By Adrienne Downey, Director of Technology Research, and Joanne Itow, Foundry Analyst, Semico Research Corp.
The disaster unfolding in Japan due to the Tohoku earthquake has raised much uncertainty in the semiconductor industry. It would be easy for us to look at the worst possible scenario, but is this the most likely one? Semico recently released a semiconductor capital expenditure forecast of 15% growth for this year, which is on top of the 91% increase seen in 2010. In light of the tragic events in Japan, is 15% growth too aggressive or not aggressive enough? Will companies increase capital expenditures to cover the lost capacity in Japan, or will the industry have to curtail production industry-wide, lessening the need for additional capacity?
Let’s see: out of the 59 companies covered in Semico’s capital expenditure forecast, only twelve have fabs in Japan. Their capex represents 19% of the total, but a sizeable amount of that is for fabs in other regions (ON, TI, Micron, and UMC, for example).
Nine out of the top 20 semiconductor companies plan to grow their capex spending in 2011, all at double- or even triple-digit increases. Four out of those nine maintain fabs in Japan. For example, Toshiba planned to increase capex from $1.6 billion in 2010 to $1.8 billion in 2011. Much of Toshiba’s spend was targeted at the completion and ramp of Fab 5 in Yokkaichi. Renesas announced plans to increase capital expenditures by 52%, going from $491 million in 2010 to $748 million in 2011.
The damage to semiconductor fabs in Japan has been pretty minimal, all things considered. Freescale was already in the process of closing their Sendai fab, so capital spending is most likely concentrated at its other fabs. Texas Instruments will need to spend more in capex to return its Miho fab to full production. The fab’s infrastructure was damaged, but the building itself is sound. In the short term, TI made arrangements to cover most of the production output from their affected facilities. ON Semiconductor’s fabs sustained minor damage, as did two of its back-end packaging facilities. Panasonic, Elpida, Renesas, Sony, Rohm, Fujitsu and Hitachi are among those with damage to their fabs.
For companies headquartered outside of Japan, capital spending forecasts for 2011 should remain unchanged. Intel has pledged a massive 73% increase in capex this year. After spending a record $10.9 billion in 2010, Samsung has reduced its forecasted spending in 2011 to $9.2 billion, a 16% decline. STMicroelectronics will increase spending to expand production of MEMS, automotive ICs and ST-Ericsson’s U8500 smartphone platform.
Semico forecasts an 11% growth in wafer demand this year. Although expected capacity additions will more than cover the expected unit growth in 2011, the expansion plans currently in place may not be in the right places. Shortages in certain product categories could still be possible in the short term. In addition, material supplies will be tight for at least several weeks, and spot shortages in the short term are a real possibility.
The importance of second-sourcing and maintaining manufacturing locations or relationships in different geographic areas has never been more apparent. But the semiconductor industry is strong; it can and will overcome these challenges. The semiconductor industry always finds ways to be more efficient. There are many companies that are willing and able to step up to the challenge of filling the gaps as a result of this devastating disaster.
Let’s give Japan all our support, for a recovery of semiconductor industry operations there will help the Japanese people, and it will help us. For more details regarding Semico’s capital expenditure and wafer demand reports please visit our website.