Silicon Wafer Demand Outlook: Forecast Update, 2Q03

Transcription

1 Research Brief Silicon Wafer Demand Outlook: Forecast Update, 2Q03 Abstract: The latest silicon wafer demand outlook predicts about 6 percent growth in 2003, nearly the same as the previous forecast. However, the geopolitical risks and economic uncertainties are creating a downside risk. By Takashi Ogawa Recommendations The latest outlook indicates that silicon wafer demand in 2003 will grow at about 6 percent over the previous year, virtually unchanged from the previous forecast. At the same time, uncertainty about the semiconductor demand outlook looming under the shadow of global economic hardships is increasing a downside risk. This alerts the industry to be prepared for a demand shift with responsiveness and flexibility. At present, wafer demand primarily comes from fabs producing leading-edge devices using 0.18-micron or finer processes, as well as 300-mm wafer fabs entering initial production. For an accurate demand forecast, therefore, the trends in the capacity utilization rate of wafer fabs, the progress of 300-mm wafer fab projects, and semiconductor investment should be closely watched. The demand trend in the second quarter will be an important indicator of future demand; that is, any significant change in the quarter will likely determine the outlook for late 2003 and all of Publication Date:6 May 2003

2 2 Silicon Wafer Demand Outlook: Forecast Update, 2Q03 Demand Outlook for 2003: Still Up 6 Percent Silicon wafer demand is in a stagnation period due to the sluggish device demand caused by uncertainty in macroeconomic conditions that has resurfaced after the second quarter of The high-growth quarter marked the end of double-digit growth, which was replaced with a 1 percent contraction in the third quarter. The decline in demand was aggravated to a 10.3 percent decrease in the fourth quarter. In the fourth quarter, smaller wafers (150 mm or less) suffered a more than 15 percent decline compared with the third quarter, and the mainstream 200-mm sector fell 8 percent. In the first quarter of 2003, demand flattened and remained unchanged from the fourth quarter of In fact, the downturn was already expected in the previous forecast; the 10.3 percent decline in the fourth quarter is fairly close to 10.5 percent decline predicted in the previous forecast. So is the figure in the first quarter of 2003, and a 0.5 percent increase is currently expected in comparison with a 0.2 percent decrease predicted in the previous forecast. At present, silicon wafer shipments seem to be less affected by the sluggishness of device demand. The burgeoning 300-mm wafer demand is contributing to the shipment picture. In the fourth quarter of 2002, when overall demand recorded a 10 percent decline, 300-mm wafer demand grew 4 percent to 5 percent, reaching an estimated 20,000 to 22,000 wafers per month. Notably, most of the 300-mm wafer demand is not directly linked to actual production, and it is mostly consumed in pilot lines and initial production of 300-mm wafer fabs. This means its large potential demand is not satisfied, making a sharp contrast to demand for 200-mm or small-diameter wafers, which is not expected to show a strong recovery under the sluggish device demand. Thus, if an increasing number of 300-mm fabs come to commercial production scale in the second half of 2003 and afterward, wafer demand will grow at an accelerated rate. Needless to say, there is the other side of the coin; if geopolitical and economic conditions deteriorate significantly, 300-mm fab projects will likely be postponed or scaled down. Gartner Dataquest still holds a scenario in which semiconductor demand will turn upward in the second half of 2003 because of a recovery of corporate IT investment. Yet uncertainty is looming. By taking into account the market trends in the fourth quarter of 2002 and the first quarter of 2003, the latest semiconductor market forecast shows a 9 percent increase, totaling $167 billion (see "1Q03 Update: Global Semiconductor Forecast Scenarios" [SEMC-WW-DP-0246]). According to the forecast, demand will, after the drop in the first quarter, remain flat in the second quarter, and recovery will be put off until the second half. This will directly affect silicon wafer demand, but 6 percent growth will be achieved in the second quarter, albeit less than previously forecast. Major reasons are as follows: 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 6 May 2003

3 Leading-edge fab lines using 0.18-micron or finer processes are operating at over 85 percent of capacity, a rate that is expected to rise further. This means that 35 percent to 37 percent of fab capacity will increase wafer consumption, mainly 200-mm wafer demand. At the same time, 300-mm wafer demand continues to rise. This year, 300-mm wafer projects with a higher percentage of consumption for testing or monitoring purposes will contribute to total demand, albeit at a gradual pace. In the third and fourth quarters, device demand will move to a solid recovery, and wafer demand will show some signs of recovery. Our "most likely case" indicates that silicon wafer demand in 2003 will grow at 6 percent about the same as the previous forecast and will reach 5,059 millions of square inches (MSI). 3 A Downside Risk Is Looming Nevertheless, the market environment contains many uncertainties compared with the previous forecast, mainly coming from clear signs of economic downturns and the war in Iraq. Gartner Dataquest has already updated its market outlooks for electronics, semiconductors, semiconductor investment and equipment by reflecting the changing conditions. All of them indicate a high level of uncertainty in the second half of 2003 and warn of a risk of downturn against the scenario forecast. The same applies to silicon wafer demand. In particular, the following factors are expected to work against the demand forecast. Forecast annual growth in semiconductor investment in 2003 has been adjusted downward from 15 percent to 7 percent, and a further cutback is expected with deteriorating economic conditions. This will halt 300- mm wafer projects expected in the second half and will put a brake on 300-mm wafer demand. Wafer inventory rose steadily between the first and third quarters of It remains about the same as in the fourth quarter, but it is over a normal level. Vendors may move to inventory adjustment if a full recovery of semiconductor demand is further delayed, as seen in the previous downcycles. The "worst case" under our scenario forecast for the device market indicates a 6 percent decrease in 2003 (see "1Q03 Update: Global Semiconductor Forecast Scenarios" [SEMC-WW-DP-0246]). Based on the scenario and in consideration of the investment adjustment, the "worst case" scenario for the silicon wafer market is a 12 percent decline of wafer demand to 4,194 MSI in In contrast, the "base case" scenario indicates 12 percent growth of the device market and 9 percent growth of the silicon wafer market to 5,219 MSI. Meanwhile, the present update suggests an increasing downside risk (probability index = 0.3). Figure 1 shows silicon wafer trends in 2003 and 2004 under our scenario forecast Gartner, Inc. and/or its Affiliates. All Rights Reserved. 6 May 2003

4 4 Silicon Wafer Demand Outlook: Forecast Update, 2Q03 Figure 1 Silicon Wafer Quarterly Demand Profile by Scenario Millions of Square Inches 1,800 1,600 1,400 1,200 Most Likely Case Best Case Worst Case 1, Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q Source: Gartner Dataquest (April 2003) Average Annual Growth of 9 Percent Between 2001 and 2007 In 2004, the device market is expected to experience a strong recovery as firm growth resumes in wide application markets, including portable phone, data processing and communications equipment. It will achieve an annual growth rate of 28 percent. The wafer demand forecast for 2004 under the latest update does not change much from the previous one. As shown in Figure 2, wafer demand will start to expand from the second half of 2003 to Major drivers are the resumed growth of device demand and an increasing demand for 300-mm wafer fabs. In particular, 300-mm wafer demand will surge from the current level of 220,000 to 240,000 wafers per month to 400,000 in the fourth quarter of Momentum will continue in 2004 when a number of 300-mm projects will be undertaken to establish volume production capacity. Overall, demand will grow appreciably across the board. As a result, the annual growth rate will go up to 22 percent, and demand will total 6,158 MSI. By the end of 2005, the semiconductor market will move to a downcycle. Its exact timing will affect wafer demand significantly. Gartner Dataquest's latest device market forecast expects a growth rate of 19 percent in If device demand (on a unit basis) still grows firmly as predicted, wafer demand will achieve 13 percent growth. On the other hand, if device demand rapidly enters the downcycle, the downside risk will be realized; wafer shipments will be adjusted severely as seen in the second half of 2001, and demand in 2005 will register a decline of 6 percent to 7 percent Gartner, Inc. and/or its Affiliates. All Rights Reserved. 6 May 2003

5 Figure 2 Silicon Wafer Demand Forecast, In 2006, the device market will be in the downcycle, and unit demand will grow moderately. As a result, wafer demand growth will slow to an annual 3 percent. In 2007, device prices will start to recover, but unit demand will continue to decline slightly. In addition, the industry will make inventory adjustments in response to the sluggish demand, resulting in a 5 percent decrease in wafer demand. Gartner Dataquest predicts that silicon wafer demand will achieve a compound annual growth rate (CAGR) of 9 percent between 2001 and 2007, reaching 6,825 MSI in Millions of Square Inches 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Source: Gartner Dataquest (April 2003) Gartner Dataquest Perspective At the end of the first quarter of 2003, silicon wafer demand was in the middle of the adjustment phase. This has already been accounted for in the previous forecast, and actual demand will generally follow the previous forecast. At present, wafer demand is driven by leading-edge fabs (0.18-micron or finer processes) and initial activities of 300-mm wafer fabs (not directly related to commercial production). As of the end of the first quarter of 2003, the device demand outlook for 2003 was to be adjusted downward to 9 percent, down from the previous quarter, to reflect the rise in uncertainty about the economic environment. In contrast, wafer demand is expected to grow by 6 percent the same level as in the previous outlook as it will be firmly driven by leadingedge fabs and 300-mm fabs in the second half, albeit with a risk of some delays for the latter Gartner, Inc. and/or its Affiliates. All Rights Reserved. 6 May 2003

6 6 Silicon Wafer Demand Outlook: Forecast Update, 2Q03 However, uncertainty has been looming since the previous forecast to raise the downside risk considerably. In particular, in light of past wafer demand trends and accompanying seasonal factors, actual demand in the second quarter is worth watching, because it can change the outlook for the second half of 2003 and Key Business Issue What is the size and projected growth of the semiconductor manufacturing market and supply chain elements? This document has been published to the following Marketplace codes: SEMC-WW-DP-0271 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice