SEMI predicts $37B in equipment sales in '98

Electronic News, August 12, 1996 by Judy Erkanat

Mountain View, Calif.--In spite of a rash of industry layoffs and depressed stock values, semiconductor capital equipment vendors expect worldwide sales of $37 billion in 1998, according to Semiconductor Equipment & Materials International's mid-year Capital Equipment Consensus Forecast.

"This is our forecast from six or eight months ago," said Dan Hutcheson, president of VLSI Research. "It's no news that in 1998 things will pick up again. I think we should be through this whole thing by then, because everybody has to go to 0.25 micron. So much for those who said 'no more cycles.' "

With equipment sales through June running about 30 percent higher than during the comparable period of 1995, indications are for a softer market in the second half of this year, predicted Elizabeth Schumann, senior market analyst at SEMI. The lowest point of the shipments cycle is expected in 1997, she said, when growth will be down to 8 percent worldwide. Given average leadtimes for semiconductor capital equipment, this suggests diminishing backlogs in late 1996 and early 1997, a trend already evident through falling order levels.

"This survey was prompted by the outlook back in January that 1996 would be more of 1995's a new fab every week," explained Ms. Schumann. "Things changed so drastically, that we wanted to see what our members thought. They are relatively optimistic compared to the professional analysts. The main benefit from this survey is as a collection of opinions of companies comprising our industry. It gives a feel for the attitude and general opinion of the industry. The point is, it will be a slower year." This coincides with capital equipment companies' current downsizing measures, including: Applied Materials, reportedly about to cut its workforce by 1,200 to 1,500; Lam Research's workforce down by 10 percent, with the company prepared to let go another 10 percent if need be; Integrated Process Equipment Corp. (IPEC) just finishing a 10 percent layoff in July; AG Associates facing a 25 percent layoff; and companies like Tencor Instruments shutting down for a week come Labor Day.

Ms. Schumann expects order activity to pick up again in mid-to late 1997, contributing to a higher growth in shipments nearing 17 percent in 1998.

"I totally agree with this," said Brett Hodess, managing director and semiconductor equipment analyst at Montgomery Securities. "Generally, current thinking is that the second half of 1996 and the first half of 1997 will be somewhat disappointing, down year over year. But the outlook and general consensus is that 1998 will be a big year for 0.25-micron semiconductor product, for which there is not enough current capacity. By late 1997, early 1998, there will have to be spending to put that capital equipment in place. The problem right now is overcapacity on the commodities side. If the PC growth rate is in the high teens and the communications market continues to grow, we will see a problem only over the next three to four quarters."

Back in November of 1995, survey participants expected a 37 percent growth in 1996, 11 percent in 1997 and 15 percent in 1998.

"Dataquest is forecasting a 17 percent growth in the front-end equipment market this year, contrasted with the SEMI forecast of 24 percent," said Calvin Y. Chang, industry analyst at Dataquest. "In 1997, we see a 16 percent decline, compared to SEMI's 8.3 percent projected growth. We believe the current slowdown will be sharp and relatively deeper, but shorter in duration compared to historical norms. The current downturn will probably last about 18 months, starting the second half of 1996 to the end of 1997. This is principally due to the DRAM capacity oversupply. It will take some time for the industry to absorb all that capacity. During this time, equipment purchases and ramp-ups will be held off until the next wave of fab capacity build-up occurs in late 1998."

Fifty-two member companies from the U.S., Europe and Japan, representing about 65 percent by volume of the semiconductor equipment industry, participated in the survey, for which responses were collected from mid-June through mid-July.

The Consensus Forecast is normally conducted during the fall planning period, but uncertainty in the marketplace prompted a mid-year pulse-check, which indicated SEMI members still expect 22 percent growth in fab equipment worldwide this year.

According to Ms. Schumann, rapidly declining prices for semiconductor products, followed by more cautionary capital spending plans by the world's semiconductor producers, prompted SEMI members to revise their forecasts downward.