Dark Clouds Appear in Sunny Skies, Says SEMI
By Christian G. Dieseldorff
SEMI Fab report reveals deepening slowdown for leading-edge investments, but the outlook remains still sunny for mature technologies
As 2018 dawned, the semiconductor industry appeared to be poised for a rare fourth consecutive year of equipment investment growth. That rosy outlook is about to change as clouds gather in what until now has been the sunny sky.
The latest edition of the World Fab Forecast Report, published by SEMI in December 2018, reveals a downward revision of total fab equipment spending growth for 2018 to 10 percent from the 14 percent forecast in August. Spending in 2019 is now projected to drop 8 percent, a reversal from the previously expected increase of 7 percent.
Tracking over 400 fabs and lines with major investment projects, the SEMI World Fab Forecast Report in August had forecast a slowdown in the second half of 2018 and into the first half of 2019. But recent industry developments are slowing fab equipment spending even more. (See Figure 1.)
Figure 1: Fab equipment spending by region. Data include new, used, and company-manufactured fab equipment.
The report shows overall slower spending in the second half of 2018 (down 13 percent) and the first half of 2019 (down 16 percent) with a strong increase in fab equipment spending expected in the second half of 2019.
Plunging memory prices, trade tensions, and a sudden shift in companies’ strategies in response to trade rifts are driving rapid drops in capital expenditures, especially among leading-edge memory manufacturers, some fabs in China, and some projects for leading-edge nodes such as 7nm. Industry sectors that expected record-breaking growth in 2019, such as memory and China, are now spurring the decline.
Following caving NAND flash pricing earlier this year, DRAM prices in the fourth quarter of 2018 began to soften, seemingly ending the two-year DRAM boom. Inventory corrections and CPU shortages continue, prompting predictions of even steeper price declines.
Memory makers have quickly responded to the changing market conditions by adjusting capital expenditures, and tool orders have been put on hold. DRAM spending may see an even deeper correction in 2019 while NAND flash-related investment could also suffer a double-digit decline next year.
A review of spending by industry sector shows that, while memory capex was expected to grow by 3 percent in 2019, it is now forecast to drop by 19 percent year-over-year (YOY). DRAM is hit the hardest with a fall of 23 percent, while 3D NAND will contract 13 percent in 2019.
Not surprisingly, the regions with the largest drops in spending since the August report are China and Korea.
China fab spending falls
Projections for equipment spending in China in 2019 have been revised from US$17 billion in August to US$12 billion, with multiple factors at play including a slowing memory market, trade tensions, and delays in some project timelines.
SK Hynix is expected to slow DRAM expansion in 2019. GLOBALFOUNDRIES reconsidered its plan for the Chengdu fab, delaying the ramp. SMIC and UMC are slowing spending. The Fujian Hua DRAM project has been put on hold.
Korea fab spending down
In August, SEMI forecast that Korea fab equipment spending would decline by 8 percent or US$17 billion in 2019 – a projection that has now been chopped down even more to US$12 billion, a drop of 35 percent YoY. Samsung began to throttle equipment investments in the fourth quarter of 2018, and the spending cuts are expected to continue into the first half of 2019. Samsung’s largest projects to be hit are P1 (slowdown) and the ramp of P2 Phase 1 (delayed). Adjustments to the S3 schedule are also expected.
Not all memory makers cut capex
While SEMI’s detailed, fab-level data show that some memory makers will scale back capex spending for 2019, one company stands out. Micron will increase capex for FY19 to US$10.5 billion, up about 28 percent, or $8.2 billion, from FY18. Micron will expand and upgrade facilities, invest less in NAND in FY19 than in FY18, and plans no new wafer starts.
Still sunny for mature technologies
In other sectors, especially for non-leading-edge, mature technologies, some fabs are still increasing investments. (See figure 2.)
Opto – especially CMOS image sensors – shows strong growth, surging 33 percent to US$3.8 billion in 2019. Micro (MPU, MCU and DSP) is expected to grow more than 40 percent in 2019 to US$4.8 billion. Analog and mixed signal investments also show strong growth – 19 percent – in 2019, bringing spending to US$660 million. The foundry sector, the second largest product segment in terms of total investments at US$13 billion, shows a 10 percent rise in 2019.
The recent three-year boom in the semiconductor market was mainly driven by the memory sector (e.g. DRAM and 3D NAND flash). Just one company, Samsung, invested at unprecedented levels, lifting the entire industry. Other memory makers rode the wave of the boom cycle by boosting investments. And China’s profile rose with its huge investments. All this painted a rosy picture of four consecutive years of revenue growth – a streak not seen since the 1990s. The sky was ablaze with sunshine.
Now the industry faces well-known threats of inventory correction and the trade war. Both phenomena could slow growth significantly, and the impact if both unfold in full force in tandem could be withering. The data in SEMI’s latest publication of the World Fab Forecast show that the four-year growth streak will not materialize. A three-year growth cycle followed by a slowdown is much more typical historically.
Since its August 2018 publication, more than 260 updates have been made to the World Fab Forecast. The report now includes more than 1,280 records of current and 115 future front-end semiconductor facilities from high-volume production to research and development. The report covers data and predictions through 2019, including milestones, detailed investments by quarter, product types, technology nodes and capacities down to fab and project level.