Capital Spending Cutbacks Put IC Industry on "Collision Course"
With IC fab utilization over 90%, higher IC average selling prices forecast to result

Current spending plans by IC manufacturers worldwide will lower total semiconductor capital expenditures by 18% to $49.7 billion in 2008 from $60.3 billion in 2007, according to new data collected by IC Insights.

Capital expenditure estimates for 2008 have been sliding since the end of 2007 (-9% projected in December and -18% now), but it's unlikely that additional significant reductions will occur through the rest of this year, given the relatively high capacity utilization rates being seen in most manufacturing segments in the chip industry, concludes IC Insights.

Overall, fab capacity utilization is forecast to be at an average over 90% in 2008, up from 89% in 2007.  In 1Q08, wafer fab utilization stood at 91% worldwide.  However, 300mm fab utilization rates were at an extremely high level of 96% in 1Q08, and it is worth noting that about 85% of all DRAMs and 32/64-bit microprocessors are now fabricated on 300mm diameter wafers.  Considering the strong unit growth rates being seen in memory and logic ICs, there simply isn't much wiggle room for additional cuts in capital spending budgets at most chipmakers, based on the latest analysis from IC Insights' online Strategic Reviews database of semiconductor suppliers.

IC Insights expects 2008 capital spending as a percentage of semiconductor sales to be at 17.8%, which would be the lowest ratio over the past 30 years!  All this is occurring while IC unit volume shipments are forecast to increase at a healthy 8% rate in 2008.

With a growing number of large IC companies outsourcing more products to foundries and major pure-play wafer foundries aiming to increase profitability by controlling capital spending, IC Insights believes the IC industry continues on a "collision course" with respect to supply, demand, and average selling prices or ASPs (Figure 1).  IC Insights first identified this collision course in the 2008 edition of The McClean Report, which was released in January 2008.  Tight supply conditions and rising IC ASPs are expected over the next five years.  Capex as a percentage of semiconductor sales went from an average of 27% in the late 1990s to 21% in the early years of this decade.  Moreover, IC Insights forecasts that capital spending as a percentage of sales will average only 17-18% between 2008 and 2012.

Figure 1

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