Japan quake will not slow 2011 semiconductor capital expenditures, says IC Insights

Top 10 spenders to increase capex by 25% in 2011!

IC Insights has boosted its forecast for semiconductor industry capital spending in 2011 and now expects outlays to climb to $60.4 billion, a 17% increase over the $51.8 billion the industry spent in 2010. Further, semiconductor industry capital spending is expected to reach a new all-time high of $63.3 billion in 2012! New manufacturing lines and upgrades to smaller process geometries are expected from foundries as more IC suppliers look to outsource production. DRAM and flash memory suppliers are spending primarily to upgrade to smaller process geometries.

As shown in Figure 1, the top 10 semiconductor industry spenders are forecast to increase their outlays by 25% this year. In contrast, the remaining semiconductor industry companies are expected to cut their capital expenditures by 1% in 2011!

Figure 1

One of the most "eye-catching" numbers in Figure 1 is the massive capital spending by Samsung in 2010. Samsung spent $10.9 billion for its semiconductor business last year, with about 71% of it going toward memory. The $10.9 billion figure alone represented 21% of the total semiconductor industry spending last year and was only slightly less than the combined expenditures of Intel and TSMC! Moreover, Samsung is planning to keep its spending above the $9.0 billion level in 2011 while allocating about 56% of its semiconductor capital spending for memory products this year.

It is incredible to look at Samsung's combined spending from 2010 and its budget for 2011. Taken together, the company is expected to allocate over $20 billion in semiconductor capital expenditures in just two years time! This spending is the equivalent to constructing five $4.0 billion leading-edge 300mm wafer fabs! Wow!

IC Insights believes that the large jump in capital expenditures in 2010 and the spending amounts forecast for 2011 should not be considered excessive. Capital spending as a percent of sales was only 16% in 2010, the second lowest level on record, with 2011 spending as a percent of sales forecast to be 17%. IC Insights believes that this level of capital spending will not lead to an industry-wide overcapacity situation through 2012. In fact, the ratio of capital spending to semiconductor sales is expected to stay in a narrow range of 14%-17% over the next five years.

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