Gartner Dataquest Says Wafer Fab Equipment Spending Poised for Growth in Third Quarter of 2002.

Business/Technology Editors

SEMICON West 2002

Upcoming Gartner Dataquest Briefings to Examine the Future of the

Semiconductor Manufacturing Industry

Worldwide wafer fab equipment spending is showing signs of rebounding, and the market is forecast to show growth from the third quarter of 2001 to the third quarter of 2002, according to Dataquest Inc., a unit of Gartner, Inc. (NYSE: IT and ITB).

In the third quarter of 2002, worldwide wafer fab equipment spending is projected to reach $5.2 billion, a 5.3 percent increase from the third quarter of 2001. While the market will show year-over-year quarterly growth in the second half of this year, Gartner Dataquest analysts said the year-end totals will still show an overall spending decline.

Worldwide wafer fab equipment spending is projected to total $18.9 billion, a 20 percent decline from 2001 revenue of $23.7 billion. Worldwide semiconductor capital spending is on pace to reach $35.3 billion in 2002, a 20.9 percent decline from 2001 revenue of $44.6 billion.

"Those regions that cut little and late in 2001, such as some Japanese companies, continue to cut deep this year, while regions such as Asia/Pacific that cut early and deep last year are the first to increase this year," said Klaus Rinnen, chief analyst and director of Gartner Dataquest's semiconductor manufacturing group.

There has been some increased spending, and it has been predominantly driven by foundry. Gartner Dataquest analysts said foundry spending has increased since the beginning of this year.

"Initial spending growth from foundries has been in filling out leading-edge fabs in the face of improving but continuing overcapacity," Rinnen said. "But if demand does not materialize, spending can and will be cut rapidly."

New fab activity remains sluggish in 2002. Lack of demand and overcapacity in the fabs is keeping the need for new equipment slow and focused on technology until late in the year.

"Technology buys for leading-edge devices have been the key drivers for equipment purchases in the first half of 2002," Rinnen said. "In 2003, we will begin to see the transition to investment into upgrading established capacity to investment into new capacity."

Given the fact that the industry will enter 2003 significantly underinvested and that the demand outlook is much rosier, next year will be a positive year for the industry. Worldwide semiconductor capital spending is forecast to reach $47.3 billion in 2003, a 34 percent increase from 2002, while wafer fab equipment spending will total $26.9 billion, a 42.1 percent increase.

"We expect 2003 to be a transition year in several aspects: the transition from foundry-driven to broad-driven spending recovery, the transition from technology buys to capacity buys, and the transition from investment into established to investment into new capacity," Rinnen said. "We believe 2003 will finally be the year we see the transition from spending contraction to expansion in the annual revenue outlook."

Gartner Dataquest analysts will provide additional analysis on the semiconductor manufacturing industry during the Gartner Dataquest breakfast briefing "Will the Back-End Become a 'Squeeze Play,'" to be held July 17 at Gartner Dataquest's offices in San Jose. This briefing will explore the issues, risks and opportunities of the semiconductor packaging and assembly industry in 2002. For more information or to register for the briefing, please contact Becky Tonnesen at 408-468-8287, and by e-mail at [e-mail].

Gartner Dataquest's semiconductor manufacturing research group will also host a briefing during SEMICON/West 2002 titled "Rearranging the Industry's Building Blocks -- No Child's Play." This event will be held at the Four Seasons San Francisco on July 24. Gartner Dataquest analysts will provide a cohesive picture of the changes and requirements in the equipment and materials industry that will affect the industry's future. More information on this event is available at http://www.gartner.com/2_events/local_briefings/2002/july/wsf893.jsp.

More information on Gartner Dataquest's semiconductor research can be found in the Gartner Semiconductor Focus Area at http://www.gartner.com/1_researchanalysis/focus/semimkt_fa.html. To subscribe to this service, please call 408-468-8000. Reports can be purchased on the Internet at www.gartner.com.

Gartner Dataquest is the recognized leader in providing the high-technology and financial communities with market intelligence for the semiconductor, computer systems and peripherals, communications, document management, software, and services sectors of the global information technology industry.

Gartner, Inc. is a research and advisory firm that helps more than 11,000 clients understand technology and drive business growth. Gartner's divisions consist of Gartner Research, Gartner Consulting, Gartner Measurement and Gartner Events. Founded in 1979, Gartner, Inc. is headquartered in Stamford, Connecticut, and consists of 4,300 associates, including 1,200 research analysts and consultants in more than 90 locations worldwide. The company achieved fiscal 2001 revenue of $952 million. For more information, visit www.gartner.com.