At Semicon Europa, chip equipment suppliers still wait for the recovery
A service of Semiconductor Business News, CMP Media Inc.
Story posted 11 a.m. EST/8 a.m., PST, 4/14/99
By J. Robert Lineback
MUNICH--Recession-battered semiconductor equipment suppliers spent the first couple of days at Semicon Europa 99 here looking for signs of a recovery in the chip-manufacturing marketplace, but most indicated that they don't expect to see any significant increase in business until the second half of 1999--at the earliest.
Chip makers across Europe--just like elsewhere in the world--are attempting to work off an excess in manufacturing capacity that built up over the past several of years prior to the 1998 collapse in semiconductor markets. Most of today's business is in so-called "technology buys," which are pieces of equipment and process steps for next-generation wafer fabrication. Orders for advanced processes and tools have recently pushed up the monthly book-to-bill ratio published by the Semiconductor Equipment and Materials International (SEMI) trade group.
"The industry appears to be emerging from the global downturn and it's preparing for the next phase of growth," said SEMI president Stanley T. Myers, who briefed the press during the opening day of Semicon Europa in Munich. Myers, like many equipment executives, expects to see a slow but steady recovery taking place in the second half of 1999.
The recent increase in purchases of advanced processing equipment has played a key factor in pushing up SEMI's book-to-bill from a low point of 0.57 last September to 1.17 in February. But investments in chip-making plants still have a long way to go before revenues return to 1997 levels. In 1997, chip makers worldwide spent $28 billion on new production tools, $22 billion on materials, and $14 billion in services from their suppliers.
In the equipment segment, revenues plunged 21% to $22 million in 1998. "That was the sharpest drop since SEMI has been recording market data," Myers said.
Semiconductor capital equipment spending is now expected to increase by 4% to $23 billion in 1999, based on a forecast presented by SEMI. A major wave of investments is also expected to begin next year, with equipment revenues growing 22% to $28 billion, followed by a 25% increase to $35 billion in 2001 and 14% to $40 billion in 2002, according to SEMI's forecast.
In semiconductor production materials, SEMI predicted that spending will rebound by 10% to $22 billion in 1999, pushing the total back up to 1997 levels. In 2000, chip material spending is expected to grow 14% to $25 billion, followed by an 8% increase to $27 billion in 2001 and an 11% rise to $30 billion in 2002, according to SEMI's outlook.
Revenues from services offered by equipment and materials suppliers are expected to grow 14% to $16 billion in 1999 from $14 billion in 1998, SEMI said. Those services will continue to grow steadily in the next three years, reaching $18 billion in 2000, $20 billion in 2001, and $22 billion in 2002, based on the current outlook.
"We concur with most of the semiconductor analysts' forecasts that show modest growth in semiconductor revenues in 1999," Myers told journalist during the opening day of Semicon Europa on Tuesday. The annual exhibition for chip manufacturing technologies was moved to Munich for the first time from Geneva this year to draw more visitors from Germany and other regions around Europe. While chip manufacturing remains in the doldrums of the 1998 recession, SEMI officials remain optimistic about the next 12 months.
In fact, attendance at the European chip-manufacturing trade show was believed to be up by about 68% from 1998, when 6,283 people attended Semicon Europa 98 in Geneva. Part of the increase in attendance was attributed to the show's new location in Munich as well as the addition of a test-equipment segment to the event.
But still, many equipment executives indicated that they have been disappointed by the crowds at Semicon Europa. "So far, this has been extremely slow here," lamented Papken der Torossian, chairman and CEO of Silicon Valley Group Inc., a supplier of lithography and other process equipment based in San Jose.
Some executives remain extremely cautious about the current business conditions as they wait for chip makers to begin ordering production systems for new plants.
"We have seen a few customers pushing out their orders in the first few months of this year, and no one has yet stepped up to the plate to begin significant orders," said Joel Elftmann, chairman and CEO of FSI International, a supplier of wafer cleaning, photoresist processing and chemical management systems based in Chaska, Minn.
"Margins are still under pressure, and we are all still facing severe competition," he said. "This is still not a healthy situation. Some of our customers are also concerned about their equipment suppliers not being able to quickly respond to an upturn because of headcount reductions, and the cuts in infrastructure. We are also concern about some of the talent that has decided to leave this industry because they don't want to go through this kind of cycle again."
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