Capex Disconnect

Most semiconductor companies have completed their 4^th quarter 2011 earnings calls and announced their capital expenditure budgets for 2012.  Current capex plans indicate a weaker spending year for the industry compared to 2011.  Based on current announced plans, capex spending would fall 4.5% to $59.8 billion in 2012.  Semico believes some companies may be miscalculating the market. In 2011, semiconductor capex reached a record $62.7 billion, an increase of 25.6% over the 2010 level.  The growth was not nearly as high as the over 140% increase in capex that was spent in 2010. Top Ten Spenders in 2012:  Announced Capex Plans

Source:  Company Information and Semico Research Corp.

But let’s take a look at who’s spending.  Samsung and Intel, the two largest semiconductor manufacturers and also the top two spenders, are planning on increasing capex 12% and 16% respectively.  These two companies represented over 36% of total spending in 2011 and are expected to represent over 42% in 2012.  The dollar increase from both companies totals over $3 billion for 2012.

On the other hand, the two largest foundries, TSMC and GLOBAL FOUNDRIES have announced plans to decrease capital expenditures by 18% and 35%, respectively.  That’s a $3 billion reduction in spending for both companies.

The Semico IPI Index indicates a bottoming of the current slowdown in February 2012 leading to semiconductor revenues growing 10% in 2012.  More importantly, tablet unit sales will increase 33% in 2012 and smart phone sales will grow by 17%.  Electronics manufacturers reduced inventories to very low levels and there are signs that the supply chain is already beginning to replenish inventory stocks.

If the largest microprocessor manufacturer and the largest memory manufacturer are increasing production capacity and all the other chip manufacturers are spending less, there could be a disconnect on the horizon.  In the past, Intel has successfully managed their capacity by expanding in the downturn in order to be ready for the inevitable ramp during recoveries.

UMC is bucking the foundry trend and is one of the few dedicated foundries that announced plans to increase their capital expenditures in 2012.  Foundries are very nimble and TSMC is notorious for reassessing their position mid-year.  If TSMC and GLOBALFOUNDRIES increase their capital spending to be flat with last year, then the total 2012 expenditures change from 4% down to 0.2% up.

Because equipment spending was so high in 2011, even if total equipment spending declines by 4%, 2012 will be a pretty good year for equipment vendors.  Semico believes increased semiconductor demand is on the horizon.  Fire up those foundries!

For more in-depth coverage of Semico’s 2012 forecast, capital expenditures and the industry cycles, get a copy of Semico’s February 2012 IPI Report.  Contact Jim Feldhan at jfeldhan@semico.com, or go to www.semico.com.