Worldwide Semiconductor Capital Equipment Market to Return to Positive Growth in 2006

Gartner: While demand for capital equipment in 2005 softened, creating a decline in overall spending, the worldwide semiconductor capital equipment market is poised to grow 8.4 percent in 2006, with spending totalling $36.4 billion. In 2005, capital equipment spending declined 10.6 percent (see Table 1), as orders weakened in the first half of the year. However, by the second half of the year, the market experienced a turnabout in orders, especially in the back-end segments. The industry has managed to respond well to inventory fluctuations, slightly excessive capacity levels, and rapidly changing market parameters,. The industry appears to have a reasonable balance between production levels and capacity and end-user demand.Looking further ahead, spending will rise in the first half of 2006, but spending should flatten in the second half of the year before starting a sustainable recovery into 2008. Table 1 Worldwide Semiconductor Capital and Equipment Spending Forecasts (Millions of Dollars)

	2004	2005	2006	2007	2008	2009	2010
Semiconductor Capital Spending	48,359	46,617	46,431	51,026	65,410	60,998	52,747
Growth (%)	63.0	-3.6	-0.4	9.9	28.2	-6.7	-13.5
Capital Equipment	37,580	33,580	36,413	41,483	52,804	45,993	38,817
Growth (%)	64.2	-10.6	8.4	13.9	27.3	-12.9	-15.6
Wafer Fab Equipment	28,221	25,739	26,580	29,688	38,838	34,786	30,230
Growth (%)	68.6	-8.8	3.3	11.7	30.8	-10.4	-13.1
Packaging and Assembly Equipment	4,569	4,061	4,958	5,595	6,861	5,547	4,741
Growth (%)	45.9	-11.1	22.1	12.9	22.6	-19.1	-14.5
Automated Test Equipment	4,790	3,780	4,875	6,200	7,105	5,660	3,845
Growth (%)	58.5	-21.1	29.0	27.2	14.6	-20.3	-32.1
Other Spending	10,778	13,037	10,018	9,542	12,606	15,005	13,930
Growth (%)	59.2	21.0	-23.2	-4.7	32.1	19.0	-7.2

Source: Gartner Dataquest (December 2005) Worldwide wafer fab equipment spending is forecast to grow 3.3 percent in 2006, after declining 8.8 percent in 2005. Worldwide semiconductor wafer fab utilization rates in 2005 remained in a fairly narrow range of between 85 percent and 90 percent, this to continue, albeit on a slightly upward trend, through 2007 when total utilization rates will break into the 90 percent range. We expect to see capacity and wafe. With equipment costs increasing an estimated 10 percent for each new technology node, manufacturers will manage investments in new technology very carefully. The packaging and assembly (P&A) equipment market will decline 11.1 percent in 2005, which is slightly better than Gartner's previous forecast in October for a14.9 percent decline. The first half of 2005 was relatively slow, paralleling the slowness in the overall packaging/assembly market. More positive conditions developed late in the second quarter as industry utilization rates began to tighten and move back near the 85 percent mark. For the first half of 2005, revenue dropped significantly for many key automated test equipment (ATE) providers. However, ATE spending picked up in the second half of the year. The current increase in ATE sales is primarily being driven by increasing capacity requirements for memory and SOC testers. Expanding demand for these semiconductor devices, coupled with the trend toward further outsourcing of test to SATS companies, is sparking the latest ATE market growth cycle. Gartner Semiconductor Focus Area. Publ 20051221