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Chipmakers' capital spend signposts recovery

By John G.Spooner, CNET News, 11 July, 2003 07:35

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Chip, Budget, spend, capital, optimistic, reversal

NEWS
After years of cutting budgets, chipmakers will spend more on building facilities in 2003 -- an increase that could benefit chip-gear manufacturers, according to a new report. Worldwide semiconductor capital spending will reach $29.9bn (£18.36bn) in 2003, an increase of 7.9 percent from $27.7bn the previous year, research firm Gartner forecast in a report released Wednesday. The predicted rise follows two years of declines. Capital-spending budgets include funds set aside by chipmakers, such as Intel, for building new factories or for refitting older plants. The largest part of these budgets goes toward purchasing chip manufacturing equipment. The projected figures offer a glimmer of hope for chip-gear makers, which have seen semiconductor companies slash capital spending over the past few years. In the late 1990s and in early 2000, chipmakers spent billions of dollars expanding their manufacturing capacity to meet demand. But the semiconductor sales boom turned into a bust as the economy slowed at the end of 2000. The decrease in orders led chipmakers to cut capital-spending budgets, as there was no longer a need to increase production capacity. In addition, many chipmakers hatched new strategies in which they collaborated to share the costs of upgrading or building new plants. Intel, for example, recorded capital expenditure for 2002 of $4.7bn, a lower figure than the $5.5bn it projected in January that year. (The chipmaker, which is based in California, said it planned to keep some existing equipment in use for production.) This year, it predicted that its capital spending would be between $3.5bn and $3.9bn -- a far cry from its $7.3bn budget in 2001. With other chip companies also shrinking their budgets, global capital spending declined by 37.9 percent from 2001 to 2002, according to Gartner. During that slowdown, many chipmakers continued to invest in technology for manufacturing 300-millimetre wafers, which serve as a base material for building semiconductors. But the overall decline in capital spending put a squeeze on companies that produce chip manufacturing equipment. Applied Materials, the world's biggest maker of chip manufacturing equipment, has gone through multiple rounds of layoffs in an effort to return to profitability. The capital expenditure slump also delayed the introduction of some new chip-building equipment. This includes new lithography tools, which are devices used during manufacturing to map out the features inside chips. The tide, however, may be turning. Gartner predicts an even larger jump in semiconductor capital spending for 2004, forecasting a global expenditure of $41bn -- an increase of 37.4 percent on this year's predicted total. "On a regional basis, Japanese companies are most aggressively raising spending this year, with a possible increase of 25 percent to 30 percent over 2002 -- funding (Japan's) newly restructured ventures," Klaus-Dieter Rinnen, an executive in Gartner's semiconductor manufacturing and design research group, said in a statement. Other strong areas include dynamic random access memory (DRAM), where memory makers such as Samsung are increasing capital budgets, Gartner said. But the prospects for chip foundries such as Taiwan Semiconductor Manufacturing and United Microelectronics remain in question, according to Gartner. Chip foundries, which manufacture chips on a contract basis, are expected to maintain their 2002 spending levels during 2003, the research firm said. The report only slightly revised the semiconductor capital spending forecasts made by Gartner in April. For example, the research firm trimmed its worldwide spending estimate for 2003 to $29.85bn from the April mark of $29.9bn. Gartner also lowered 2004 expectations to $41bn from $41.5bn.
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