Fab Utilization: Pressure Building
Merrill Lynch & Co.
27 August 1999
Mark F. FitzGerald, Vice President
Thomas R. Diffely, Industry Analyst
Semiconductor Capital Equipment
Reason for Report: Industry Data Release
Investment Highlights:
· A survey of device makers shows that fab utilization jumped to 91.5% for CMOS lines in the CY2Q'99, an increase of 5.6% versus CY1Q'99. We think the utilization rates will continue to move higher through the 2nd half of the year given the accelerating growth in chip demand.
· Leading edge CMOS capacity utilization (less than 0.4 micron) reached 95.1% in CY2Q'99, an increase of 4.3% versus CY1Q'99. Capacity at less than 0.4 micron now represents 44.8% of all CMOS fab wafer capacity.
· Higher utilization rates at chip makers are resulting in firming component prices, stronger cash flows and increases in cap-ex budgets. If chip demand continues at the current pace through the 2nd half of the year we would expect significant shortages of capacity at 0.25 micron. The probability is increasing that CY'00 could be much stronger than our current forecast.
· These trends are very positive for the semi-equipment segment because utilization rates are the highest in the advance technology nodes, <0.4 micron. The higher utilization rates in process nodes at 0.4 microns and below suggest that current investment in advanced wafer capacity is still not keeping pace with demand.
· We believe our top rated stocks are the best positioned to benefit from these trends. Applied Materials (AMAT, B-1-1-9), Novellus (NVLS, B-1-1-9), ASM Lithography (ASML C-1-1-9, 62 7/8), Cymer (CYMI, D-1-1-9), KLA-Tencor (KLAC, B-1-1-9), Credence Systems (CMOS, C-2-1-9) and Teradyne (TER, C-2-1-9). |
