Semiconductor spending to more than double in 2010?

The future looks bright for semiconductor firms after a long period of under-investment, but according to Gartner it might not last very long.

Money

After the struggles of the economic downturn, spending on semiconductor equipment is expected to more than double in 2010, according to the latest forecasts.

A dramatic increase in spending forms the headline point of industry analyst Gartner's latest report, entitled "Forecast: Explosive Demand Fuels Best Ever Semiconductor Equipment Growth in 2010".

According to the report, spending on semiconductor equipment will surpass $35.4 billion this year, a 113.2 per cent year-on-year spike on 2009's $16.6 billion. Aside from the general recovery across the market, several other reasons are mentioned for the spike, including the release of pent-up demand for equipment and new technologies on the back of a period of under-investment.

"For 2010, the semiconductor equipment industry will experience exceptionally strong growth, as we emerge from a very costly and deep recession," said Gartner managing vice president Klaus Rinnen in a statement accompanying the report.

"The demand for 40-nanometer (nm) and 45nm devices is now ramping up, resulting in heavy foundry-based capital spending. Investment at the 3x node by Intel, an increase in spending by NAND memory producers, and the transition to the next generation DDR3 DRAM memory are the key investment growth drivers."

However, while the forecast is certainly rosy for 2010 and has led to a sharp rise in semiconductor stocks Rinnen warns that it could be a different picture in 2011 once the market normalises.

"We could see a slight slowing in orders as 2010 ends, and the industry focuses on macroeconomic conditions," said Klaus Rinnen, a managing vice president at Gartner. "We expect capital-equipment growth to continue through 2011, but at a reduced rate, as spending responds to slower growth in the semiconductor markets."

That "reduced rate" is still expected to amount to a respectable 6.6 per cent, but after this honeymoon-ending period, Rinnen warns that "if capacity expansion continues unchecked, a more severe and premature down cycle could occur in 2013".

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