Dataquest: Grimmer Than Most

Electronic News, July 23, 2001 by Jeff Chappell

No significant recovery until second half 2002

SAN FRANCISCO--If Gartner Dataquest's prognostications prove correct, semiconductor tool OEMs should keep the hatches battened down until well into next year.

San Jose-based Dataquest is being even more cautious than most here at Semicon West, saying chipmakers shouldn't look for significant recovery in end-demand until 2002, with equipment orders not seeing an upturn until the second half of 2002. Dataquest delivered its Semicon West seminar the morning of the last day of the front-end portion of the trade show.

But even as some 300mm fab plans are pushed out, others are proceeding on track. Additionally, the bulk of 0.13- and 0.10-micron process technology as well as the adoption of copper and later low-k dielectrics means that technology buys should remain relatively strong throughout the downturn, Dataquest said.

Many here are predicting the beginnings of a chip recovery in the fourth quarter and some, bolstered by Intel Corp.'s Tuesday earnings report, predict it will begin this quarter. However, Dataquest said that macroeconomic factors preclude a significant recovery in consumer chip demand any time in the immediate future. The outlook for a strong recovery of the U.S. economy in the second half of 2002 is pretty murky, said Klaus Rinnen, Dataquest chief analyst and director.

"There is still considerable uncertainty about when (the recovery) will start and how strong it will be," Rinnen said. In particular, "the strength of the U.S. recovery is a wild card," he continued. That means chip overcapacity, particularly in foundries, will likely extend into 2002. Consumer devices will no doubt drive the next upturn in the semiconductor cycle, Rinnen said.

But consumer demand for those devices currently on the market or entering the market in the near future doesn't appear to be strong enough to make any of these devices a so-called "killer app" that will lead a dramatically quick chip recovery the way mobile phones did in 1999. In fact, demand may become fragmented as different consumer devices enter the marketplace, Rinnen suggested.

For toolmakers, this means times will continue to be tough in the near future. Dataquest predicts 2002 equipment revenues will be down 8 percent from 2001, a year when revenues have dropped significantly. Dataquest said the final figures for 2001 will likely reflect a 29 percent drop from the boom year of 2000. A real upturn for tool suppliers won't come until 2003, with revenue growth of 30 percent, according to the research firm.

However, Dataquest predicts that technology-driven equipment buys will begin to pick up in the final quarter of this year, providing some good news for toolmakers. Tools and process technologies for the 0.13- and 0.10-micron device generations will be the primary drivers, said Dean Freeman, principal analyst for Dataquest. Furthermore, most chipmakers are looking to implement production at these technology nodes on 300mm, which means technology-driven 300mm buys will continue as well.

The widespread production implementation of copper processes will also take place with 0.13-micron devices on 300mm wafers, Freeman said.