Increase in fab capacity slows, but output still exceeds demand
New report shows 4% growth in MOS wafer starts in Q4--about half the increase in prior quarter
By J. Robert Lineback
Semiconductor Business News
(02/22/01 09:57 a.m. PST)
SAN JOSE -- In the fourth quarter of 2000, wafer fabs worldwide cut back the ramp of chip capacity by about half the rate of increase in the third quarter, but semiconductor plants are still producing too many ICs for many key applications.
Wafer starts by metal-oxide semiconductor (MOS) fabs increased 4% in fourth quarter last year, according to a new report released on Wednesday (Feb. 21) by the Semiconductor Industry Association (SIA). MOS chip-processing plants worldwide were averaging 2.022 million wafer starts per week (measured in six-inch equivalent substrates) compared to 1.949 million in the third quarter of 2000, said the report.
The 4% increase in MOS wafer-fab capacity compares to a 7% rise in the third quarter of 2000, according to data from the Semiconductor International Capacity Statistics (SICAS) report. Bipolar wafer starts in fabs worldwide increased about 1% in the fourth quarter to 322,100 five-inch wafers per week, compared to 320,400 in Q3 of 2000, said the new SICAS report.
The report also shows total fab capacity utilization slipping slightly to 94.5% in the fourth quarter vs. 95% in Q3 of 2000. In the fourth quarter of 1999, wafer fab capacity utilization was at 93.9%, the report said. At the low point in the last semiconductor downturn, wafer fab capacity utilization was at 80.8% during the third quarter of 1998.
While chip makers are now cutting back capital spending plans in an attempt to reduce semiconductor inventories, it will be impossible to stop producing more wafers than are needed this year, warned analyst Bill McClean, president of IC Insights Inc. In many ways, the $200 billion chip industry is like a huge ocean freighter--it can't stop or turn on a dime, said the Scottsdale, Ariz.-based analyst.
"We are looking at single-digit unit volume growth [of ICs in the market] for 2001, and we still have double-digit capacity increases coming on line this year," McClean said. "That is the problem."
Based on the SICAS report, the chip industry's MOS capacity increased 24% in 2000. That was the "highest we've seen since the reports have been issued in 1994," McClean said. The industry's increase in wafer capacity last year topped the previous record in 1995--which was followed by the three-year downturn that started in 1996, he noted.
Desite sharp cutbacks in capital spending now underway at chip houses, MOS wafer fab capacity is expected to grow 16% in 2001, McClean said.
As a result, the semiconductor industry will most likely end this year with too much capacity, despite efforts to rein in production volumes, McClean said. That means 2002 will most likely see additional cuts in capital spending from 2001, he added.
In previous cycles, "the first year in a downturn has not been the worst in capital spending cuts. It's the second year," McClean observed. "That means 2002 will probably see greater reductions in spending."
IC Insights is currently forecasting a 4% decline in total semiconductor capital spending to $56.7 billion in 2001 (for equipment and buildings) from a record-high $59.2 billion in 2000. The research firm is forecasting a 12% drop in capital spending to about $50 billion in 2002, based on the outlook at the start of 2001. However, recent surveys of chip makers indicate that they are now planning more cuts in 2001 than originally planned. McClean said the survey shows chip makers now planning to cut 8% from last year's spending levels.
But no matter how hard chip makers try to cut back, the momentum of record capital expenditures in 2000 will continue to push more processed wafers into the market.
"Since start of the upturn in 1999, the average quarterly increase in MOS capacity has been 3-to-4%. We came off a 7% rise in the third quarter of 2000, and now we're at a 4% increase in Q4, which is slowing down, but it illustrates the momentum in the marketplace," he noted.
"In the fourth quarter of 2000, a lot of production equipment was delivered and a lot of money spent. The equipment that was delivered in the fourth quarter is ready to roll right now," he added.
Currently, the outlook for semiconductor revenue growth is at 7% in 2001, but McClean said there are good reasons to believe industry sales could decline slightly from last year. Pricing pressures will continue while too much capacity continues to pump more devices into the market, he noted. IC Insights is forecasting that chip sales will reach $217 billion in 2001 from $204 in 2000.
However, the research firm believes the slowdown will be a short one.
"The relative good news is that the worse it gets in 2001, the more we can expect growth in 2002," McClean said. "We don't see an extended two- or three-year down cycle, barring any economic recession.
"This may be painful [for chip makers] but it will probably be over quick," he added.
But that's not necessarily the case for capital equipment suppliers, which will probably have to wait until late 2002 or 2003 before their markets turn up again, based on the amount of new chip capacity still being added to the total.
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