IC Insights has revised its 2005 worldwide semiconductor industry capital spending forecast with the new prediction being a reduction of only 5 percent from the amount spent in 2004.  It’s previous forecast, published in January as part of The McClean Report 2005, called for a –10 percent change in spending versus 2004.  As a result of the 2005 forecast adjustment, the 2006 capital spending forecast has been dropped to –7 percent instead of the –1 percent previously predicted in The McClean Report 2005.

Although industry cycles have historically wreaked havoc on semiconductor producers, the semiconductor equipment suppliers have been whipsawed even more.  Overall, total semiconductor industry capital expenditures have typically been unable to display a "soft landing."  Moreover, because of the momentum in semiconductor capital spending and capacity that is typically carried over from the peak spending year (2004), spending in the second year after the peak (2006) is usually weaker than the first year after the peak (2005).

Figure 1 lists the top 25 capital spenders ranked by 2005 capital expenditure budgets. These 25 companies are expected to represent 85 percent of worldwide semiconductor capital spending in 2005, up from 75 percent three years earlier in 2002.  It is interesting to note that each of the top four companies are expected to spend at least $2.0 billion in 2005 and, in total, account for over one-third (35 percent) of worldwide semiconductor capital spending outlays!  In fact, Samsung and Intel together are forecast to represent 25 percent of worldwide semiconductor capital spending in 2005.

As shown, the top 25 companies are budgeting a 2 percent increase in 2005/2004 spending.  In contrast, the remainder of the semiconductor companies (i.e., "others") in total are expected to cut 2005 spending by 17 percent.  IC Insights believes that these "other" companies are likely to continue to increase their spending at a lesser rate (or decrease their spending at a faster rate) than the top 25 companies as they become increasingly reliant on foundries for their IC production.