By David Lammers

MEMS are going through the roof. Optoelectronics, sensors, and discretes (OSD) are growing nicely. But economic uncertainty is putting a serious damper on capital investments for the semiconductor industry and business in general, speakers said at the SEMI Austin Industry Outlook Forum, held Wednesday (Nov. 2^nd).

“Uncertainty is the worst. People don’t know how to handle it well,” said Bill McClean, president of IC Insights Inc. (Phoenix), predicting a 16 percent decline in semiconductor-related capex for next year.

“If corporations and consumers know that things will be bad, they can adjust,” he told the SEMI Austin audience. But the current iffy environment results in a “corporate freeze, where managers don’t know what to do. If they invest and things don’t go well, it looks like they made a bad decision,” McClean said, adding that “companies have tons of cash, but they are sitting on it and waiting.”

Economist Jon Hockenyos made a similar point about uncertainty, saying that he sits on the board of a mid-sized bank which currently is making almost no loans unless the applicants can offer real estate as collateral. Trying to value potential lenders’ collateral in today’s uncertain environment is so full of unknowns that the bank has essentially stopped lending. “It is unfortunate, but that’s the way it is,” Hockenyos said, estimating that corporations have a $2 trillion mountain of idle cash now.

“Uncertainty means that production capital is sitting on the sidelines,” said Hockenyos, adding that “people’s sense of prosperity is not good right now, and that is probably not going to change next year.”

Capex to Decline 16 Percent

IC Insights predicts that the semiconductor industry will grow about 2 percent this year, with about half of the revenue growth coming from strong sales of the OSD category, set to grow 10 percent this year and continue on a similarly strong pace next year.

Capital expenditures were $16.3 billion in the first quarter, $16.8 billion in the second quarter, and are forecasted to be $15.3 billion in the third quarter and $13.3 billion in the current fourth quarter. “We are heading downward,” McClean said, predicting that semiconductor capex will be in the $12 billion-per-quarter range next year. “It will stabilize, but we see capex down 16 percent year-on-year,” he said.

There are bright spots. “We just raised our smart phone forecast again,” McClean said, noting that Chinese consumers will buy 310 million cellphones, 19 million cars, and 46 million TVs this year. “China is not just about low-cost manufacturing. It is about the Chinese being the world’s leading consumers in many of these electronics system areas.” And over the next decade, India’s GDP growth rate may exceed China’s, potentially giving the world economy a two-fisted growth engine.

The U.S. economic growth rate is depressed by high unemployment, which stems partly from the weak housing market. U.S. homebuilders will build about 700,000 fewer homes than normal this year. With each home accounting for an average of four jobs, the housing market is a major contributor to high U.S. unemployment, McClean said.

Marcus Lentz, who manages the Sematech/ISMI Industry Economic Model, said the semiconductor industry’s fab utilization rate stood at 88 percent in August 2011, almost exactly the industry’s ten-year (2001-2011) average utilization rate of 87.5 percent.

“In the first half of 2011 the industry was increasing capacity, but since mid-year demand has been falling, causing utilization to drop. People are concerned that it could be headed to the low 80 percent range,” Lentz said, adding that at that point companies probably are not making an operating profit.

Moreover, capital efficiency is weakening. The semiconductor industry has thrived largely because a dollar of invested capital has resulted in many more transistors produced at much lower costs. However, Lentz said that beneficent capital efficiency curve started flattening in 2009. “If we see a flattening out of productivity over the next three or four years, that essentially impacts Moore’s Law. Something needs to be done, which is why companies are thinking that if 450mm wafers come on line they can get some of that productivity back,” Lentz said.

Jan Vardaman, president of packaging consultancy TechSearch International, said packaging provides a way to boost performance and density, provided that circuit designers and packaging engineers collaborate on a product’s definition. However, the roadmap for 3D TSVs keeps getting pushed out, partially because bonding, thin-wafer handling, and probe/test are taking more time than expected.

“The industry is making a lot of progress on TSV yields. But we need reliability data, and I’ve seen zero data so far. We need to see drop tests on these phones,” Vardaman said.

There is here-today excitement about interposers, based partly on the success of Xilinx’s Virtex 7 LX 2000T product. “Xilinx is moving the industry into the era of 2.5D silicon interposers. Right now TSMC wants to do all of it so they can guarantee good yields, but some people are not comfortable about having all of it done at one place,” she said, arguing that the OSATs (out-sourced assembly and test providers) need to play a bigger role going forward.

Tags: 3D IC, 450-mm wafers, SEMI, semiconductor manufacturing

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