IC industry capacity utilization hits 95.6% in 2nd quarter
IC utilization at highest level since 3rd quarter 2000
According to the latest data from Semiconductor Industry Capacity Statistics (SICAS, www.sicas.info ), IC industry capacity utilization was 95.6% in 2nd quarter 2010, up from a revised 93.2% in 1st quarter. Utilization exceeded 95% for the first time since 95.4% in 2nd quarter 2004 and was the highest since 96.4% in 3rd quarter 2000. Utilization was even higher for the most advanced process geometries. For MOS IC wafers using design rules less than 0.08 microns (80 nanometers), utilization was 98.7%. 300 mm MOS IC wafer utilization was 98.4%. MOS IC foundry wafer utilization was 98.9%.
The high utilization levels are due to a strong rebound in IC wafer starts and a slow recovery in IC capacity. 2nd quarter 2010 wafer starts were up 64% from the cyclical low in 1st quarter 2009, but were still 6% below the peak in 2nd quarter 2008. IC capacity in 2nd quarter was up only 0.6% from the cyclical low in 3rd quarter 2009. IC utilization levels are likely to remain high at least through the end of 2010. Combined data from SEMI (www.semi.org) and SEAJ (www.seaj.or.jp/english) show shipments of semiconductor manufacturing equipment were $6.9 billion in 2nd quarter 2010, up over three times from a depressed level of $2.2 billion a year ago, but still 25% below the peak of $9.2 billion in 3rd quarter 2007. The increase in manufacturing equipment shipments is not likely to have a major impact on IC capacity until 2011.
Semiconductor Intelligence stated in March 2010 we expected IC industry capacity utilization to exceed 95% by 4th quarter 2010. In June 2010 we moved the 95% target in to 3rd quarter 2010. The target was reached earlier than expected in 2nd quarter 2010. We expect utilization to continue to increase through the end of the year, reaching 96% in 4th quarter.
The chart below shows SICAS IC capacity data and the forecast from Semiconductor Intelligence. Total capacity is the sum of the blue and green bars. Utilized capacity (blue bar) is equivalent to wafer starts. Unutilized capacity (green bar) is the difference between total capacity and utilized capacity. The utilization percentage (red line on right scale) is the ratio of utilized capacity to total capacity.
Semiconductors could show highest growth in 15 years
Strong second quarter drives 2010 forecast over 30%
2010 is shaping up to be a strong growth year for the world semiconductor market. Some recent forecasts call for growth as high as 36%. The growth rate will almost certainly exceed the highest growth rate in the last 9 years: 28.0% in 2004. It is a good possibility it will pass the 36.8% growth in 2000. It is unlikely to beat the 41.7% growth in 1995.
The following are recent forecasts of semiconductor market growth in 2010. In May, we at Semiconductor Intelligence expected 31% growth. Based on the strength of the market in the second quarter of 2010 (up 7.1% from first quarter), we have revised the forecast up to 36%. The 36% is in line with recent forecasts from Mike Cowan, Future Horizons and iSuppli.
How high could the market go in 2010? Major semiconductor companies are generally expecting healthy growth in 3rd quarter 2010 versus 2nd quarter 2010. The high end of guidance from Intel and Texas Instruments is for double digit growth. A weighted average of the midpoints shows growth of 6.4%.
| Key semiconductor company revenue guidance for 3Q 2010 versus 2Q10 | |||
| Company |
Low end |
Midpoint |
High end |
| Intel |
4.0% |
7.8% |
11.5% |
| Texas Instruments |
1.5% |
5.8% |
10.1% |
| STMicroelectronics |
2.0% |
4.5% |
7.0% |
| Qualcomm |
-1.5% |
3.3% |
8.1% |
| Renesas Electronics |
2.1% |
||
| Samsung |
“Strong seasonality” |
||
| AMD |
“Seasonally up” |
||
Semiconductor Intelligence developed three forecast scenarios for 2010. The optimistic case assumes strong 10% growth in 3rd quarter (at the high end of company guidance) and a moderate slowing of growth in the 4th quarter – driving 39% growth for the year. The base case has 3rd quarter growth at about the same as 2nd quarter (at about the midpoint of company guidance) and a slower 4th quarter – resulting in 36% for the year. The pessimistic case of 30% is about the lower limit to growth in 2010 – unless the world economy slips back into recession.
| Semiconductor market growth scenarios | |||||
| Change versus prior period | |||||
|
|
1Q10 |
2Q10 |
3Q10 |
4Q10 |
Yr 2010 |
| Optimistic |
3.8% |
7.1% |
10.0% |
6.5% |
39.0% |
| Base |
3.8% |
7.1% |
7.0% |
3.9% |
36.0% |
| Pessimistic |
3.8% |
7.1% |
2.5% |
-5.0% |
30.0% |
| 1Q10 & 2Q10: SIA/WSTSForecast: Semiconductor Intelligence | |||||
Is the semiconductor market getting ahead of demand?
With the semiconductor market growing over 30% in 2010, is it getting ahead of demand from electronics manufacturers? The latest data indicates it is not. IDC’s estimate of world PC shipments shows 2nd quarter 2010 grew 22% versus a year ago. Mobile phone shipments were up 15%.
Electronics new orders and production data from key countries also indicate a strong recovery. U.S. electronics new orders were up 14% in 2nd quarter 2010 after showing a year-to-year decline of 14% in 2nd quarter 2009. The European Union, Japan and Taiwan all had significant declines in electronics in early 2009, but have all bounced back to solid growth in 2010. China electronics production was the least affected by the recession, with 1st quarter 2009 flat with a year ago. China has recovered back to double-digit growth since 4th quarter 2009.
What about electronics inventories? Are they getting ahead of demand? Data from the U.S. and Japan show the ratio of the inventory held by electronics manufacturers to their shipments began to climb in early 2008. The ratio peaked in Japan in December 2008 and then declined rapidly. In 2010, the ratio in Japan has leveled off in the 80% to 90% range, below where it was in early 2008. The U.S. ratio peaked in March 2009 and has declined to the 130% to 140% range, about the same level as the beginning of 2008.
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Will 2010 boom lead to 2011 bust?
According to Semiconductor Industry Capacity Statistics (SICAS), total industry IC capacity dropped 2.9% in 1st quarter 2010 from 4th quarter 2009. This drop in capacity may seem unusual in a strong recovery period, but it has happened before. In 2003 and 2007 capacity dropped in the first quarter and bounced back in the second quarter. Since the first quarter of the year is normally the slowest for semiconductor demand, many companies take the opportunity to temporarily take capacity offline for maintenance or upgrades.
IC production (actual wafer starts) increased 1.4% in 1Q 2010 from 4Q 2009 and increased 54% from a year ago. Despite the strong year-to-year growth, IC production is still 10.8% below its peak in 2Q 2008. IC capacity utilization (the ratio of production to capacity) increased to 93.2% in 1Q10 from 89.2% in 4Q 2010. Utilization was at its highest level since 2Q 2004, when it was 95.4%. Utilization should continue to increase throughout the year as growth in production exceeds growth in capacity. We at Semiconductor Intelligence project utilization will hit 95% in 3Q 2010 and 96% in 4Q 2010.
In the 16 year history of SICAS data, IC capacity utilization has exceeded 95% only three times – in 1995, 2000 and 2004. In each of these years overall IC demand exceeded supply, resulting in some shortages and price increases. We appear headed for the same environment in 2010.
Each of the years 1995, 2000 and 2004 also saw strong growth in semiconductor capital expenditures and in the semiconductor market (as shown in the table below). The booms of 1995, 2000 and 2004 were short lived. The semiconductor market and semiconductor capital expenditures either declined or showed significantly slower growth rates in the following years – 1996, 2001 and 2005.
So is the industry headed for another bust in 2011? We do not believe so. Semiconductor Intelligence forecasts the semiconductor market will grow a strong 31% in 2010, moderating to 10% in 2011. IC capacity utilization will peak at 96% in 2010 and drop to a still healthy 90% in 2011. Why will 2011 be different from 1996, 2001 and 2005? Three key reasons:
- The semiconductor market is early in a recovery cycle after a 3% decline in 2008 and a 9% decline in 2009. The previous peak growth years each had one to two years of healthy growth in the immediately prior years.
- The semiconductor equipment market has been through two years of severe declines, resulting in 2009 billings down 63% from 2007 (based on combined SEMI and SEAJ data). It would take growth of over 160% in 2010 just to get back to 2007 levels. Thus growth in the semiconductor equipment market and capital spending should continue into 2011.
- The industry cut back significantly on IC capacity in the 2008-2009 downturn and is being cautious about adding IC capacity in the upturn. The IC industry is not likely to return to its 3Q 2008 capacity peak until late 2011.
Semiconductor capacity shortages by 2nd half 2010
The semiconductor industry has been on a wild roller coaster ride in the last couple of years. According to Semiconductor Industry Capacity Statistics (SICAS, http://www.sicas.info/), industry IC capacity utilization dropped precipitously from a cyclical peak of 90.5% in 1Q 2008 to a record low of 56.8% in 1Q 2009. The previous low was 64.2% in 3Q 2001. In response to the low utilization, IC manufacturers began cutting capacity (primarily through closing older fabs) in 4Q 2008. Capacity was cut for four consecutive quarters, resulting in 3Q 2009 capacity down 13% from 3Q 2008.
The combination of reduced capacity and increased production of IC wafers (beginning in 3Q 2008) has resulted in a rapid rebound of utilization to 89.2% in 4Q 2009. A continued recovery of IC wafer production is expected through 2010. The question is: can IC capacity keep up with the increased production? The chart below shows IC industry utilized capacity (blue bar, equivalent to production) and unutilized capacity (green bar). The sum of the two bars is total capacity. The red line on the right scale is IC capacity utilization, the ratio of utilized capacity to total capacity.
Semiconductor Intelligence is forecasting a moderate increase in IC capacity in 2010, resulting in 4Q 2010 capacity up 10% from 4Q 2009. SEMI recently forecast installed capacity will grow 5% to 6% in 2010 based on an 88% increase in spending on wafer fabs. http://www.semi.org/en/Press/CTR_034870
IC wafer production (or utilized capacity) should outgrow total capacity throughout 2010, with 4Q 2010 production slightly higher than the peak levels in 2008. As a result, utilization will continue to rise, passing 95% by 4Q 2010. Utilization has exceeded 95% only 3 times in the 16 year history of SICAS data: 96.0% in 2nd half 1995, 96.4% in 3Q 2000, and 95.4% in 2Q 2004. 95% to 96% appears to be a practical limit indicating the industry is running at full capacity.
If the IC industry hits full capacity by 4Q 2010 (or sooner), shortages of at least some devices will occur. IC prices are likely to rise, especially for commodity devices.