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Chip-Equipment Market: Uncertain 2010

Stocks in this article: INTC AMD MU

NEW YORK ( TheStreet) -- I pointed out last week that semiconductor manufacturers need to spend in order for the equipment manufacturers to exhibit any real recovery, something that has eluded the sector as a whole since 2001.

Within the past month, many experts have announced extraordinary gains to be made in the semiconductor equipment market in 2010. In recent weeks, trade group SEMI and market research firm Gartner/Dataquest have issued forecasts calling for the chip-equipment market to grow in excess of 50% in 2010, following a decrease of nearly 50% in 2009. iSuppli last week called for 46% growth.

Part of the basis for these forecasts certainly must have come from announcements of large planned increases in capital expenditures, particularly among the memory manufacturers.

I noted that according to IC Insights, the $1 billion capex spenders include the following firms in 2010: Samsung ($6 billion); Intel (INTC) ($5.3 billion); Taiwan Semiconductor (TSM) ($3 billion); Hynix ($2 billion); Toshiba ($1.95 billion); GlobalFoundries, a partnership that includes Advanced Micro Devices (AMD) ($1.9 billion); Micron (MU) ($1.3 billion), Nanya ($1.1 billion) and Elpida ($1 billion).

It is important to realize that capex is dynamic. Some companies will alter plans and spend less or more depending on conditions. Some will spend all their money in a short amount of time rather than spreading it evenly throughout the calendar year.

I also noted in a previous article that these forecasts beg the question : How will the equipment market grow 50+% in 2010 with no new fabs and no new capacity additions when it dropped nearly 50% in 2009 with no new fabs and no new capacity additions? This leads to a follow-up question: Will technology purchases alone sustain 50% growth?

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