IC restructuring to slow capital spending through 2008
By Mark LaPedus
Silicon Strategies
05/18/2004, 3:10 PM ET
SCOTTSDALE, Ariz.--The ongoing restructuring in the semiconductor industry is expected to cause a slow and steady decline of "appropriate' capital spending through 2008, according to a report from IC Insights Inc.
In total, the worldwide semiconductor industry is projected to grow 27 percent in 2004 over 2003, according to IC Insights. Capital spending in the IC industry will jump 53 percent this year, according to the Scottsdale-based research firm.
Actual semiconductor capital spending as a percent of sales ratio will be approximately 22 percent in 2004 over 2003. In fact, there has been a historical average of 22 percent in terms of overall capital spending as a percent of sales ratio.
However, IC Insights believes that a paradigm shift has taken place, in which "appropriate" capital spending provides a more accurate picture in the marketplace. In other words, the 22 percent figure may not be the correct--or appropriate--ratio.
"The steep decline in IC ASPs since Q495 indicates to IC Insights that the 'appropriate' capital spending ratio after 1995 may have been 20 percent or less," said Bill McClean, president of the research firm, in the report.
McClean suggests that the appropriate capital spending figure has been on the decline since the late 1990s. "A slow but steady decline in the 'appropriate' capital spending as a percent of sales ratio is forecast to continue through at least 2008," he said.
What's driving the decline in appropriate capital spending? There are several factors, including five major structural changes within the chip sector itself:
1. Fewer broad-based companies (e.g. more focused product offerings from TI, NEC, Motorola/Freescale, etc.)
2. 'Inverted pyramid' structure, whereby fewer companies control a large share of the product segments.
3. Increasing role of the foundry in the IC industry.
4. No new group of IC producers expected after the Chinese.
5. Technology node spacing moving from 2 years to 3 years.
There are four other major factors as well:
1. Used equipment is available for a very low cost.
2. New equipment significantly discounted.
3. Existing equipment extended beyond normal lifetime.
4. Initial movement to 300-mm from 200-mm wafers. |
