Why has the semicon equipment bubble really burst? - II

Here's the concluding part of my discussion with Dr. Robert Castellano of The Information Network.

Repercussions of a deteriorating semiconductor industry
I asked Dr. Castellano regarding the repercussions of a deteriorating semiconductor industry.

He said that the semiconductor equipment industry seems to be in serious trouble. There could possible be little growth in 2011, and the how is that there will be sufficient pushouts in equipment that revenues are moved to 2011 from 2010.

Dr. Castellano said: "We warned two months ago about pushouts, and today, Veeco stated that they “recently experienced rescheduling of tool shipments from the fourth quarter into the first quarter by several customers in Korea and Taiwan”. In other words, pushouts! We will continue to see this more and more.

"Problem is, will the equipment vendors admit it? ASML vehemently denied any customers’ pushouts last quarter, but with tools selling for $35 million each and customers such as Nanya and Inotera announcing losses, there is no way in creation pushouts won’t happen.

"Then, there is the issue of 450mm wafers. The only ones pushing it are the semicons, because they recognized that they could generate twice the number of chips for almost the same capital equipment cost. The equipment industry was dramatically impacted by the 300mm transition, and growth was nearly flat from 2001 to 2009. Not so for the semicons.

"No equipment supplier wants 450mm, it is being pushed by Sematech and Intel, plus a consortium in Europe that feels that perhaps 450mm will knock off competitors and they can make up the vacuum in sales. Only the top 15 equipment suppliers will survive."

How will pushouts benefit the industry?
On the subject of industry pushouts being highlighted time and again, it is also necessary to see whether and how will these benefit the industry in the long run.

Besides the reasons mentioned earlier, semiconductor sales are intimately tied to the economy. There is a direct correlation between semiconductor sales and GDP, as well as the PLIs of The Information Network. If the economy is robust, more money is available to purchase electronic items containing semiconductors. The reverse is true, indicative of the present economic climate.

The Information Network has also indicated that firms will announce lower results, and it'd get worse in the following quarter. Why will this happen and which firms could be likely 'hurt'?

Dr. Castellano said: "This will happen because the crest in the tidal wave was only reached in the past month or so, and it is a long and slippery slope down because it went so high up to begin with.

"The DRAM manufacturers will be hit the hardest. Growth was strongest for them for the first half of the year, where sales grew 135 percent in Q2 2010 compared to Q2 2009."

Is there a way out? If yes, when?
Finally, when will there be some recovery in the semiconductor equipment sales and why? Surely, as with everything, there has to be a way out!

Dr. Castellano concluded: "We see minimal growth in 2011, again depending on macroeconomic factors. We see two years of downturn in the industry – 2012 and 2013."