Trouble Brewing for Chip-Equipment Makers

Chipmakers have rushed to add manufacturing capacity this year, driven primarily by consumers' appetite for consumer electronic devices such as MP3 players and digital cameras that use flash memory chips to store data.

But Gartner analyst Klaus Rinnen said chip-equipment makers are facing a number of worrisome trends such as "an increasing inventory situation, the strong potential for oversupply in both flash and DRAM if an increase in demand does not materialize, and the delta between equipment spending and semiconductor revenue growth."

"Combined," said Rinnen, "these conditions create a scenario that could lead to a slight correction next year."

Gartner predicted that spending on chipmaking equipment will recover in 2008 however, with revenue increasing 23%.

Vendors of packaging and assembly equipment will be the hardest hit in next year's correction, with growth declining 7.4% according to Gartner. Wafer fab equipment will slide 2.1% in 2007, while automated test equipment revenue is slated to dip 1.9%.