Wait 'Til Next Year, Once Again

Unless you manufacture packaging and assembly equipment, you might want to keep the hatches battened down for a few more months.

The semiconductor industry will only see a modest gains as it heads into the second half of 2003, with a significant upswing not coming until 2004, according to

While back-end packaging and assembly equipment revenue will grow 26.5 percent this year, overall capital spending will only grow 7.9 percent, with semi revenues growing 8.3 percent to $169 billion, Gartner said. But this growth in back-end equipment, a market sector usually regarded as the canary in the semiconductor coal mine, would seem to presage an upturn heading into the end of the year.

Gartner apparently thinks so, in spite of its comparatively bearish forecast for 2003.

Tracking U.S. and global gross domestic product growth, Gartner doesn't expect boom times to return to the chip industry until next year. The company forecasts U.S. and global GDP growth to hit 2.4 and 2.2 percent growth this year, respectively, before climbing to 4.3 percent and 3.4 percent next year.

For 2004, Gartner forecasts semiconductor revenues to grow 23.1 percent, once again topping the $200 billion mark. The forecast $206.7 billion is still well below the $221.3 billion mark set in 2000.

Gartner forecasts even bigger spending growth for the equipment sector in 2004. It sees capital spending exploding 37.4 percent to $41 billion, up from the $29.8 billion forecast for this year. Wafer fab equipment and packaging and assembly equipment revenues are forecast to see similar annual growth of 38.6 percent and 36.4 percent, respectively to $24.4 billion and $4 billion.

Steady, if Modest 2nd Half Gains Predicted

As we head into Q3 and Q4, the firm does foresee modest but positive growth for the next two quarters. In wafer fab equipment revenue, for example, following a drop in sequential growth of 7.1 percent in Q2, the market research company forecasts 6.9 percent growth during the current quarter and 14.8 percent growth in Q4, with positive growth throughout 2004.

Even at the pessimistic end of its forecast range, Gartner predicts at least 1 percent sequential growth in fab equipment revenue this quarter and 5 percent in Q4.

In the back-end, Gartner predicts quarter-over-quarter revenue growth of 4.5 percent during Q3, followed by 3.8 percent in Q4, with a seasonal jump coming in Q1 of next year of 19.5 percent growth. At the bottom range of its forecast, it sees packaging and assembly equipment revenue possibly slowing as the year progresses, perhaps dropping in Q4 as much as 6 percent, before rebounding in Q1, growing 16.2 percent quarter over quarter, with positive growth throughout next year.

In terms of geography, Japan is apparently continuing to lead the recovery, according to Gartner. It sees the capital equipment market growing in all regions of the world growing in 2003, with the exception of North America. The Japanese equipment market will grow 21.2 percent to $4.5 billion this year. Japan is followed by Europe with forecast growth of 18.9 percent and Asia/Pacific with 16.7 percent growth. North America, by contrast, is forecast to shrink 7.2 percent to $4.9 billion.

Gartner forecasts the global equipment market will boom in 2004, however, lead by Asia/Pacific with 44 percent growth to $12.5 billion, followed by the U.S. with 41.5 percent growth, Europe with 42.3 percent, and Japan with 21.9 percent growth. Overall, it anticipates the world equipment market to grow 38.3 percent next year to $28.5 billion, followed in 2005 by 47 percent growth to $41.9 billion, before contracting in 2006.