Semiconductor growth bodes well for O/E

SAN FRANCISCO, CA-The semiconductor industry can look forward to a bright future in the short-to-medium term, driven by new consumer applications, a robust economy, and the continued transition to 300mm wafers, according to panelists at the annual SEMICON West press conference, held July 10.

SAN FRANCISCO, CA- The semiconductor industry can look forward to a bright future in the short-to-medium term, driven by new consumer applications, a robust economy, and the continued transition to 300mm wafers, according to panelists at the annual SEMICON West press conference, held July 10.

According to SEMI’s 2006 Mid-Year Consensus Forecast, the semiconductor equipment market in 2006 is expected to grow by 18% to $38.8 billion and should reach $44 billion by 2009. Stan Myers, president and CEO of SEMI, pointed out that in only six years the industry has almost recovered to the peak revenues recorded in the dot-com year of 2000. Combined equipment and materials revenues in 2006 will reach a forecasted $73 billion, compared with $75 billion in 2000.

“Favorable economic conditions, increased demand for semiconductor devices and stable inventory levels have stimulated capital investment by the world’s chip makers in the first half of the year,” Myers said. “SEMI members anticipate strong sales of chip manufacturing equipment in 2006. Furthermore, they anticipate less dramatic fluctuations in future cycles consistent with end-market growth and long term diversification trends in consumer electronics.”

The SEMI Mid-Year Consensus Forecast indicates that the wafer processing equipment segment will experience the most significant level of growth this year at an estimated 20 percent to $27.4 billion. Survey respondents anticipate that the market for assembly and packaging equipment will grow 11.6 percent to $2.4 billion in 2006. The market for equipment to test semiconductors is expected to grow about 14 percent to $6 billion this year.

As has been the case in recent years in both the optoelectronics and semiconductor industries, consumer electronics are driving growth. Consumers account for about 53% of semiconductor growth today, so the chip industry is more aligned with the overall economy, according to George Scalise, president of the Semiconductor Industry Assocation. If the economy continues to grow at 3% to 4% as it has, that will drive about 12% annual chip growth, he explained.

Richard Wallace, CEO of KLA Tencor, said memory makers were about half way through the transition from 200mm to 300mm wafers and that trend will drive growth in the equipment market. Another positive factor is the upward revision of the Semiconductor Industry Association forecast for global semiconductor sales. Last month the SIA raised its 2006 forecast from 7.9% to 9.8%.

However, questions have been raised about the impact of higher energy costs and inflation on consumer spending. Despite these concerns, the current demand for semiconductors remains solid, according to panel members.

Against the backdrop of a growing market, however, some panelists voiced concerns about issues of competitiveness. The U.S. share of global leading edge IC capacity has declined from 35% to 15%, according to Scalise. “If we don’t do some of the right things [soon], it could slip from our grasp,” he said.

Bronson said he is concerned that competitiveness was being eroded by the expiration of the R&D tax credit, continued intellectual property violations, and the cost of implementing Sarbanes-Oxley accounting rules.

“Intellectual property protection is very important for companies to be inventive,” said Bronson. “IP, in our view, is being compromised all over the globe and we [as a country] are not doing a heck of a lot about it.”

Bronson also railed against the Sarbanes Oxley legislation, which he said has put a lot of companies at a competitive disadvantage, especially smaller ones. “They are spending millions in compliance costs while their foreign competition is spending it on R&D,” he said.

David Miller, vice president and general manager of DuPont Electronic Technologies, believes that the high cost of R&D will result in the creation of more consortia and further consolidation, especially in the materials industry. Funding advanced materials R&D is getting increasingly difficult for small players, especially those that cannot leverage the cost across many product lines, he said.

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