It’s easy to have been caught up with the headlines, hyperbole and optimism engulfing the electronics industry in recent years. The so-called ‘sunshine sectors’ of photovoltaics, solar cells and semiconductors have been cited as offering the gases business a ravenous growth driver for future gas consumption.
Yet the electronics sector practically fell off a cliff with the onset of recession in late 2008, stunting industrial gas & equipment demand and proving that even the most buoyant of growth drivers is not infallible.
So where do we stand now? Is the expected upswing in full progress? Here we are in our June issue, six months into the year and with a renewed sense of hope.
The sharp decline caused by the global crisis was well documented. But has the recovery been just as acute?
According to Japan’s The Gas Review (TGI), the demand for semiconductor fabrication in the North Pacific region has made an ‘amazing V-shaped recovery’.
First of all, however, it’s worth considering what exactly a v-shaped recovery is. Unlike an L-shaped recovery, where business plummets and subsequently flat-lines, or a deeper U-shaped recovery whereby a slump is followed by a very gradual, steady upturn, the V-shaped revival is marked by a recovery just as swift and sharp as its original decline.
In fact, so positive is a V-shaped recovery that governments, businesses, industries and organisations all over the world are likely to have been hoping for an economic upswing of this proportion.
So the semiconductor industry, and in turn the industrial gas business, finds itself in a healthy position – not just in the North Pacific region, but on a global footing too.
That certainly wasn’t the case last year though, when it was far from plain sailing as has now been confirmed. Green shoots of recovery and early 2010 optimism was punctuated by several expectedly grim news releases concerning the state of the industry in 2009.
Semiconductor Equipment and Materials International (SEMI), the global industry association for companies that supply manufacturing technology and materials to the world’s chip makers, reported worldwide sales of semiconductor manufacturing equipment totalled just $15.92bn in 2009. On a year-over-year (YOY) basis, that represents a decline of 46% against 2008 sales.
Covering wafer processing, assembly & packaging, testing, and other front-end equipment, the manufacturing sales of 2008 were a healthy $29.52bn. To fall almost 50% to just under $16bn in 2009, demonstrates just how dramatic the consequences of recession were. The sharpest plunge in spending rates was observed in Japan and Europe respectively, decreasing 68.3% and 60.6% according to data from SEMI.
Least affected was Taiwan, a renowned electronics hub and an island with the largest equipment spend in 2009, at $4.35bn.
Silicon Valley-based SEMI delivered another end-of-year analysis just a week later, with the news that the global semiconductor materials market contracted up to 19% in 2009, compared to 2008.
Semiconductor materials market revenues reached $34.6bn in 2009, broken down into wafer fabrication materials revenues of $17.9bn and packaging materials revenue of $16.8bn. Comparable 2008 revenues for these segments stood at $24.2bn and $18.3bn, though significant decreases in silicon revenues are thought to have contributed to the YOY wane in the wafer fabrication market in particular.
SEMI is also keen to point out that the overall 19% contraction in the 2009 market was not as severe as it might have been. The association notes that the industry reacted quickly to deteriorating conditions in the first part of the year and, showing greater resilience than several years earlier, avoided a decline as steep as in 2001.
Back then, the semiconductor materials market slumped 26% during the notorious IT crash; a 19% decline at the hands of the worst recession since the 1930s suddenly doesn’t seem so bad.
The recovery…and effect on gases
Although 2009 wasn’t as disappointing as may have been expected, it was still a plunge and now all eyes are firmly focused on the upturn.
As recently as April 2010, the SIA reported that worldwide semiconductor sales in February were $22bn. This may have been a 1.3% decrease from the month before, when January 2010 sales were $22.3bn, but it’s actually a 56.2% increase over February 2009 sales of just $14.1bn. It’s an encouraging sign and the SIA indicates that rising growth in the sales of electronics in emerging economies is influential.
SIA President George Scalise explained, “The February sales numbers reflect continued recovery of sales of semiconductors, with demand principally drive by growth in sales of electronic products in emerging economies.”
“Unit sales of the two leading demand drivers for semiconductors – personal computers and cell phones – are now projected to grow in the low-to-mid teens in 2010.”
Just as optimistic, albeit from another side of the semiconductor chain, are the projections of SEMI and its World Fab Forecast. The association’s report reveals that fabrication spending is expected to increase to over $30bn in 2010, a YOY increase of 88%. It’s understood that a number of existing fab projects that were previously put on ice will now begin to move forward.
SEMI does urge a slight sense of caution too however, noting that any recovery is still intrinsically linked to the ongoing recovery in the overall global economy and that even with the 88% growth in 2010 spending, it will take a further growth rate of around 49% in 2011 for fab spending to reach 2007 levels.
And what of the ‘amazing’ V-shaped recovery described by TGI? The publication explained how the monetary value of orders in December 2009 was up three-fold and the ‘demand for Japanese semiconductor fabrication devices is showing an amazing recovery’.
According to the report, reflecting on data from the Semiconductor Equipment Association of Japan (SEAJ), the monetary value of orders received for fabrication devices and treatment devices for wafer processes was Y63.769bn (US$670m approx.) in December 2009. Compare that to the ultra-low levels of December 2008, and the value was almost tripled.
The recovery in demand for semiconductor fabrication devices in the North Pacific is largely attributed to special demand seen in Korea, while TGI notes that the East Asian electronics market has ‘completely broken out of its slump’.
Further still, all of these indicators are seen as signs that the global semiconductor market finished its inventory adjustment during the first half of 2009 and has now completely embarked on a period of recovery & growth.
So what does this mean for industrial gas and equipment? As TGI points out, the upturn in the semiconductor market translates as a recovery in the market for electronics related gas supply equipment. Such equipment includes mass flow controllers (MFC), valves, fittings, pressure regulators, and piping.
With the upswing in progress, there were some producers of equipment that operated at full production levels – even reportedly sacrificing their New Year holidays to do so.
And it’s an upswing in equipment demand that appears set to continue through to the end of this year. In addition, enquiries for supply equipment for bulk gas used in the facilities are believed to be mounting.
Those in the North Pacific, and more specifically Japan, should be the ones who know best; over 90% of the industrial gas supply equipment for Japanese semiconductor fab devices is Japanese made. Up to 70% of that for US semiconductor fab devices is also of Japanese origin, with sales to Japanese device producers forming the core of earnings – according to TGI.
Another source that should have a clear idea of how the market is performing and in turn, how this is affecting the industrial gas community, is Linde Electronics.
Anish Tolia, Ph.D. Head of Market Development – Global Semiconductor, LED and Americas for Linde Electronics, acknowledges that 2009 was a ‘challenging year’. So how did Linde see the downturn affect gas supply to the semiconductor manufacturers?
Tolia explains, “It is no secret that 2009 was a challenging year for the semiconductor industry, and consequently for gas and chemical suppliers. In a year that saw insolvency, mergers and acquisitions among top semiconductor manufacturers, industry body SEMI saw silicon wafer area shipments fall by 18% from the highs of 2008.”
“Thankfully the forecasts are for a strong recovery in 2010, with Gartner predicting a rise of nearly 30%.”
Tolia adds, “From a gas supplier’s perspective, much of the fall in silicon wafer area seen in 2009 translated directly into reduced volumes of many of the high purity gases used in the various semiconductor manufacturing processes. While demand for bulk nitrogen (generally from on-site plants or pipeline supply) is less dependent on day-to-day wafer output, the requirement for electronic special gases (ESGs) is almost linear in its relationship. As a result many gas companies announced double digit percentage falls in their electronic gas sales for 2009.”
And what of the reported upturn? “However, in line with analyst’s growth forecasts, strongly increased demand has been reappearing, with Taiwan and China leading the way throughout the first quarter of 2010.”
“Additionally there are encouraging signs that some of the wafer fab projects put on hold during the financial crisis and currently mothballed, are starting to move again.”