Semiconductor equipment industry outlook: What’s after the correction?

Posted on January 10, 2023

At the ongoing ISS 2023, in California, USA, Bob Johnson, VP and Analyst, Gartner, presented on the equipment industry outlook: what’s after the correction?

The 4Q-22 capital spending is expected to grow 1.1 percent CAGR for 2021-2026. In the 4Q-22 top semiconductor capital spenders, double-digit reductions have been across all segments in 2023. The 4Q-22 wafer fab equipment is expected to grow CAGR 1 percent for 2021-2026.

The assumption is that the current economic weakness will not extend past 2023. Beyond 2023, the dollar will weaken and return to a more ‘normal’ relationship with major world currencies. We are still on track for $1 trillion semiconductor revenue by ~2030. Capex long-term trend remains at 6.5 percent CAGR. The overall capital intensity will stabilize at ~20-22 percent. Advanced nodes are also getting more expensive, while scaling lags.

The law of supply and demand is not repealed. Since Moore’s Law cannot supply more ‘bang for the buck’ at historical rates, the industry will achieve it with a combination of advanced chip design, advanced packaging, new chip architectures that are more efficient and cost effective, and new software. It is implied that the most advanced systems in package (SiP) will use a cost-effective mix of bleeding edge (expensive) chiplets where needed, and more mature nodes for other functions.

China restrictions continue
New Chinese export restrictions targeting high-end computing, processing and semiconductor manufacturing will continue. There is restriction to high-performance computing chips being exported into China. High-performance CPUs, GPUs, TPUs (Tensor Processing Units), neural processors, in memory processors, text processors, co-processors/accelerators, adaptive processors, and FPLDs with processing performance of 8TOPS or more, are also in the list.

There is restriction on indigenous China-based semiconductor manufacturing facilities. It includes logic ICs using a non-planar architecture or with a ‘production’ technology node of 16/14 nanometers or less, NAND >128 layers, and DRAM <18nm.

The US EDA or equipment cannot be used to design or manufacture advanced chips in China. Hence, non-Chinese foundries cannot manufacture advanced chips for Chinese customers. USA has placed 31 companies in Unverified List (UVL), including YMTC. And, US persons (US citizens and those having either a green card or work visa) cannot support the development or production of ICs in China that meet the above criteria.

US sanctions on advanced technology will hit China hard in 2023. Chinese company investment is down $5 billion in 2023 as US sanctions hit memory and advanced logic hard. Non-Chinese company investment in China will be hit hard in 2023 as Samsung, SK Hynix and TSMC are expected to respond to US sanctions. China will eventually develop indigenous semiconductor industry focused around 28nm. New Chinese WFE companies are emerging to supply the domestic industry.

It is assumed that the Chips Act will not accelerate US fab construction and ramping. The companies building new fabs in the US will build the shells first, and then ramp them when product demand materializes. Chips Act simply helps ensure that funds for construction will be available. Possible exception is the current 25 percent tax credit for equipment spending that expires in 2026. This could lead to a possible surge in equipment purchases in 2026, as companies pull in shipments from 2027 to take advantage of the expiring tax credit. Or, SEMI will lobby successfully to get the tax credit extended (most likely).

The correction is here: Take a well-deserved breather and get ready for the next growth cycle.