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Semiconductor Manufacturing Market Outlook: Fundamentals Point to Growth

Semiconductor Manufacturing Market Outlook: Fundamentals Point to Growth. Presenters: Klaus-Dieter Rinnen Mary Olsson Jim Hines Jim Walker Emerging Technologies and Semiconductors Gartner Dataquest. Forecast Growth Scorecard. Revenue Growth (%) 2002 2003 Base Up Base Down

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Semiconductor Manufacturing Market Outlook: Fundamentals Point to Growth

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  1. Semiconductor Manufacturing Market Outlook: Fundamentals Point to Growth Presenters: Klaus-Dieter Rinnen Mary Olsson Jim Hines Jim Walker Emerging Technologies and Semiconductors Gartner Dataquest

  2. Forecast Growth Scorecard Revenue Growth (%)2002 2003 BaseUp Base Down World GDP+2.0+2.2 U.S. GDP+2.5+2.4 Electronic Equipment*-1.4+4 Semiconductor+1.9+12 +8+1 Capital Spending-38+15 +8 +1 Equipment Spending-30+18 +11 +3 WFE Equipment-32+15 +9 +1 P&A Equipment-22+35 +26 +17 Silicon Shipment (MSI)+19+10 *Production revenue

  3. Global GDP Growth, 2000-2004 Real GDP Growth (Percent) • U.S. tax cuts stimulate strong U.S. consumer spending • Eurozone adopts looser economic policies • Capital spending revives • Dollar depreciates slowly • Wild cards limited 5 4 +4.0 3 +3.4 2H03 revival still possible, but full recovery may be pushed out to 1H04 2 +2.2 +2.0 1 • U.S. tax cuts fail to stimulate U.S. consumer spending • Eurozone maintains tight economic policies • Capital spending falters • Dollar crashes • Wild cards wreak havoc +1.2 0 2000 2001 2002 2003 2004 Source: Global Insight (June 2003)

  4. Overall IT Trend — Weighted/Monthly:2003 Cautious Underspending; 2004 Increase Key Trends: • Current spending remains below budgeted levels • Stalled recovery in current spending Contributing factors: • War with Iraq • SARS outbreak • Slow economy • Technology manufacturing and communications vertical market lags current spending • Projected demand in 2004 slightly higher, but still below prewar level

  5. Gartner Dataquest’s Index of Semiconductor Market Leading Indicators, July 2003 Semiconductor Revenue Growth 60% Actual Forecast 45% 30% 15% 0% -15% Semiconductor Growth -30% Indicator -45% 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

  6. Monitoring Phased Recovery Through 2004 1H03 2H03 1H04 2H04 Spending Consumer Corporate • Recovery under way: • Equipment markets slowly improving • Cell phones transition to higher generations, especially in Japan • PC market improving • Continued recovery depends on: • Growth in cell phone demand • PC replacement cycle starts in 2H03 • Stronger electronic • equipment production in 2004 Cell Phones  PCs ?  Communications

  7. Semiconductor Demand by Application CAGR (%) 2002-2007 2003 Semiconductor “Pie” Automotive Communications Industrial Data Processing Military/Civil/Aerospace Consumer 8% 17% 3% 24% 7% 41%

  8. Semiconductor Revenue Forecast:Recovery Gains Momentum in 2003 Billions of Dollars 300 Upside Potential 22% 6% -5% 250 23% 200 8% 2% 150 100 50 0 1996 1998 2000 2002 2004 2006

  9. Pessimistic Quarterly Semiconductor Revenue: Market Expands on 2H03 Improvement Scenarios Optimistic Most Likely Pessimistic 2002 1.9% 2003 +12.3% +8.3% +1.3% Billions of Dollars 65 60 55 50 45 40 35 30 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 Optimistic Most Likely

  10. Supply Outlook: Semiconductor Inventory Dataquest Semiconductor Inventory Index 1.8 Conclusions • Inventory days peaked in 1Q01 • Healthy drop in 1Q03 • Good “bill of health” for inventories 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1 0.9 0.8 1Q99 1Q00 1Q01 1Q02 1Q03

  11. Wafer Fab:Overall Industry Utilization Ratio of Silicon Consumed to Fab Capacity Leading Edge 100% 90% 80% 70% 60% 50% 40% 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04

  12. Wafer Fab: Foundry ServicesFoundry Fab Utilization Ratio of Silicon Consumed to Fab Capacity Leading Edge 100% 90% 80% 70% 60% 50% 40% 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04

  13. Wafer Fab: Foundry Services Quarterly Revenue Forecast Scenarios Scenarios Optimistic Most Likely Pessimistic 2002 +16% 2003 +27% (0.25) +23% (0.60) +21% (0.15) Billions of Dollars 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 Pessimistic Optimistic Most Likely

  14. Wafer Fab: Foundry Services Market Revenue Forecast Revenue (Billions of Dollars) Conclusions • 2003: Demand growth and price pressure • 2004: Tightening capacity • 2005: Strong demand growth and pricing support 30.0 20.0 10.0 0.0 2000 2003 2006

  15. Wafer Fab: Equipment Quarterly Revenue Forecast Scenarios Scenarios Optimistic Most Likely Pessimistic 2002 -32% 2003 +16% (0.25) +9% (0.60) +1% (0.15) Billions of Dollars 10 9 8 7 6 5 4 3 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 Pessimistic Optimistic Most Likely

  16. 50% 40% 30% 20% 10% 0% Wafer Fab: EquipmentWhat Is Hot and What Is Not in 2003? 2003 Growth 193-nm Steppers ECD Implant Process Control Factory Automation Steppers Market Growth Dry Etch Wet Clean CMP Nontube CVD Track RTP PVD 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2003 Revenue (Millions of Dollars) Note: Some segments include OEM sales

  17. Leading Edge Packaging and Assembly: Overall Industry Utilization Factory Utilization 100% 90% 80% 70% 60% 50% 40% 30% 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03

  18. Packaging and Assembly: SAT Services Quarterly Utilization Factory Utilization Leading Edge 100% 90% 80% 70% 60% 50% 40% 30% 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03

  19. Packaging and Assembly: SATS Market Quarterly Revenue Forecast Scenarios Scenarios Optimistic Most Likely Pessimistic 2002 +18% 2003 +29% (0.30) +22% (0.55) +16% (0.15) Billions of Dollars 5.0 4.0 3.0 2.0 1.0 0.0 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 Pessimistic Optimistic Most Likely

  20. Packaging and Assembly: SAT ServicesAnnual Revenue Forecast Revenue (Billions of Dollars) Conclusions • 2003: Packaging production exceeds 2000; strong QFN • 2004: Flip chip and SIP become strong drivers • 2005: WLP moves into mainstream 30 20 10 0 2000 2004

  21. Packaging and Assembly: Equipment Quarterly Revenue Forecast Scenarios Scenarios Optimistic Most Likely Pessimistic 2002 -22% 2003 +35% (0.25) +26% (0.55) +17% (0.20) Billions of Dollars 2.0 1.5 1.0 0.5 0.0 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 Pessimistic Optimistic Most Likely

  22. Market Growth Packaging and Assembly: Equipment What Is Hot and What Is Not in 2003? 2003 Growth 35% Flip-Chip Bonders Vision Inspection AP Lithography Package Singulation Molding/Encapsulation Dicing Saws Solder Ball Attach Wire Bonders 25% Die Bonders Contact Prober Test Handlers 15% 0 150 300 450 600 2003 Revenue (Millions of Dollars)

  23. Long-Term View: Cycles ContinueCapital Spending and Equipment Forecasts Capital Spending Semiconductor Equipment (Excluding Test) Billions of Dollars Billions of Dollars 45 70 40 60 35 50 30 40 25 20 30 15 20 10 10 5 0 0 1999 2001 2003 2005 2007 1999 2001 2003 2005 2007

  24. Conclusions • Economy • Expect improvement in 2003, albeit back-end-loaded • Weakness in Europe and Japan sharpens need for U.S. improvements • Electronic equipment • Expect gradually improving macro conditions to spur phased recovery • Start of Y2K PC replacement cycle expected; strength is questionable • Corporate spending returns in 2003; strength depends on economy • Semiconductors • Expect revenue growth of 8 percent in 2003 • Expect tightening capacity utilization and better demand to drive 2004 • Supply-side and capital equipment • Healthy inventories and rising demand lead to improving fab utilization • Supply-side fundamentals encourage more optimistic outlook on CAPEX with 7.9 percent growth in 2003 • Holding to WFE growth of 8.7 percent • Upgrade packaging equipment segment to 26 percent growth for 2003 • Next fab build cycle slips into 2004; next downcycle in late 2005/early 2006

  25. Gartner Dataquest Events at Upcoming SEMICON/West 2003 • SEMICON/West 2003 Forum • Semiconductors: Fishing in Tide Pools or Open Seas • 16 July 2003 San Francisco, CA • For more information or to register, please visit www4.gartner.com/2_events/local_briefings/asset_8216.jsp • Breakfast Briefing • The Back End Leads the Recovery • 18 July 2003 San Jose, CA • For more information, please visit the Featured Events section on the Gartner Semiconductor Focus Page: www4.gartner.com/pages/section.php.id.2014.s.8.jsp • For registration, please contact Becky Tonnesen at becky.tonnesen@gartner.com

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