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Semiconductor industry to lower capital spending

Capital spending by the nation's semiconductor industry is expected to see a slower 5 percent to 7 percent growth this year from a year ago, as a result of the industrial cycle, industry watchers said yesterday.

This would represent a substantial drop over last year, which saw spending grow sharply by 25 percent to 30 percent.

"This is a cyclical industry, which sees several years of high growth followed by years of decline," said Thomas Diffely, a financial analyst at Merrill Lynch & Co.

This is also partly attributed to the memory chip segment, whose capital spending will usually slows down after several years of growth, he added.

Diffely made the remarks in a media briefing yesterday at the Merrill Lynch "Taiwan, Technology and Beyond" conference, which ends tomorrow.

In contrast to earlier projections that capital expenditure would plunge this year, it would instead see smaller growth thanks to the memory segment, he said.

Capex for the memory chip segment will account for 55 percent of the semiconductor sector's total spending, up from 30 percent in the past, he said.

Spending next year is expected to be slower than this year, as the increased spending by foundries will be offset by the decline in memory spending, which will be as much as 20 percent, he said.

But the foundry industry as a whole will see a "gradual recovery" in the second half of the year, Merrill Lynch said.

"This industry is getting more mature right now and companies are cautious on big bounces, which are usually followed by a big drop. So a nice, steady increase will be better off than a big bounce," Diffely said.

The wireless area in particular will see strong demand in the second half, thanks in part to lower inventories and a mild handset pickup starting from the second quarter, said Dan Heyler, another Merrill Lynch analyst.

Taiwan Semiconductor Manu-facturing Co (TSMC, 台積電), the world's biggest contract chipmaker, said last month that global semiconductor companies could experience a slower 6 percent annual sales growth during the decade ending in 2010.

That is a bleak outlook compared with the 16 percent annual growth rate before 2000, the company said.
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