4 million in orders in June 2009 (three-month average basis) and a book-to-bill ratio of 0.77, according to SEMI. The three-month average in June grew about 12 percent from $287.8 million in May, with the on-year drop narrowing to 69 percent.

Japan-based manufacturers of semiconductor equipment registered billings in May 2009 of 39.2 billion yen ($409.7 million). The billings figure is 3.2 percent down from April 2009 and 68.7 percent down the May 2008 billings level.

However, capital equipment expenditures as a percentage of semiconductor revenues have been dropping precipitously, as shown in the chart going back to 1995. In January 1995, 11.4 percent of revenues generated by semiconductor manufacturers were spend on new processing equipment. Forward to May 2009 and only 3.8 percent of semiconductor revenues were spent on equipment.

For all of 1995, 13.8 percent of semiconductor revenues were spent on equipment purchases. For 2007, a healthy year for the equipment market, 11.7 percent of semiconductor revenues were spent on equipment.Source: The Information Network

For 2009, we forecast that semiconductor revenues will drop 26 percent, whereas, we forecast semiconductor equipment revenues to drop 46 percent. The chart clearly illustrates this difference. Capital equipment purchases from January through May 2009 were only 4.9% of semiconductor revenues.

Semiconductor equipment manufacturers, in an effort to gain one-upmanship in the market, have been increasing throughputs of their product. Fifteen years ago, 60 wafers per hour was the norm. Now tools are on the market with a throughput twice that amount, meaning that only half the number of tools are needed to process the same number of wafers.

The semiconductor industry started replacing the manufacture of chips from 200mm to 300mm wafers in 1997. Because of the larger diameter, 2.25 times more chips can be made on a 300mm wafer than a 200mm wafer. In 1997, approximately 8,000 300mm wafers were utilized, representing a small fraction of the 141 million wafers with diameters ranging from 100mm to 200mm.

In 2008, nearly 32 million 300mm wafers were processed, representing 21% of the 149 million wafers processed. Here again, half the number of tools are needed to process the same number of chips.

Technology advances have mitigated the reduction. In 1995, state-of-the-art ICs were manufactured with dimensions of 350nm (0.35 microns). Currently, state-of-the-art chips are manufactured with dimensions as small as 45nm.

Equipment to make these chips doesn’t come cheap. Lithography equipment, for example, from companies such as ASML, Canon, and Nikon cost about $4 million to manufacture a chip with 350mm dimensions but $40 million to manufacture a chip with 45nm dimensions. That’s why, a semiconductor manufacturing plant (fab) that cost $1 billion in 1995 now costs $4 billion.

The semiconductor equipment industry is also suffering from competition from some really large vendors. The top 10 equipment suppliers registered $24.5 billion in sales in 2008, compared with $30.7 billion for the whole market. That left on $6.2 billion in revenues to be shared by the next 50 equipment companies.

So, while things look better for the equipment industry going forward through the remainder of 2009, the long term prognosis doesn’t bode well for the industry in general, and particularly for the small players.

Semicon equipment industry posts June 2009 book-to-bill ratio of 0.77

SAN JOSE, USA: North America-based manufacturers of semiconductor equipment posted $323.4 million in orders in June 2009 (three-month average basis) and a book-to-bill ratio of 0.77 according to the June 2009 Book-to-Bill Report published by SEMI.

A book-to-bill of 0.77 means that $77 worth of orders were received for every $100 of product billed for the month.

The three-month average of worldwide bookings in June 2009 was $323.4 million. The bookings figure is about 12 percent greater than the final May 2009 level of $287.8 million, and about 69 percent less than the $934.2 million in orders posted in June 2008.

The three-month average of worldwide billings in June 2009 was $419.6 million. The billings figure is just over seven percent greater than the final May 2009 level of $392.6 million, and about 64 percent less than the June 2008 billings level of $1.16 billion.

“We are seeing improvement to the book to bill ratio due to slight growth in bookings," said Stanley T. Myers, president and CEO of SEMI. “However for the equipment manufacturers, the market remains extremely difficult as customers are not yet at a point where additional capacity investments are needed.”

The SEMI book-to-bill is a ratio of three-month moving averages of worldwide bookings and billings for North American-based semiconductor equipment manufacturers. Billings and bookings figures are in millions of US dollars.Source: SEMI July 2009

SEMI's mid-year consensus forecast for chip equipment industry

SAN FRANCISCO, USA: SEMI projects 2009 semiconductor equipment sales to reach $14.14 billion according to the mid-year edition of the SEMI Capital Equipment Forecast, released by SEMI at the annual SEMICON West exposition.

The forecast indicates that, following a 31 percent market decline in 2008, the equipment market will decline another 52 percent in 2009, but will experience a rebound with annual growth of about 47 percent in 2010.

"Spending on semiconductor manufacturing equipment this year will reach low levels experienced 15 years or so ago," said Stanley T. Myers, president and CEO of SEMI. "Forecasting has never been more challenging, though we expect 2010 spending to show double-digit improvement off of extremely low levels in 2009.”

Wafer processing equipment, the largest product segment by dollar value, is expected to decline 53 percent in 2009 to $10.42 billion.

The forecast predicts that the market for assembly and packaging equipment will decline by 53 percent to $958 million in 2009. The market for semiconductor test equipment is forecasted to decline by about 48 percent to $1.78 billion this year.

Growth is anticipated to be negative in all regions in 2009 with the North American market claiming the number one spot from Japan. Japan will fall to the number two spot, followed by Taiwan. The South Korea market is expected to contract 62 percent, resulting in the fourth largest market for new equipment.

The following results are given in terms of market size in billions of U.S. dollars and percentage growth over the prior year:

Forecast by Equipment Segment
Source: SEMI

Forecast by RegionSource: SEMI

Semicon equipment book-to-bill ratio rose above parity in June: VLSI Research

SANTA CLARA, USA: Semiconductor equipment manufacturers posted a Book-to-Bill ratio of 1.01 in June, according to VLSI Research.

It was the first increase above parity since July 2008. Worldwide equipment bookings amounted to $2.5 billion in June, up 40 percent sequentially, but down 41 percent from the same month a year ago.

Worldwide billings jumped 31 percent from the previous month to $2.4 billion, but were still a 57 percent lower from a year ago.Source: VLSI Research Inc.; Chip Making Markets subscription service

Even though bookings and billings remain well below normal levels, business activity is beginning to improve. Back-end suppliers, in particular, are seeing a considerable pick up in business activity amid soaring utilization rates at the subcons.

At the front-end, most of the equipment orders are still technology-related, driven primarily by the 3x and 4x nm ramp. In addition, the transition to DDR3 is finally picking up and is beginning to drive some orders in the memory sector, which had been lifeless for months.

Applied Materials creates path for future technology innovators

SEMICON West 2009, SANTA CLARA, USA: Applied Materials Inc. will emphasize the urgency of preparing students for the high tech jobs of the future during SEMICON West, held in San Francisco this week.

The company will also discuss how a shortage of talent may affect the industry and America’s position as a global technology leader. Additionally, Applied Materials will underscore its strong commitment to the semiconductor industry by highlighting the Applied Materials Foundation Women in Science and Technology Scholarship Program designed to encourage participation by women in science and engineering.

Also being showcased are successful initiatives promoting math, science and semiconductor technology education that are helping develop future technology innovators.

“As a global leader in a fast-changing and competitive marketplace, Applied Materials is constantly innovating and commercializing products to stay ahead of future technology trends,” said Tom St. Dennis, senior vice president and general manager of Applied Materials’ Silicon Systems Group.

“We need the best and brightest talent—the challenge for our educational system is to produce the workforce with the skills and knowledge required by the industry. We believe women can be a source of that talent in greater numbers if they are encouraged early in their education.”

To promote engagement in the industry and raise awareness of technical advances, Applied Materials and the Applied Materials Foundation are supporting several workforce development programs around the world that build bridges between schools and business.

Women in Science and Technology Scholarship Program
To help realize the full potential of the workforce of tomorrow, the Applied Materials Foundation has launched the Women in Science and Technology Scholarship Program to encourage young women to excel in specific technical areas leading to careers in science and engineering.

Grants will be made to selected student organizations at United States-based universities that are committed to developing the next generation of women engineers.

SEMI Foundation’s High Tech U
Applied Materials and the Applied Materials Foundation are long-time supporters of SEMI Foundation’s High Tech U for students and SEMI High Tech U Teacher Edition programs.

In a fun, three-day interactive session, students learn semiconductor manufacturing concepts and microchip logic and get a chance to understand career choices available in math and science-based professions. Students also learn about the design and physics of solar cells.

The teacher program mirrors the student session, with an emphasis on ways educators can implement program activities into their lesson plans. A primary objective of the program is to help teachers learn about math and science-based careers in high tech fields so they can advise students about educational options and career pathways.

“Applied Materials and its Foundation have supported our industry and this program from the very beginning, and in less than a decade this program has helped reach several thousand students and teachers,” said Stan Myers, president and CEO of Semiconductor Equipment and Materials International (SEMI).

“The goal is to build interest and excitement in young people about math and science careers and help develop the skilled workforce of tomorrow working on next generation technologies.”

Since 2001, 90 High Tech U programs have been delivered reaching approximately 2,400 students directly. An additional 41,000 students have been reached through the 476 teachers who have participated in High Tech U Teacher programs.

Industry Initiatives for Science and Math Education
The goal of Industry Initiatives for Science and Math Education (IISME) is to provide teachers with professional development experiences to gain additional learning and understanding of high tech practices to incorporate into their course curricula to help better prepare a strong, highly skilled workforce in math, science and technological fields.

Applied Materials, a long and active supporter of IISME, has hosted 90 Teacher Fellows since 1994. This summer nine IISME Fellows will work at Applied Materials on a variety of projects and will attend SEMICON West to learn about the latest trends and technologies driving nanomanufacturing technology into the future.

Semiconductor equipment bogged down!

NEW TRIPOLI, USA: Rises in the book-to-bill ratio by North American and Japanese semiconductor equipment manufacturers is giving hope that the downturn has bottomed out. BUT HAS IT asks the report: “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

SEMI reported this week that North America-based manufacturers of semiconductor equipment shipped about $391.9 worth of equipment in May 2009, about 1 percent more than April 2009, but 72 percent less than May 2008.

Japan-based manufacturers of semiconductor equipment registered billings in May 2009 of 39.2 billion yen ($409.7 million). The billings figure is 3.2 percent down from April 2009 and 68.7 percent down the May 2008 billings level.

While North American manufacturers posted a 1 percent increase while the Japanese manufacturers posted a 3.2 percent decrease in billings.

Keep in mind that North American billings numbers are “preliminary” and usually drop when the final figures are published a month ago. March billings were reported in April at $455.3 million and revised down to $438.3 million a month later.

April billings were reported in May at $389.9 million and revised a month later at $385.7 million.

To complicate matters, we are now hearing that a significant amount of capacity is entering the market because of the downturn. Qimonda’s bankruptcy can add 120,000 300mm wafer starts per month in used equipment bought by semiconductor manufacturers.

Add to that equipment from other troubled memory manufacturers such as Powerchip and ProMOS, and a total of 400,000 wafer starts a month are possible. The latest SICAS repot shows that in Q1 2009, 300mm capacity was 433,000 wafers starts per week. So, this excess capacity on the market represents 25 percent of the capacity.

“Our proprietary leading indicators, which determine inflection points in economic activity and which we utilize to show turning points in semiconductor equipment sales have turned positive, indicating that an upturn in equipment sales will begin by October, not now (see below),” noted Dr. Robert N. Castellano, president of The Information Network.

“We have been using these indicators since 2000 and they have proven to be highly quantitative metrics in every forecast we have given, and in nearly every given year we have not had to change our forecast midstream. We do not give forecasts in tenths of percentages only to change them two months later.”

Applied Materials, Dainippon Screen revise Sokudo ownership structure

SANTA CLARA, USA: Applied Materials Inc. and Dainippon Screen Mfg. Co. Ltd. (Screen) today announced that they have signed an agreement to revise the ownership structure of their joint venture company, Sokudo Co. Ltd.

Under the agreement, Screen will own 81 percent of the coat/develop track system company and operate it as a subsidiary, and Applied Materials will retain a 19 percent interest, down from its original 48 percent interest. This new structure will more accurately reflect the ongoing contributions from both shareholders.

In response to the significantly weakened market for semiconductor equipment, Sokudo’s global sales and service operations will be streamlined to be more efficient in this business environment.

Applied Materials will continue to support Sokudo with key management, customer support, and product development as part of its commitment to both Screen and the companies’ shared customer base. Applied is also working closely with Sokudo and Screen at its Maydan Technology Center and expects this alliance to provide further opportunities for future collaboration.

Since the formation of the joint venture three years ago, Sokudo has built a solid position in the coat/develop track market based on its introduction of several significant products, beginning with the Sokudo RF3S system.

Most recently, using the combined strengths of Screen and Applied Materials, Sokudo introduced the breakthrough SOKUDO DUO system, which provides customers with the world’s first dual-track system for high productivity processing.

Semicon equipment: May'09 book-to-bill ratio 0.74

SAN JOSE, USA: North America-based manufacturers of semiconductor equipment posted $288.5 million in orders in May 2009 (three-month average basis) and a book-to-bill ratio of 0.74 according to the May 2009 Book-to-Bill Report published by SEMI. A book-to-bill of 0.74 means that $74 worth of orders were received for every $100 of product billed for the month.

The three-month average of worldwide bookings in May 2009 was $288.5 million. The bookings figure is about 16 percent greater than the final April 2009 level of $249 million, and about 72 percent less than the $1.03 billion in orders posted in May 2008.

The three-month average of worldwide billings in May 2009 was $391.9 million. The billings figure is just over 1 percent greater than the final April 2009 level of $385.7 million, and about 72 percent less than the May 2008 billings level of $1.31 billion.

"Bookings for the North American semiconductor equipment market are still near historically low levels, though the sharp declines have subsided,” said Dan Tracy, senior director of Industry Research and Statistics at SEMI. “While recent industry data show increased semiconductor device unit sales, the industry is waiting for stronger signals to increase capital investments.”

The SEMI book-to-bill is a ratio of three-month moving averages of worldwide bookings and billings for North American-based semiconductor equipment manufacturers. Billings and bookings figures are in millions of US dollars.Source: SEMI June 2009

March's data validated forecast; Q1 WAS cyclical bottom! Semicon update May'09

Here are the excerpts from the Global Semiconductor Monthly Report, May 2009, provided by Malcolm Penn, chairman, founder and CEO of Future Horizons. There are a lot of charts associated with this report. Those interested to know more about this report should contact Future Horizons.

This will be followed by the update for June, and I am speaking with Malcolm Penn to find out more!

Executive overview
"At $14.085 billion, March's IC sales were up 28.4 percent versus February, equivalent to plus 2.7 percent on a five-week month adjusted basis. Whilst this still puts the market down 31.2 percent versus March 2008, the momentum that started in January 2009 continues to steadily gain traction.

Overall, the ICs in Q1 were down just 13.4 percent in value, comprising a 19.6 percent fall in units offset by a whopping 7.8 percent gain in ASPs. At the total semiconductor level, sales came in at $17.271 billion, up 27.1 percent on February (1.7 percent on a 5-week month adjusted basis), slightly higher than our $17.019 billion April Report estimate.

Q1 was thus down only 15.7 percent on Q4, sizeably better than our 18.5 percent estimate. This is good news for industry... 'ah but' say the sceptics!

During our January 2009 International Forecast Seminar, we took the view that, from an economic recovery perspective, things would stabilise during the first half of the year, starting to gain traction by the end of 2009, given the dramatic economic stimuli since September 2008. The recovery would then accelerate quite fast in 2010-11, i.e. following a similar pattern as to what happened after the 2000 dot-com crash. There is every reason to believe this will still be the case.

Until recently, the big industry problem was uncertainty but there have been no horrible surprises now for several weeks and things do seem like we are bumping along the bottom. The global economy has stabilised; there have been no new gut-wrenching surprises and the 'unknown unknowns' in the economy have subsided. This means we are now left facing the 'known unknowns', which is clearly something that industry can adjust to and deal with.

Despite its severity, there are also many mitigating circumstances. At the personal level, this recession is quite like no other. For those without a job, or on short-time working, it is clearly bad news as no one is currently hiring. But, those with a job ironically have never been better off, with inflation, mortgage interest rates and repayments (the single biggest expense item on the personal expense budget) at rock bottom levels. This is very unlike the past recessions, which were accompanied by high inflation and cripplingly high interest rates.

Another factor is that no one really knows how much of the current GDP shrinkage (and for that matter the previous five-years above average growth) is (was) smoke and mirrors. With CDIs valued at 1.2x total world GDP in 2007 only to be written down to junk bond status the following year, the absolute GDP and growth rate numbers have been compromised. That makes it hard to judge what they mean from a top down perspective, more so when one considers the total electronics manufacturing industry's contribution to world GDP is barely 3 percent.

Finally, even though cars, mobiles, PCs etc may fall in unit terms by '15-30 percent' this year, that still means '70-85 percent of the market' remains. With inventory levels everywhere in the value chain at all-time lows, we are currently back now building to demand from newly bought components, albeit some 20 percent lower than the 2008 highs.

At the chip level, the market is obviously driven by the economy but it also has its own drivers, especially capacity and ASP trends. Thus, whilst the existence of a link between the chip market and the economy is clear, mathematically the nature of this link is imprecise. Dislocations in growth dynamics are thus relatively frequent.

What then of our January 2009 quarterly growth pattern (Q1 -18 percent, Q2 -2 percent, Q3 +12 percentand Q4 +3 percent)? Clearly Q1, at -15.7 percent, was better than forecast which, if the rest of the growth pattern continues as planned, would rein in the full year market decline slightly from -28 to -25.3 percent, but still within the forecast margin of error. Q1 has thus reinforced, not altered, our January prognostications.

If Q1's stronger momentum however carries through into Q2, Q2 would come in much stronger than our 2 percent decline, say to plus 2 percent instead. This would positively change our forecast dynamics with a further two percentage points improvement on the full year's number, improving our forecast from -28 percent to -23.2 percent. Whilst we are not yet prepared to call for a formal forecast revision, the odds are in its favour and the downside forecast risks dispersed.

Clearly Q1 was the cyclical bottom; from here on out the growth trends will be up. Once the inventory purge is over, excess capacity will soon be absorbed with a corresponding strong recovery in utilisation rates. Given capex is currently at an 18-month all time low, with no near-term correction in prospect until late Q3-Q4 at the earliest, the industry will enter 2010 staring into a new net capacity famine.

We definitely will be revising our 2010 forecast up, from the current +15 percent to the mid-to high twenties.

Industry capacity
The table C1 shows the quarterly semiconductor equipment sales trends for the period Q1-2008 through Q1-2009 inclusive. The total Q1-2009 equipment sales were $3,235 million, down 31.4 percent from Q4-2008, which in turn was down 28.1 percent from Q3-2008. This represents the biggest sequential falls in the history of the chip industry.Source: Future Horizons

Wafer processing equipment represented 76 percent of the total, just slightly higher than its 75 percent average. Total Q1-2009 investment represented only 7.3 percent of the quarterly semiconductor sales, although it must be remembered that an equipment sale in Q1-2009 will not produce incremental semiconductor sales until three quarters later, namely Q4-2009.

Q1-2009 wafer fab equipment sales were down a staggering 69.4 percent on Q1-2008, the fourth consecutive quarterly high double-digit drop, with further declines in the prospect. Capex levels are now running at levels not seen since the early 1990s when the overall chip market was one-third its current size.

As mentioned earlier, Q1-2009 was down 31.4 percent versus Q4-2008, on top of the three previous quarterly declines of 28.1 (Q4 vs Q3), 16.3 (Q3 vs Q2) and 25.8 (Q2 vs Q1) percent respectively. It should not be forgotten that these cutbacks were not triggered by the current chip market recession; the first two quarterly drops, namely Q2 and Q3-2008, took place against a backdrop of strong IC unit growth, i.e., well before the Q4-2008 chip market collapsed.

The cutbacks were a clear intent to engineer tight capacity, a strategy that would by now have bitten home were it not for the cruel interruption on the Q4-2008 market collapse. We have never before seen such an extensive cut back prior to a collapse; ironically this will help the recovery process, albeit for the wrong reasons. It will also underpin the underlying strategy -- post recession IC capacity is going to be tighter than tight.

We also tracked the total semiconductor equipment sales by month since January 1988, both in absolute value and as a percent of semiconductor sales. One significant feature that can be seen from these trends is that the absolute value of the total semiconductor equipment sales has been significantly lower than the previous 1999-2000 investment peak, despite the fact the total semiconductor market has expanded in size.

During this same time period, the investment trend relative to the size of the total semiconductor market has also been trending well below its long-term 16.75 percent average, despite this being a period of heavy 300mm conversion.

The corresponding data for the Wafer Processing equipment sector, shows an increasing trend as a percent of semiconductor sales. This trend, however, is not a sign of excess investment, rather that the wafer processing portion is gaining overall market share, currently at around 75 percent of the total equipment spend, up from around 60 percent in the late 1980s.

We also tracked the total capex spent as a percent of semiconductor revenues on an annual basis since 1990-2008, and data but for the total semiconductor equipment spend. We also tracked the relative relationship between the wafer processing and total semiconductor spends.

These show that a higher proportion of revenues are being spent on the wafer processing sector, a trend that we believe is likely to continue.

We believe that the current levels of capex expenditure are unprecedentedly low and cannot be wholly accounted for improvements in productivity and factory loading. Even if they are, these gains are one-off improvements; once they have been realised there is no more gain in prospect and expenditure levels will return to 'normal' trends.

We tracked the wafer processing equipment spend versus the corresponding increase in capacity on a quarterly basis since Q1-1999 but with the capacity increase delayed by three quarters.

Once the three-quarter slippage in introduced into the equation, the overlay of the two curves, whilst not perfect, is a very good fit. In short, it takes three quarters for increases in wafer processing spend to translate into new capacity. This is the time it takes to hook up and calibrate the kit and make it volume production ready. Add to this an additional one-quarter delay through wafer fab and assembly process, the net result is a one year delay from wafer processing spend to incrementally more IC shipments out.

Adding in a further one-quarter lead-time for equipment delivery, results in a typically 15 month delay for an existing clean room structure from wafer processing investment decision to increased unit sales, one year longer still if a new building is required.

These long lead-times, however, have a positive side in that one has excellent visibility three quarters out into how much additional capacity is due to come on stream, just by analysing the front-end capex spend numbers. Once the frontend
capex is committed, the addition capacity is inevitable, needed or not, the difference being determined by the capacity utilisation number.

One is thus making an investment decision based on a unit demand forecast 12 months down the road, which would not be so problematic were demand more predictable.

As can be seen, however, from the unit sales charts in the Market Summary section of this report, IC unit demand fluctuates violently from its underlying long-term ten percent per year annual growth rate on a month-by-month basis, quarter-by-quarter basis, not withstanding the inevitable -- and unavoidable -- routing inventory adjustments.

The biggest single problem with semiconductor capex is thus both the long time delay from investment decision and additional IC units out and the non-linearity of the month-by-month unit demand. It is this mismatch that gives rise to the investment uncertainty. Getting the investment timing right, however, is not an exact science; there are bound to be ongoing capacity mismatches within this overall favourable trend.

Entering 2009, the current new capacity investment is trending well below the long-term trend, and is projected to slow even more so in 2009 as the economic recession bites home. This means over-investment is not going to accentuate the current industry downturn, as has so often happened before.

This time it seems investment has been deliberately slowed in order to improve the return on capital employed. The seeds have also been sown for the next market shortage in 2010-11. Foundry wafer prices will rise; dust down the 'makebuy' Excel spreadsheets ... the 'fablite'/IDM debate dynamics has yet to run its course."

Semicon equipment market to begin recovery by Oct. 2009

NEW TRIPOLI, USA: The semiconductor equipment market will begin its recovery by October 2009 based on proprietary leading indicators, according to the report: “The Global Market for Equipment and Materials for IC Manufacturing,” recently published by The Information Network.

“Our proprietary leading indicators, which determine inflection points in economic activity and which we utilize to show turning points in semiconductor equipment sales have turned positive, indicating that an upturn in equipment sales will begin by October ,” noted Dr. Robert N. Castellano, president of The Information Network. “We have been using these indicators since 2000 and they have proven to be highly quantitative metrics in every forecast we have given, and in nearly every given year we have not had to change our forecast midstream. We do not give forecasts in tenths of percentages only to change them two months later.”

We successfully predicted in our release of May 27 that Mainland China’s cross-straits investment in Taiwan will help the island country to survive the global crisis and at the same time help fix its own IC market. Taiwan has now reversed its stance and is considering allowing 300mm fabs in China. These actions will spur the equipment market in China, which has historically been utilizing refurbished 200mm equipment in its fabs.

“Objective, concrete evidence comes from the positive activity in our proprietary leading indicators in the US. Both our long and short indicators turned up in late 2008, pointing to a business recovery cycle and giving visibility that the days of the recession are numbered,” added Dr. Castellano.

As the recession eases, companies and consumers will unleash pent-up demand and make the electronic purchases driving the semiconductor market, which has already turned positive.

Semicon equipment: April 2009 book-to-bill ratio 0.65 -- 3pc rise!

SAN JOSE, USA: North America-based manufacturers of semiconductor equipment posted $253 million in orders in April 2009 (three-month average basis) and a book-to-bill ratio of 0.65 according to the April 2009 Book-to-Bill Report published by SEMI. A book-to-bill of 0.65 means that $65 worth of orders were received for every $100 of product billed for the month.

The three-month average of worldwide bookings in April 2009 was $253 million. The bookings figure is 3 percent greater than the final March 2009 level of $245.6 million, and about 77 percent less than the $1.09 billion in orders posted in April 2008.

The three-month average of worldwide billings in April 2009 was $389.9 million. The billings figure is 11 percent less than the final March 2009 level of $438.3 million, and about 71 percent less than the April 2008 billings level of $1.34 billion.Source: SEMI, USA.

"Capital investment by chip makers remains limited and bookings for semiconductor manufacturing equipment from North America-based companies have been essentially flat at extraordinarily low levels for the past quarter," said Stanley T. Myers, president and CEO of SEMI.

The SEMI book-to-bill is a ratio of three-month moving averages of worldwide bookings and billings for North American-based semiconductor equipment manufacturers. Billings and bookings figures are in millions of US dollars.

Intel Capital invests in ASM International NV

SANTA CLARA, USA: Intel Capital, Intel's global investment organization, announced an investment in ASM International (ASMI).

Intel Capital’s investment through open market stock purchases is 4 percent of ASMI's total common share capital, based on approximately 54 million common shares outstanding.

ASMI has been at the forefront of delivering materials and equipment innovation to integrated circuit manufacturers worldwide. ASMI’s equipment and materials are used in wafer processing, assembly and packaging of semiconductor devices. Its advanced technologies, which meet key International Technology Roadmap for Semiconductors criteria, are important to extending Moore’s law.

“Equipment and materials innovation is critical to enabling new capabilities in semiconductor device manufacturing,” said Arvind Sodhani, Intel executive vice president and president of Intel Capital. “Our investment in ASMI is part of Intel Capital’s strategy to foster innovation that aligns with Intel’s manufacturing technology roadmap.”