SUNNYVALE, Calif.—A historically low level of capital spending by chipmakers is paving the way for a tight market that will result in increased average selling prices (ASPs) but may have unforeseen ramifications, according to an industry analyst.
Semiconductor capital spending as a percentage of semiconductor sales is projected to fall to 12 percent this year, the lowest on record, according to Bill McClean, president of market research firm IC Insights Inc. Still shell-shocked following the sharp industry downturn that set in last year and decimated first quarter revenues, chip firms continue to postpone capital investments despite evidence that the industry is returning to growth, McClean said during a forecast event here Thursday (Sept. 17).
"We don't know the ramifications of 12 percent," McClean said. "We've never been here before. Never even been close."
Capital spending among chipmakers was 16 percent of semiconductor sales in 2008, and was between 20 and 22 percent from 2004 through 2007, according to IC Insights. It was 18 percent in 2002 and 2003 after fluctuating between 21 percent and 31 percent between 1996 and 2001, according to the firm's data.
IC Insights (Scottsdale, Ariz.) projects that capital spending as a percent of semiconductor revenue will increase to 13 percent in 2010, 15 percent in 2011 and 16 percent in 2012 before dipping back to 14 percent in 2013.
Semiconductor industry capital spending is forecast to be 19 cents for every IC unit shipped in 2009, down from 27 cents in 2008 and 41 cents in 2007, IC Insights said. The industry spent an average of 65 cents in capital spending for every IC unit shipped between 1981 and 2008, peaking at 88 cents per unity in 1995, according to the firm.
Though chip makers aren't adding capacity, IC unit shipments have returned to healthy levels, McClean said. Unit shipments are projected to hit 41.5 billion in the third quarter after plunging to 28 billion in the first quarter and climbing to 35.3 billion in the second quarter, according to IC Insights.
The solid demand for ICs, combined with the lack of capacity investment has put the industry on a "collision course" for much tighter supply, which will allow chipmakers to command higher ASPs for their products, McClean said. This trend is already evident in memory markets, where NAND flash ASPs in July were up 19 percent from January and DRAM ASPs rose 33 percent between December and July, he said. DRAM ASPs have risen every month since December, he added.
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