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Has fab-tool sector touched bottom?

Posted: 12 Sep 2008     Print Version  Bookmark and Share

Keywords:semiconductor equipment  fab-tool billings  IC sector 

The business climate remains gloomy in semiconductor equipment as SEMI reported a significant drop in bookings and billings for the second quarter. There were no bright spots in the period. Every region reported a huge drop in fab-tool billings in the second quarter, including China, which showed the greatest decline.

The question is whether or not the sector has hit the bottom? Possibly not. Capital spending in the memory segment remains down. Spending in the foundry and logic sectors is steady, but they are offsetting the steep drop in memory. One analyst warned that the overall IC business would go from bad to worse. ''The fourth quarter will be a bust'' in the IC market, the analyst said, adding that there are no ''killer apps'' in the business to drive chip demand.

SEMI predicts a fab-tool recovery in 2009. Others doubt that forecast, saying business looks terrible for some time. In any case, SEMI reported that worldwide semiconductor manufacturing equipment billings reached Rs.33,558.17 crore ($7.83) billion in the second quarter of 2008, down 26 per cent less than the first quarter of 2008 and 29 per cent less than the same quarter a year ago.

SEMI also reported worldwide semiconductor equipment bookings of Rs.29,958.06 crore ($6.99 billion) in the second quarter of 2008. The figure is 30 per cent less than the same quarter a year ago, and 13 per cent less than the bookings figure for the first quarter of 2008. The data is gathered in cooperation with the Semiconductor Equipment Association of Japan from more than 150 global equipment companies that provide data on a monthly basis.

"Spending for new semiconductor equipment is down considerably as anticipated,'' said Dan Tracy, an analyst at SEMI, in a statement. ''Overall 2008 spending will approach 2005 levels, with a recovery expected for next year.'' A decline of 20 per cent in worldwide fab equipment spending is expected for 2008, but the sector is expected to rebound and grow over 20 per cent in 2009, according to a recent report from SEMI.

Look out below

On a regional basis in Q2, China's fab-tool billings fell 42 per cent quarter-over-quarter and 61 per cent from a year ago while Taiwan's fell 39 per cent quarter-over-quarter and 55 per cent from a year ago. On the other hand, Europe's fab-tool billings fell 29 per cent quarter-over-quarter and 15 per cent from a year ago while Japan's fell 19 per cent quarter-over-quarter and 6 per cent from a year ago. The decline in North America's fab-tool billings was 32 per cent quarter-over-quarter and 17 per cent from a year ago while Korea's was 19 per cent quarter-over-quarter and 20 per cent from a year ago.

The rest-of-the world's fab-tool bookings were up 19 per cent quarter-over-quarter and up 26 per cent from a year ago.

Memory down but TI is OK

Indeed, the signs are bad. On the foundry side, Chartered, TSMC, UMC and X-Fab are seeing a slowdown in Q3. Q4 is expected to be soft.

Not all is doom-and-gloom in the IC sector, especially at ON Semiconductor. ''Despite a significant sell-off in ON Semiconductor, fresh checks suggest its Q3 business is tracking comfortably within its guidance range,'' said Craig Berger, an analyst at FBR, in a report. ''We think revenues are tracking within the upper half of revenue guidance. Further, ON Semi's PC demand appears to be holding up, networking/telco demand remains stable, automotive business is weak, but this was accounted for in guidance, and consumer/gaming should grow in Q3 and seasonally decline in Q4.''

Texas Instruments Inc. released its Q3 business outlook on Tuesday, which provided a glimpse on the DSP, wireless, analogue and related fronts. ''Business is tracking in-line with the initial weaker than seasonal expectations,'' said analyst Doug Freedman of American Technology Research, in a report.

''The quarter is playing out as expected in wireless and analogue markets as weakness at some customers,'' he said. ''Inventories remain elevated at about Rs.428.58 crore ($100 million) to Rs.642.88 crore ($150 million) above desired levels. We believe the wireless revenue mix is not coming in as originally expected, with weaker LoCosto demand pull for low-end handsets.''

LoCosto is TI's single-chip cell-phone device for low-cost handsets. ''At this point, we are revising downward our TI estimates based on a weakening macroeconomic environment, industry-wide caution, TI's stated order rates to-date being below Q2 levels, and our view that a soft consumer could create a less than seasonal outlook for Q4,'' he added.

Memory remains the big problem. ''Contacts on the memory side now expect further DRAM price erosion as initial September demand from large OEMs is flat. Previously memory suppliers had hoped to see higher seasonal demand,'' said Avi Cohen, head of Avian Securities, in a report.

''NAND market getting worse,'' added Daniel Amir, an analyst at Lazard Capital Markets. ''In past reports we had highlighted that we could see a short pop in NAND pricing on potential OEM reordering,'' he said. ''However, our latest round of checks suggests the following: 1) NAND inventory has increased rather than decreased in the past two months and now stands at 12 weeks; 2) pricing has been very aggressive, especially by Samsung, and we now anticipate a 26 per cent decline in Q3; 3) visibility into Q4 suggests a weak demand environment with further capacity coming on board, which would lead to a challenging Q109.''

Fingerprint sensors down

Even the emerging markets took the gas this week. For example, AuthenTec Inc., a supplier of fingerprint sensors for PCs and handsets, this week lowered its forecast. Until now, fingerprint sensors have been a hot market and AuthenTec is the market leader.

''AuthenTec pre-announced weaker than expected Q308 results attributing the revenue shortfall to inventory over-supply at a new customer and lower than expected sales of high-end notebooks,'' said John Barton, an analyst with Cowen Securities, in a report.

''While we are disappointed in the near-term shortfall, we are most concerned by the decision from the company's top PC customer to discontinue use of AuthenTec's fingerprint sensors in its next design cycle. We believe this customer is Hewlett Packard,'' he said.

''While we believe that the potential opportunities in the wireless market remain exciting, we believe the impending loss of the company's largest PC customer in 2H09 is without a doubt the most disappointing news for AuthenTec. We believe the costumer in question is Hewlett Packard which currently represents" about 30-35 per cent of revenues, he said.

- Mark LaPedus
EE Times

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