Will the Current 99% Semiconductor Fab Utilization Level Trigger a Major Correction?

March 13, 2006 – Saratoga, California – In Q4-05, fab capacity utilization of the state-of-the-art technology (line widths smaller than 0.12µ) has reached a record high of 99%. This utilization level is reminiscent of previous robust cycles that were followed by a recession: the second half of 1995 peaked at 97.4% utilization of narrowest width; Q1-00 attained 97.3%. Is the chips industry facing the same fate now? 

“No,” said Rosa Luis, Director of Marketing and Sales for Advanced Forecasting, a semiconductor-oriented forecasting house, “the state of the industry during the aforementioned examples was very different from today in that each occurred toward the end of an already over-heated boom period in which inventories were accumulating and decisions were made to add capacity to an already capacity-loaded market.”

Currently, the industry is in a much stronger position in which over-heating is not present, as IC sales have not yet exceeded the predicted Underlying Demand. In addition, decisions to increase manufacturing capacity are now made more carefully in order to alleviate a repeat of the over-capacity circumstances of 2001. The increases in production of wafers (6%) and in sales of IC units (10.6%) in 2005 over 2004 were in sharp contrast to the 11% decline in total sales of new semiconductor equipment. Billings of worldwide wafer processing equipment have actually been stagnant for the last half year at $1.71B/month after declining from a peak at the end of 2004, while both the assembly and test equipment segments have increased 16% and 7%, respectively, over the last 5 month.

“However, the current cautious behavior does not preclude the possibility of over-heating from occurring,” continued Luis. “We do believe both IC units and revenues in 2006 will have growth in the double-digits over 2005 and this could very well lead revenues to exceed Underlying Demand and cause over-heating resulting in over-capacity and inventory buildup, precursors to a recession.” 

“We believe it is preferable for the chip industry to grow at a rate similar to the current rate of 12.3% for IC units and 5.9% for IC revenues year-over-year than to grow at a 30% rate just to be followed by another deep recession,” stated Luis. “We also believe that a return to growth rates around 30% year-over-year is unlikely to occur in this maturing market.” 

Founded in 1987, Advanced Forecasting is a leader in forecasting demand for semiconductors, semiconductor equipment, and materials industries. Its unique features are using purely quantitative input and never retroactively modifying its forecasts. Advanced Forecasting provides the industry’s most accurate forecasts and has acquired a user base of more than 400 companies worldwide.

Contact:

Rosa Luis

Director of Marketing and Sales

Advanced Forecasting

rosal@adv-forecast.com

Toll Free: 1.888.658.3227

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