NEW YORK (
) -- Technology investors need to pay close attention to semiconductor capital expenditures (capex), because this spending can give indications of not only the state of the semiconductor industry but also the prospects for semiconductor equipment markets.
In any given year, semiconductor manufacturers make capital expenditures for two purposes: technology expansion and capacity expansion. Because of the downturn in the overall economy in 2009, capacity utilization (the ratio of the number of semiconductors to plant capacity) dropped precipitously in the first quarter of this year to 55.6% from 89.7% a year earlier, according to statistics from the Semiconductor Industry Association.
Clearly, semiconductor manufacturers would not be building new plants -- known in the industry as "fabs" -- at a cost of $3 billion each when more than 40% of their plants are idle.
There are only three semiconductor companies that plan more than $1 billion in capex spending in 2009:
Taiwan Semiconductor Manufacturing
. That's down from the eight companies that actually spent more than $1 billion in 2008. (They also included
). In 2007, 16 companies spent more than $1 billion on capex.
With the improved outlook for the economy and industry, other semiconductor companies have announced increases in capex spending for 2009.
will increase capex to $500 million from the $400 million announced earlier this year. That will be an increase from the $349 million the company spent in 2008.
( CHRT) will increase capex $500 million from the $375 million announced earlier this year, although that is down from $650 million in 2008. Toshiba's capex will be $900 million in 2009, down from $3.2 billion in 2008.
Advanced Micro Devices
lowered its capital expenditures for 2009. Capex for AMD, the product part of the company, will be $100 million, down from $150 million in 2008. For the company's manufacturing arm, Global Foundries, it will be $690 million, down from $760 million in 2008.
SanDisk lowered its 2009 capital investment plans to $500 million from $1.6 billion invested in 2008.
The implications of capex to the semiconductor-equipment industry are critical this year as several companies such as
have filed for bankruptcy.
, I wrote that market share in any given year is a function of the health of the customer. It is also a function of the health of the purchaser.
For the semiconductor equipment makers, share gains will depend on which equipment suppliers Taiwan Semiconductor, United Microelectronics and Intel buy from, as these three companies have either expanded their capex for 2009 or kept it roughly the same.
Suppliers to Taiwan Semiconductor include
Dainippon Screen Manufacturing
Suppliers to Intel include
Hitachi Kokusai Electric
( TEK). United Microelectronics has spent around $236 million through mid-August 2009 purchasing equipment from Applied Materials, KLA-Tencor, Lam Research,
, Tokyo Electron, and
If further improvements in the industry warrant, semiconductor manufacturers will raise capex further. But the semiconductor-equipment manufacturers listed above will benefit sooner from increased spending from Intel, United Microelectronics and Taiwan Semiconductor. For example, United Microelectronics still has another $264 million to spend.
-- Written by Robert Castellano in New Tripoli, Pa.
Robert N. Castellano, Ph.D, is President of The Information Network, a leading consulting and market-research firm for the semiconductor, LCD, HDD and solar industries. Castellano is internationally recognized as one of the leading experts in these areas. He has nearly 25 years of expertise as an industry analyst. Castellano has provided insight on emerging technologies to many business and technical publications, including Business 2.0, BusinessWeek, The Economist, Forbes, Investor's Business Daily, Los Angeles Times Magazine, The New York Times, USA Today and The Wall Street Journal. He is a frequent speaker at conferences and corporate events. He has over 10 years' experience in the field of wafer fabrication at AT&T Bell Laboratories and Stanford University before founding The Information Network in 1985. He has been editor of the peer-reviewed Journal of Active and Passive Electronic Devices since 1985. He is author of the book "Technology Trends in VLSI Manufacturing," published by Gordon and Breach. His book "Solar Cell Processing" was published in 2009 by Old City Publishing. He received his Ph.D. in solid state chemistry from Oxford University.