After two years of cutting back plans to spend capital on new equipment, computer chipmakers may not be able to find machines to meet increasing orders because equipment makers have also cut back their operations, analysts said yesterday.
"Capital spending declined 38 percent last year -- the second year at more than 30 percent," said Bob Johnson, principal analyst for the semiconductor and electronics manufacturing sector at US-based research firm Gartner Dataquest Inc.
"This is the `under-investment' stage at which companies are not able to keep up with technology. This year we expect a rebound of 8 percent [in equipment purchases], but equipment makers have downsized, and I'm not sure they can recover fast enough to meet the demand," Johnson said.
Johnson was speaking at Gartner's ninth annual "semiconductor roadshow" seminar held in Taipei yesterday.
Taiwan is home to the world's two largest manufacturers of custom-made computer chips, also known as foundries or fabs: Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Corp (UMC, 聯電).
For the past two years, both firms have continued to buy new equipment, but have spent less than was initially forecast rates as the whole industry went through its worst recession.
"Based on our forecast, total capital expenditure for the chip industry will grow 16 percent this year, but if you exclude DRAM memory chips it's flat, and if you only look at the foundries, it's actually negative," said Rick Hsu (
Shrinking orders for equipment may, however, have an upside for the foundries.
"One good thing for the foundries is that the lead time between ordering the most advanced equipment and receiving it has been shortened from nine months to six months," Hsu said.
"This increases the foundries' flexibility and response time to changes in the market," he said.
European equipment manufacturer SEZ Group felt the pinch during the downturn: "We did downsize, mainly by liquidating a division we had only acquired in 2001," said Fred Kranich, manager of SEZ Taiwan branch.
"Capacity and lead-times will indeed be a problem for most vendors. SEZ has given a lot of attention to its supply chain and works with a range of outsource partners in order to boost production capacity within a short time. I therefore see us well prepared for expansion," Kranich said.
Taiwanese foundries have been winning orders through the recession as an increasing number of chip companies shelved plans to invest in expensive chipmaking equipment and outsourced orders instead.
Last week, VLSI Research Inc reported that semiconductor equipment purchases declined worldwide last year -- with one notable exception: "During 2002, Taiwan was the only region that showed growth in chip-equipment consumption. It was up 11.3 percent over 2001," a VLSI Research report said.
The signs are that the industry at large is beginning to wake up to the need for new equipment. On Aug. 18, VLSI reported that orders for semiconductor equipment are growing -- US$10.82 billion worth of equipment was sold in the three months to July while US$12.12 billion in new orders was received.
Another industry association is also cautiously optimistic.
"Bookings [in July] grew for the first time since the March report due to improved order levels of wafer processing equipment," said Stanley Myers, president and CEO of Semiconductor Equipment and Materials International. "The total semiconductor capital equipment sector remains on course to experience modest growth in 2003."
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