Worldwide Semiconductor Capital Equipment Spending to Decline by 15 Percent in 2005

Spending in 2004 on Track for 61 Percent Growth

STAMFORD, Conn., December 16, 2004 — Worldwide semiconductor capital equipment spending is on pace to increase 61 percent in 2004, but the spending in 2005 is projected to decline 15 percent in 2005, according to Gartner, Inc.

"The emergence of excess inventories, macroeconomic uncertainty and slowing end-user demand casts a shadow over the outlook for 2005," said Klaus Rinnen, vice president for Gartner's semiconductor manufacturing and design research group. "Device production has slowed in recent months, and with it semiconductor manufacturers have readjusted their capacity ramp-up and equipment purchase plans."

All major segments of the capital equipment market are forecast to decline in 2005 except for the automated test equipment market, which is expected to grow 3 percent in 2005 and then decline by 30 percent in 2006 (see Table 1). Gartner analysts said the industry is in a downcycle, but this period will be shorter than the prior one in 2001.

"Given more modest-capacity investments during the cycle, the supply-demand imbalance will be far less severe than in the prior two cycles," Mr. Rinnen said. "Consequently, the approaching downcycle will be mild, allowing for a return to positive annual investment growth possibly as early as 2006."

Table 1
Worldwide Semiconductor Capital Equipment Spending Forecasts
(Millions of Dollars)

	2003	2004	2005	2006	2007	2008
Semiconductor Capital Spending	29,661	46,163	40,242	40,567	47,158	64,930
Growth (Percent)	7.5	55.6	-12.8	0.8	16.2	37.7
Capital Equipment	22,824	36,825	31,185	31,111	37,782	51,794
Growth (Percent)	10.3	61.3	-15.3	-0.2	21.4	37.1
Wafer Fab Equipment	16,742	27,753	22,963	23,737	28,251	39,537
Growth (Percent)	3.5	65.8	-17.3	3.4	19.0	39.9
Packaging and Assembly Equipment	3,060	4,487	3,487	4,069	5,751	6,912
Growth (Percent)	30.5	46.6	-22.3	16.7	41.3	20.2
Automated Test Equipment	3,021	4,585	4,735	3,305	3,780	5,345
Growth (Percent)	39.4	51.7	3.3	-30.2	14.4	41.4

Source: Gartner Dataquest (December 2004)

Worldwide semiconductor wafer fab utilization rates peaked in the second quarter of 2004 at 94.9 percent before dropping to 91.3 percent at the end of the third quarter, as semiconductor manufacturers trimmed production levels in response to excess inventories.

"By the middle of 2004, capacity caught up with demand, and excess capacity started to emerge," Mr. Rinnen said. "However, any excess capacity during this down period will be considerably less than in prior downward cycles, and utilization rates will decline only to about 85 percent before starting a gradual increase through 2006."

The packaging and assembly equipment market will experience a 22 percent decline in 2005, with revenue of approximately $3.5 billion. Positive growth will be limited to packaging lithography and flip-chip bonder tooling. Packaging utilization rates will likely bottom out in the second half of 2005, giving way to a pickup in orders by the end of the year or very early in 2006.

Gartner analysts said the automated test equipment market will experience a slight increase due to the continued growth of test outsourcing, and the remaining strength of semiconductor assembly and test services providers.

Additional information is available in the Gartner Dataquest Alert 2005 Will Bring Correction to Semiconductor Capital Equipment Sales This report is available on Gartner's Web site.

About Gartner:
Gartner, Inc. is the leading provider of research and analysis on the global information technology industry. Gartner serves more than 10,000 clients, including chief information officers and other senior IT executives in corporations and government agencies, as well as technology companies and the investment community. The Company focuses on delivering objective, in-depth analysis and actionable advice to enable clients to make more informed business and technology decisions. The Company's businesses consist of Gartner Intelligence, research and events for IT professionals; Gartner Executive Programs, membership programs and peer networking services; and Gartner Consulting, customized engagements with a specific emphasis on outsourcing and IT management. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has 3,700 associates, including more than 1,000 research analysts and consultants, in more than 75 locations worldwide. For more information, visit www.gartner.com.