Semiconductor CAPEX Down - TSMC Capex Increases

The number of semiconductor companies spending more the one billion US dollars in 2009 on capital expenditures (CAPEX) has declined from eight in 2008 to just three in 2009. Fabtech cites an IC Insights reports. According to Fabtech:

The elite of the elite as far as semiconductor capital spending is concerned are in desperate need of new members, otherwise the ‘Billion-Dollar Club’ is in danger of closing its doors. According to IC Insights, only three companies, Intel, Samsung, and TSMC, are planning CapEx of over US$1.0 billion in 2009, down from eight companies in that club in 2008, and 16 companies in 2007.

Intel still sits at the head of the table with spending plans of US$4.7 billion, Samsung with US$4.5 billion and TSMC with its revised upward plans for US$2.3 billion spending in 2009. Compared to spending in 2008, Intel is spending 10% less, Samsung by as much as 33% less and TSMC is the only one increasing spending by 23%.

Capital spending as a percent of semiconductor sales will barely top 12% in 2009. Considering that it reached a record low of 16% in 2008, there is little joy for equipment suppliers.

However, the good news is that IC Insights believes this will lead to much stronger IC average selling prices (ASPs) beginning in 2010 and extending through 2012. Thus generating the profit margins required for greater capital spending.

Fabtech gets it right when it says this provides serious issues for equipment suppliers but this is nothing new and they were probably expecting the decline. Last year in August in Chip Manufacturing Orders Down we quoted a CNET article that anitcipated this decline. So really it is nothing new or surprising. Most companies have struggled in the past year and planning expensive capital projects is difficult to do when orders are not coming in. One would imagine it would take a longer period of time for these equipmenet manufacturers to recover. I assume the manufacturing companies will first need to develop a solid forecast of future sales before they start to invest.

There are some encouraging signs though. Earlier in the week we saw PC Demand is Climbing and other reports out of Taiwan suggest some parts of the chip design sector are in recovery mode with EDN reporting Top 20 semiconductor companies saw 21% sales surge in Q2, Reuters reporting Chip packager ASE sees higher Q3 shipments and the Wall Street Journal (WSJ) reporting MediaTek 2Q Net Profit Jumps 80%; Sees Stronger 3Q.

There does seem to be some sort of recovery in the semiconductor sector. Of course this will be driven by the consumer, enterprise and organizational spending on products and equipment that will largely be driven from demand and perception among users at the end of the value chain. From the consumer perspective, lower average selling prices on chips will make products cheaper so it does make products more appealing to consumers.

As for CAPEX spending by the big guns, well it might take a longer time and cycle for this to increase and enable the equipment manufacturers to increase their sales.

FabTech: Billion-Dollar Club’ members depleted

MediaTek Upgrade Sales Forecast, Nanya Pessimistic

While The Telecom reports MediaTek is expected to have higher Q3 earnings based on strong demand from China, Bloomberg reports Nanya is expected to have a worse Q3 than expected. According to The Telecom:

Taiwan-based chip designer, MediaTek, today raised its estimate for third quarter sales growth to 22-25% because of high demand for handsets in emerging markets.

This is a significant jump from the previous estimated sales growth of 8-10%, with profit flatlining.

A statement released by the company said ‘better-than-expected’ mobile phone sales in emerging markets during July and August had caused its clients to increase September orders for cellphone chips.

Demand for mobile phones in China has been particularly strong, with 45% of the Chinese population now owning a mobile handset.

MediaTek is Taiwan’s biggest chip designer.

The company designs microchips for mobile handsets, DVD players, and digital televisions, then contracts out the manufacture of the chips to chip makers.

It is good new for MediaTek. However Taiwanese compatriat company Nanya is not doing so well. Bloomberg writes:

Nanya Technology Co., Taiwan's second-largest memory chipmaker, said its third-quarter loss will be worse than the company projected after a glut drove down semiconductor prices.

The loss will probably be similar to the deficit in the second quarter, Pai Pei-lin, vice president of the Taoyuan, Taiwan-based chipmaker, said in an interview today. Nanya, which posted a second-quarter loss of NT$7.29 billion ($226 million), is expected to report a third-quarter loss of NT$6.1 billion, according to the median analyst estimate compiled by Bloomberg.

The company will probably extend losses next quarter as the turmoil in global financial markets spills over to semiconductor demand, preventing chipmakers from selling their products at a profit, Pai said. Spot prices of the benchmark computer-memory chip have tumbled 35 percent in the past three months, according to DRAMeXchange Technology Inc. in Taipei.

Hopefully the memory industry can turn around soon. Companies there have been suffering for a longtime now.

The Telecom: MediaTek boosts Q3 sales projection
Bloomberg: Nanya Says Third-Quarter Loss to Be Worse Than Company Expected

MediaTek Moves into the GPS Market

China Economic News (CENS) reports:

Fabless house MediaTek Inc. and several Taiwanese manufacturers good at global positioning system (GPS) products recently jointly won the Ministry of Economic Affairs` approval to take part in its Galileo Project to develop crucial GPS technologies.

The project will offer MediaTek, currently Taiwan`s No.1 design house by market revenue, a chance to enter the market for satellite navigation systems simultaneously built with the U.S. GPS and the European Galileo modes.

Industry watchers point out that MediaTek has integrated GPS and Bluetooth devices into its mobile phone chips to hone its competitiveness in the mobile-phone chip market. The company has projected 50 to 60% of mobile phones to be shipped worldwide throughout this year will deliver GPS function.

China Economic News: MediaTek Ventures Into GPS Business

Should the IC Industry Provide Services?

According to the China Post (CP) Professor Joseph Shyu of National Chiao Tung University (NCTU) said that Taiwan's IC manufacturers should look to providing services in the future and reduce their focus on manufacturing.

Taiwan's integrated circuit (IC) industry should switch from major manufacturing to providing IC knowledge and management services, a scholar proposed at an international forum yesterday in Taipei.

Speaking to 22 visiting engineering majors from Ecole Poly technique of Montreal, Canada, Professor Joseph Shyu of National Chiao Tung University (NCTU) said that it is not wise for Taiwanese companies to focus only on manufacturing.

Taiwan is such a small island with a limited population -- we have no reason to believe that we can compete against economies like the United States or China," he said. "We have to be flexible and dynamic."

The fact is Taiwan's pure-play foundries (TSMC and UMC) have already competed against their US counterparts successfully. In fact, TSMC and UMC created a whole new type of business and in many ways were responsible for nurturing and developing the fabless design industry. Prior to the pure-play foundries chipset companies had to invest heavily in their own manufacturing facilities. Enabling companies to outsource chipset manufacturing provided an ideal environment for smaller fabless companies to exist, one of the most famous being Nvidia.

These companies have also spun-off their own fabless chipset design companies. For example UMC have spun-off ITE Tech, Novatek and Mediatek to name a few. Taiwan's IC manufacturing companies are strong and will continue to remain strong over the short term at least. Of course market conditions change and the competitve environement will change too so these companies will have to adapt in the future. However, competing against TSMC or UMC will be very difficult for any startup, even in China.

Professor Shyu is correct when he says "We (Taiwan) have more international experience and primary management systems (than China)."

Article: IC industry should provide services: scholar