"Chip capex to take another whack - Expected to drop 25% this year, after 35% decrease in 2001"
By Robin Lamb EBN (01/18/02 14:17 p.m. EST)
With capacity utilization rates remaining depressed, chip manufacturers are still not able to justify equipment purchases and are cutting into capital spending budgets for the second consecutive year.
Despite an expected uptick in spending in the second half of 2002, capital expenditures could be off by as much as 25% for the year, according to a survey released this week by Merrill Lynch & Co. Inc., New York. Previously, analysts expected a decline of 20% this year.
Capital spending last year fell 35%, down from analysts' projections of 40%.
"We've already seen some positive growth in the wireless area," said John Krehbiel, director of market research at Intersil Corp., Irvine, Calif. "What we haven't seen is a rebound in the rest of the market. From a unit standpoint, most of us are down 10% to 15% from where we were a year ago. We can clearly make 10% to 15% more parts and have to consume that before we'll need to start building more."
Overall, fab utilization rates are expected to be roughly 80% for 2001. By the fourth quarter, utilization rates were down to about 70% to 75%, according to Klaus Rinnen, an analyst at Gartner Dataquest's semiconductor manufacturing group in San Jose.
"To really shake spending loose, 60% [to 70%] is not the level," Rinnen said. "So those numbers have to come up. In a healthy upswing, [if you exceed] 85%, companies cut money loose for capital spending."
Without an anticipated surge in utilization, analysts are expecting a capital spending increase to come from accelerated design activity on 0.13- to 0.18-micron processes and increasing wafer demand at the leading edge.
China: The saving grace
An expected economic recovery and demand from outside the United States will also help chipmakers stage a mid-year recovery, according to Sue Billat, an analyst at Robertson Stephens Inc., San Francisco.
"The chip market in China should provide indication of where the [global] market is going," Billat said. "We can expect it to be a major player."
Having recently opened to world trade, analysts believe the new market in China will spark new electronics sales, a good sign for chipmakers. Plans from semiconductor manufacturers for construction of new fabs in the country will also spur an increase in capital expenditures.
Converge Inc.'s Market Intelligence Group forecasts semiconductor capital spending in China to increase 140%, to $1.7 billion, in 2001. Estimates for 2002 are not yet available.
"I think you'll see growth this year in Asia," said Grant Johnson of Converge, Peabody, Mass. "[China] was the only country that increased its capital spending last year on equipment."
Looking to 2003, Fairchild Semiconductor International Corp., South Portland, Maine, plans to make a "significant" investment in China.
"That will mean a significant increase to our back-end capacity in China," said Joseph Martin, Fairchild's executive vice president and chief financial officer.
For 2002, however, the company plans to maintain its 2001 capex formula of 10% to 12% of revenue. "What we have done and plan to do for year '02 is focus our spending primarily on back-end capacity for smaller, cheaper, more efficient packages," Martin said.
Low rates, low budgets
The concern remains that low utilization rates could stall spending. That fear is evident among chipmakers, as the Merrill Lynch report suggests steep cuts in 2002. According to Merrill Lynch, Atmel Corp., San Jose, will make the deepest cut at 78%. A company spokesman said Atmel is looking to cut capex in 2002 to $200 million from $800 million in 2001.
"As a result of a slight overcapacity and a serious reduction in demand for the first half of this year, we're looking to cut our capital spending by three-quarters," he said. "All of the growth in capex will be in the second half."
Among the first companies to announce earnings this week, Intel Corp. forecast a 24.7% drop in capital spending, to $5.5 billion from $7.3 billion in 2001. Last October, Intel denied a report in the Asian Wall Street Journal that it would cut capex this year by up to 20%.
In 2001, the Santa Clara, Calif., company made significant investments in 0.13-micron capacity and also began the initial build-out of its 300mm-wafer capacity, enabling the company to ramp both technologies in 2002.
"Because you get more than twice as much output per [300mm] wafer, for the $5.5 billion, we'll probably get the equivalent output had we spent $6 billion on 200mm," an Intel spokesman said. The company said it will spend about 90% of its capex on manufacturing and manufacturing processes.
Conversely, Advanced Micro Devices Inc., Sunnyvale, Calif., said this week that it will increase capital spending this year by 20%, to $850 million.
Additional reporting by Jack Robertson
siliconstrategies.com
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