Gartner: Semiconductor Industry Had A Great Year

A recent report says an increased spending on semiconductor equipment exemplified the industry's impressive recovery in 2010.

The report, from research company Gartner, says spending on semiconductor equipment is on pace to reach $38.4 billion in 2010, a 131.2 percent increase from 2009 spending of $16.6 billion. The recovery comes after two straight years of decline. 2009 was a 46 percent from 2008, which was a 32 percent decline from 2007.

There was a pent up demand for semiconductors, Dean Freeman, vice president of research at Gartner said. Plus the economy rebounded sharply, not just in the U.S., but worldwide. Certain incentives China put into place led the explosion of LED TVs, iPads and 3G phones. That created the need for advanced semiconductor processor technology to move forward and as a result we saw a dynamic rebound on the processor side.

He said in 2009, inventories for certain types of semiconductor chips were way down as a result of the economy. The next year when consumer electronics demand picked up, manufacturers remained skeptical. However, once the momentum began to snowball, the semiconductor manufacturers had to react quickly and that's what led to an over spending on capital equipment. As a result, equipment production was up 25-30 percent from last year. By contrast, PC unit shipments were only up 15 percent from the previous year, 3G cell phones up only 13 percent.

As a result of the overspending on production of semiconductors in 2010, Freeman expects industry growth to flatten out a little bit in 2011 at a rate of four to six percent. Spending on semiconductor capital equipment will actually decline by one percent according to the report from Gartner.

We overbuilt in 2010, but not too badly, Freeman said. There will be a couple of good growth areas next year: there should be a strong demand in NAND Flash and foundry spending as they provide the semiconductors for the media tablets. But overall, consumers won't buy as much in 2011 as they did in 2010, you will see an overall softening of the semiconductor prices.

He said the decline from 2010's amazing year already began in the fourth quarter and will continue to the first quarter of next year. Freeman says growth will resume in the second and third quarters of next year. He does say the recently passed tax regulations could provide a slight stimulus to the economy.