Gartner Dataquest forecasts decline in worldwide semiconductor spending

July 17, 2001
July 17, 2001--The year 2000 was one of the best for many semiconductor companies, but 2001 is turning into one of the worst for some of these same semiconductor manufacturers.

The year 2000 was one of the best for many semiconductor companies, but 2001 is turning into one of the worst for some of these same semiconductor manufacturers. The worldwide semiconductor capital spending and equipment markets are projected to have revenue declines between 26 and 30 percent, respectively, according to Dataquest Inc., a unit of Gartner, Inc. (NYSE: IT and ITB).

Worldwide semiconductor capital spending is projected to be $47.3 billion in 2001, a 26 percent decline from 2000. In comparison, semiconductor capital spending and semiconductor equipment each increased 84 percent in 2000. Semiconductor equipment spending is expected to decline 30 percent, from $39.9 billion in 2000 to $27.9 billion in 2001.

"Demand is extremely weak in the equipment market. The excess inventory pit in the industry artificially depresses 2001 prospects, just as it inflated those for 2000," said Klaus Rinnen, chief analyst and director of Gartner Dataquest's semiconductor research. "In short, there is limited demand for the leading drivers for the chip business. The investment focus is clearly shifting. In 2000, semiconductor companies started to adjust the technology mix of their orders from being capacity focused to more technology focused, and technology buys will be the theme for at least the next 12 months."

All regions have reacted with cuts in capital spending plans. Gartner Dataquest projects that overall capital spending cuts in Asia/Pacific will be the steepest at negative 33 percent, followed by Japan with about negative 24 percent spending and the Americas with negative 22 percent spending. European regional spending remains least impacted at negative 17 percent.

Gartner Dataquest projects that the semiconductor industry and the equipment market will start on their respective recoveries in 2002. In 2002, capital spending restraints will be important to return to profitability. An economic recovery will also be important to stimulate demand.

"Capacity spending is under the industry's control, but the economy is not," Rinnen said. "This is the major difference between this and the most recent down cycle, which was supply-induced. There are also no hot new applications with the size to pull the industry out of the slump by 2002. Application demand needs to get better across the board. This will leave uneasiness in the industry, as there will be no single product to point to."

Gartner Dataquest analysts will provide additional analysis on the semiconductor manufacturing market during the Gartner Dataquest Semicon/West 2001 Forum, to be held July 18 in San Francisco. This year's seminar will explore some of the issues, risks and opportunities of the semiconductor industry in the middle of yet another down cycle. The presentations will provide insight into new trends and technologies for the manufacturing infrastructure required to successfully navigate the remaining rapids and emerge positioned to catch the next wave. Complete information on the event is available on Gartner's Web site at www.gartner.com/1_researchanalysis/focus/scmktpl_focus.jsp.

About Garnet Dataquest:

Gartner Dataquest provides 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. For more information, visit www.gartner.com.

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