Gartner Says Worldwide Semiconductor Capital Equipment Sales to Decline 12 Percent in 2005; Analysts to Provide Detailed Outlook at SEMICON West 2005: SEMI-Gartner Market Symposium July 11 in San Francisco.

STAMFORD, Conn. -- As the second half of 2005 begins, the next down cycle in the semiconductor capital equipment market is becoming more apparent, according to Gartner, Inc.

Worldwide semiconductor capital equipment sales are on pace to decline 11.9 percent in 2005, with sales totaling 33.1 billion in 2005. All segments of the semiconductor capital equipment market are projected to decline in 2005 (see Table 1).

"While the first quarter of 2005 marked the peak of the last upcycle, declining orders over the past few months and quarters paint a picture of slower sales for the rest of the year," said Klaus Rinnen, research vice president for Gartner's semiconductor manufacturing and design research group. "Last year, equipment sales surged to correct for serious under investment in the face of strong semiconductor demand. Production capacity has now exceeded demand, and equipment manufacturers are settling down to shipment levels commensurate with longer-term growth trends for the industry. Therefore, we expect this to be a mild downturn."

As the semiconductor industry moves into a slower growth period in its business cycle, the equipment industry is expected to respond with lower shipment rates required for slowing capacity expansion. "Overall, it appears semiconductor manufacturers are maintaining their investment discipline and investing carefully and in some cases strategically to gain market advantage," Mr. Rinnen said. "We expect customers to spend cautiously, releasing orders late and hesitantly, until a strong demand trend can be established."

Table 1
Worldwide Semiconductor Capital and Equipment Spending Forecasts
(Millions of Dollars)

                    2004     2005     2006     2007     2008     2009
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Semiconductor
 Capital
 Spending       48,746.8 45,561.4 41,690.3 45,647.5 62,727.7 56,686.6
Growth (Percent)    64.3     -6.5     -8.5      9.5     37.4     -9.6
Capital
 Equipment      37,580.5 33,097.7 32,539.7 38,030.5 50,006.7 42,122.7
Growth (Percent)    64.2    -11.9     -1.7     16.9     31.5    -15.8
 Wafer Fab
  Equipment     28,221.3 25,500.9 23,417.8 26,081.7 36,216.6 31,497.0
 Growth (Percent)   68.6     -9.6     -8.2     11.4     38.9    -13.0
 Packaging and
  Assembly
  Equipment      4,569.2  3,816.8  4,396.9  5,748.8  6,685.1  4,965.7
 Growth (Percent)   45.9    -16.5     15.2     30.7     16.3    -25.7
 Automated Test
  Equipment      4,790.0  3,780.0  4,725.0  6,200.0  7,105.0  5,660.0
 Growth (Percent)   58.5    -21.1     25.0     31.2     14.6    -20.3
----------------------------------------------------------------------
Source: Gartner Dataquest (July 2005)

Worldwide wafer fab equipment spending is projected to decline 9.6 percent in 2005. This market is forecast to decline in 2006 as well and return to positive growth in 2007.

Although utilization rates were dropping quickly in the fourth quarter of 2004 and the first quarter of 2005, Gartner analysts said wafer fab equipment shipments remained relatively strong. "This will result in new capacity coming on line during the middle of 2005 and will dampen the need for significant additional new capacity purchases until next year," Mr. Rinnen said. "By the second half of 2006, increased semiconductor demand will lead to climbing utilization rates and drive a sustained capacity expansion through 2007 and 2008."

The packaging and assembly (P&A) equipment market has performed better than previously expected. Worldwide P&A equipment is forecast to contract 16.5 percent in 2005. This is better than Gartner's earlier projection in April of this year for a 23.5 percent decline.

"The P&A market will experience more positive conditions throughout the second half of 2005 as utilization rates tighten and move above the 85 percent mark," Mr. Rinnen said. "The improved situation in late 2005 will help drive the market into positive growth for 2006."

The short-term outlook for the automated test equipment (ATE) market has had a sharp reversal in recent months. What looked like a mild spending decline through 2005 has turned into a major spending contraction. The ATE market is now forecast to decline 21 percent this year, with weakness throughout all regions and product segments. However, Gartner analysts said the sudden drop in spending means the ATE market is poised for an earlier start to subsequent recovery. The market is forecast to see growth of 25 percent in 2006, which should mark the beginning of the next industry growth cycle.

Additional information is available in the Gartner report "Semiconductor Capital Equipment Sales Face Soft Demand in 2H05." The report is available on Gartner's Web site at www.gartner.com.

Gartner analysts will present a detailed outlook for the industry during the upcoming SEMICON West 2005: SEMI-Gartner Market Symposium, July 11 at the San Francisco Marriott. Additional information on the Symposium is available at http://wps2a.semi.org/wps/portal/_pagr/123/_pa.123/334?&dFormat= application/msword&docName=P034877. (Due to the length of this URL, it may be necessary to copy and paste this hyperlink into your Internet browser's URL address field.)

This research is produced by Gartner Dataquest's Semiconductors Manufacturing and Design program. This research program, which is part of the overall semiconductor research group, provides a comprehensive view of the entire semiconductor industry, from manufacturing and design to device and application market trends. More information on Gartner's semiconductor research can be found in the Gartner Semiconductor Focus Area at http://www.gartner.com/semiconductors.

About Gartner

Gartner, Inc. (NYSE: IT and ITB) is the leading provider of research and analysis on the global information technology industry. Gartner serves more than 10,000 clients, including chief information officers and other senior IT executives in corporations and government agencies, as well as technology companies and the investment community. The Company focuses on delivering objective, in-depth analysis and actionable advice to enable clients to make more informed business and technology decisions. The Company's businesses consist of Research and Events for IT professionals; Gartner Executive Programs, membership programs and peer networking services; and Gartner Consulting, customized engagements with a specific emphasis on outsourcing and IT management. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has over 3,900 associates, including more than 1,100 research analysts and consultants, in more than 75 locations worldwide. For more information, visit www.gartner.com.