Strong 2014 for Semiconductor Equipment and CapEx

Spending on semiconductor manufacturing equipment is headed for healthy growth in 2014. The latest data from SEMI and the Semiconductor Equipment Association of Japan (SEAJ) shows March 2014 three-month-average billings for semiconductor manufacturing equipment were up 16% from February 2014 and up 31% from a year ago. Bookings were up 16% from February and up 18% from a year ago. The March book-to-bill ratio dropped to 0.93 due to a 46% surge in billings versus February from the SEAJ data. However the book-to-bill had been above 1.0 for the previous 15 months. In December 2013 SEMI forecast 23% growth in the 2014 semiconductor equipment market. The data through March indicates the industry is on track to achieve the SEMI forecast.

The robust growth in semiconductor manufacturing equipment in 2014 implies strong growth in overall semiconductor capital spending. However the guidance provided by the largest capital spenders in the industry point to lackluster growth. The three largest spenders (Intel, Samsung and TSMC) account for over 50% of industry spending. None are indicating significant growth in spending in 2014. Intel’s guidance ranges from a 2% decline to 7% growth, averaging 3% growth. Samsung expects 2014 semiconductor capital spending to be similar to 2013. TSMC’s guidance ranges from a 2% decline to 3% growth, averaging 1% growth. The average expected growth spending by the three companies is 1%. IC Insights’ March forecast was 8.4% growth in semiconductor industry capital spending. Gartner’s April forecast was 5.5% growth. Gartner forecast semiconductor capital equipment spending would grow 12.2% in 2014, about twice the rate of overall capital spending but about half the growth expected by SEMI.

[TABLE] border=”1″
|-
| style=”width: 654px” | Semiconductor Capital Spending Forecasts, US$ Billion
|-
| style=”width: 228px” | Company
| style=”width: 60px” | 2013
| style=”width: 72px” | 2014
| style=”width: 96px” | Change
| style=”width: 198px” | Comments
|-
| style=”width: 228px” | Intel
| style=”width: 60px” | 10.7
| style=”width: 72px” | 11.0
| style=”width: 96px” | 3%
| style=”width: 198px” | +/- $500M
|-
| style=”width: 228px” | Samsung semiconductor
| style=”width: 60px” | 11.5
| style=”width: 72px” | 11.5
| style=”width: 96px” | 0%
| style=”width: 198px” | Similar to 2014
|-
| style=”width: 228px” | TSMC
| style=”width: 60px” | 9.7
| style=”width: 72px” | 9.75
| style=”width: 96px” | 1%
| style=”width: 198px” | $9.5B to $10.0B
|-
| style=”width: 228px” | Total of above
| style=”width: 60px” | 31.9
| style=”width: 72px” | 32.25
| style=”width: 96px” | 1%
| style=”width: 198px” |
|-
| style=”width: 228px” | Total Industry
| style=”width: 60px” | 57.4
| style=”width: 72px” | 62.2
| style=”width: 96px” | 8.4%
| style=”width: 198px” | IC Insights, March 2014
|-
| style=”width: 228px” | Total Industry
| style=”width: 60px” | 57.8
| style=”width: 72px” | 60.9
| style=”width: 96px” | 5.5%
| style=”width: 198px” | Gartner, April 2014
|-
| style=”width: 228px” | Capital Equipment
| style=”width: 60px” | 32.0
| style=”width: 72px” | 39.5
| style=”width: 96px” | 23.2%
| style=”width: 198px” | SEMI, Dec. 2013
|-
| style=”width: 228px” | Capital Equipment
| style=”width: 60px” | 33.5
| style=”width: 72px” | 37.5
| style=”width: 96px” | 12.2%
| style=”width: 198px” | Gartner, April 2014
|-

We at Semiconductor Intelligence believe the semiconductor industry will show significant growth in 2014 in both overall capital spending and equipment spending. We expect capital spending growth over 10% and equipment spending growth over 20%. Companies will increase their capital spending targets as the year progresses. If this strong growth does occur, could it lead to overcapacity? This does not appear likely in the near term. The graph below shows industry spending on semiconductor equipment (from SEMI and SEAJ) divided by the semiconductor market value (from WSTS). The four-year-average ratio (red line) smooths out the year-to-year variations to show the general trend. The ratio was 20% in the overcapacity years of 2001 to 2002. The ratio dropped below 10% in 2005. Since 2007 the ratio has been in a steady range of 11% to 13%. The ratio in 2014 and 2015 is based on the SEMI equipment forecast (23% growth in 2014 and 2% in 2015) and the WSTS semiconductor market forecast (4.1% in 2014 and 3.4% in 2015). Under these assumptions, the industry will not experience overcapacity in the next few years.

The bigger risk is capital and equipment spending not keeping up with market growth. Our February forecast was for 10% semiconductor market growth in 2014. Assuming 10% growth in both 2014 and 2015 and no change in equipment spending in 2014 and 2015, the four-year-average ratio would drop to 10% in 2015, implying under-capacity. However we do not believe this will occur. We expect companies to increase their equipment purchases in response to solid market growth.

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