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Follow the Money: Record CAPEX spends point to important industry changes afoot


2011 is forecasted to be a boon year for semi equipment and fab investments as total fab spending are set to hit record levels in 2011, growing by 28% over 2010 levels.  This year's level will surpass the previous high set in 2007, and will then be followed by a slight decline in 2012 on a year-over-year basis, but still at notably high levels:



Source: SEMI World Fab Database Reports (February 25, 2011) (taken from this SEMI report)

What does this mean for the industry?  Firstly, this record amount of spend indicates a real financial commitment to next generation wafer and architecture sizes.  There are seven identified 450mm facilities that should begin to come on line in 2013, according to the SEMI report.  There is also support from the European government for the 450mm level, much as was the case in the early days of 300mm.  Consequently, there is a definite slowing in the construction of and equipment purchase for new 300mm wafer fabs.  With pricing, utilization and margins still being heavily watched by producers, the move to 450mm makes strategic sense and is seen as imminent (see also this recent report on 300mm wafer capacity and CAPEX from IC Insights here).

Secondly, as we discussed earlier this year here and here, the high CAPEX spending in 2011 underscores the skyrocketing cost of fabs and fab investments.  These data are seen in the increase from 14% in 2007 to 33% in 2011 of total fab equipment spending going to foundries.  This cost barrier also cements the forecast of a paring down of the number of chip manufacturers (see our recent discussion here).

Thirdly, the geographic trending shows that localization is strengthening, as we've discussed at MarketWatch previously here and more in depth here.  The localization trend means that chip production is moving closer to end-markets, particularly near the emerging global middle class populations.

One final note, there is also the issue of new diversification at the manufacturing end for semi.  As memory volatility continues (and with little end in sight), we are seeing sizable spends moving to diversify market exposure at the production end.  These new spends are presently focusing around new and/or expanded production in LED, OLED, photovoltaics (PV), and increases in MPU, logic and discretes (trending based on fab equipment spend increases, see the SEMI report here).

Lisa Ann Cairns, Ph.D.
Written on Friday, 04 March 2011 15:27 by Lisa Ann Cairns, Ph.D.

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