Chip tool market to fall 12.1 pct in 2005

[HenryTo]

A downward revision from a decline of 5% to a decline of 12.1%. Says that the Chinese market, the previous fastest-growing market, is to decline, is to decline 40% this year.

Chip tool market to fall 12.1 pct in 2005-report

SAN FRANCISCO, July 11 (Reuters) - Global spending on tools to make semiconductors is expected to drop by 12.1 percent to $32.6 billion this year, with growth rebounding modestly in 2006, according to a trade group survey released on Monday.
Semiconductor Equipment Materials International, a global industry trade group, said the mid-year update to its forecast showed that chip makers have cut their capital spending plans faster than it anticipated in the same survey six months ago.

The industry's semi-annual forecast issued in November 2004 had predicted the 2005 market would shrink by only 5 percent. In 2004, the industry grew 67.2 percent as chip makers played "catch-up" after several years of under investment in tools.

Stanley Myers, SEMI's chief executive, told a news conference held here that, despite the year-to-year drop, 2005 will rank as the third biggest sales year ever after all-time record year 2000, and 2004, another banner year.

"The outlook is for growth to resume at moderate but stable levels in the following years," Myers said of 2006 and beyond.

Excluded from the forecast is the market for underlying materials such as silicon and the gases and chemicals used to make computer chips. This is expected to grow around 7 percent in 2005, roughly in line with overall semiconductor production, which is expected to grow around 6 percent in 2005, he said.

In particular, Myers noted that the price of polysilicon crystals, the sand-like material used to make semiconductors is climbing as the chip industry competes with rising demand for the material in solar cells used as an alternative energy.

A report published last week by market research firm Gartner Inc. had projected chip equipment sales would fall by roughly 11.9 percent to $33.1 billion during 2005.

"The semiconductor industry is not going to decline," said Bob Johnson, the co-author of the Gartner report said. "We have just hit a slower growth pattern."

INDUSTRY RESPONDS TO WEAK YEAR

Equipment used in the final stages of chip-making will be the hardest hit this year, SEMI said Sales of assembly and packaging equipment used in the final stages of computer chip production will contract 26 percent to $1.81 billion in 2005, according to the survey of major makers of chip equipment.

Testing gear to verify whether finished circuits work is expected to drop 24 percent to a $4.85 billion market.

Double-digit industry growth is expected to resume in 2007 and reach $44.3 billion in 2008.

SEMI's forecast was published at the opening of Semicon West, the biggest annual U.S. trade show for the semiconductor equipment industry, taking place here this week.

In a bid to contend with anticipated shrinking sales and growing pressures by chip-making customers to cut costs, Brooks Automation Inc. said Monday it had agreed to buy Helix Technology Corp. for $454 million.

One response to falling sales by top semiconductor tool makers in Silicon Valley is to hold two, weeklong, company-wide shutdowns in order to cut costs. KLA-Tencor plans to have a two-week lay-off in the third quarter while Lam Research Corp. said it would take a similar break at year-end.

South Korea is the one bright spot for chip equipment sales, SEMI said. That market is expected to grow 21.6 percent this year to $5.61 billion -- surpassing the North American market, which will decline by 10.2 percent to $5.22 billion.

Korea will rank third in terms of new semiconductor production equipment ahead of North America, which slips to fourth position globally.

Japan, which remains the world's largest market for chip equipment, is expected to decline by 5.8 percent in 2005 to $7.79 billion. Taiwan, the world's second largest market, is set to drop 21 percent to $6.15 billion.

By contrast, the previously fast-growing Chinese market is expected to decline by 40 percent this year. Emerging country markets in the rest of the world will decline by 35 percent, the survey found. (With additional reporting by Duncan Martell in San Francisco)