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Tuesday, July 11, 2006

California Dreamin’

By William Trent, CFA of Stock Market Beat

The folks at Strategic Marketing Associates have been smoking some pretty heavy stuff released an optimistic forecast for the semiconductor industry. At the Semicon West trade show in San Francisco they predicted semi equipment sales would rise 19 percent this year (which is probably about right) followed by a 10 percent increase in 2007, bringing the sales back to their historic peak. We think the second part is simply California Dreamin’.

How are equipment sales going to rise further when there is already a glut of chips and when the current capacity orders are running at a far higher rate than end demand for semiconductors, as we have pointed out repeatedly?
Wafer Fab Equipment Purchases to Hit Highest Level Since 2000 - 7/10/2006 - Electronic News
The market for semi production equipment and materials can look forward to growing 19 percent sequentially this year, as well as 10 percent next year, to reach $40 billion, the highest level since 2000, according to a report by industry research firm Strategic Marketing Associates (SMA) released at Semicon West today.
The forecast for strong double-digit growth for this year and next is being fueled by rising levels of new wafer fab construction that began in 2004 and is expected to crest in 2007, SMA noted.

“We see the industry bringing 35 new fabs online by end of 2007 with a total equivalent capacity, when fully ramped, of more than 2 million 200mm diameter wafers per month,” SMA President George Burns said in a statement. “Representing more than 15 acres of silicon, this monthly output is roughly equal to 18 percent of industry’s theoretical full capacity today.”
We think the next steps for SMA are painfully obvious (apologies to the Mamas & Papas):

I stopped into a church (stopped into a church)I passed along the way (passed along the way)You know, I got down on my knees (got down on my knees)And I began to pray (I began to pray)

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