Chip-making kit vendors toast bumper year

And reduced but still strong growth in 2005

By Tony Smith, 13th July 2004

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Chip-making equipment manufacturers together expect sales to grow 63 per cent to $36.2bn this year, from 2003's $22.2bn total, the Semiconductor Equipment and Materials International (Semi) organisation, said yesterday.

Growth will slow in 2005, with sales rising 24 per cent to $44.9bn, before contracting in 2006. Semi's figures are derived from member companies' own expectations.

"Semi members generally believe the peak of this market cycle will occur in the second quarter of 2005," the organisation said. Growth will return in 2007, taking total sales to $48bn.

This pattern follows that anticipated by the Semiconductor Industry Association (SIA): strong growth in 2004, slowing down in 2005, a reverse in 2006, followed by a 2007 revival. The SIA's figures cover chip sales.

Market watcher Gartner expects a similar trend among chip-making kit sales - with the exception that 2007, like 2006, will be year of decline. It reckons sales will rise 50.9 per cent this year and 13.4 per cent in 2005. Sales in 2007 will slump to $35.7bn - rather less than the $48bn Semi is expecting.

This year's sales will be driven by demand for 200mm and 300mm wafer kit, Semi said. Wafer processing equipment is expected to grow 61 per cent to $23.7bn; assembly and packaging machine sales by 77 per cent to $2.9bn; and testing kit by 66 per cent to $6.9bn.

The key sales regions are China and Taiwan, with sales up 152 per cent and 140 per cent.

Semi's bullish figure contrast with yesterday's Merrill Lynch bear-like report on the sector, which prompted the investment bank to downgrade the fab equipment industry from 'overweight' to 'neutral'.

ML believes that chip buyers - primarily PC OEMs - will reduce their spending through the rest of the yearto keep inventories at low levels. With chip makers busily ramping production on the back of high demand through the first five or six months of 2004, a sudden downturn in purchasing could hit earnings hard. This will have a knock-on effect on purchases of chip-making kit. ®