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iSuppli Sees Q2 Fab Utilization Improving to 60%
 

iSuppli said semiconductor manufacturers will enjoy the first improvement in fab utilization in a year, as 60% of fab capacity is being utilized in the current second quarter. The rate will go up to 75% in the third quarter, predicts iSuppli manufacturing analyst Len Jelinek.

In the first improvement seen in a year, iSuppli Corp. (El Sugundo, Calif.) said worldwide semiconductor capacity utilization is expected to rise to 60% in Q2, up from 49% in the first quarter. The gain marks the first increase since Q2 2008, and “signals the semiconductor industry has entered into the recovery phase,” said Len Jelinek, chief analyst for semiconductor manufacturing.

Demand also is improving somewhat, leading to “more solid chip pricing in the future,” which could help the chip industry return to revenue growth in the coming quarters, he said.

Chip manufacturers have reduced their fab workforces and taken excess equipment offline. “These actions are paying off, boosting utilization rates,” Jelinek said, adding that things will get better in the third quarter when utilization is expected to rise to 75%. A modest seasonal decline is expected in Q4, with a flat utilization rate in Q1 2010. Then in the following quarters of 2010 the industry will see a “sequential ascent” in fab utilization.

Fab utilization rates have started to improve, hitting 60% in the second quarter. (Source: iSuppli)
Fab utilization rates have started to improve, hitting 60% in the second quarter. (Source: iSuppli)

“The results of these actions will be manifested in the form of improving margins for semiconductor integrated device manufacturers (IDMs) and pure-play foundries in the second quarter,” Jelinek said. “Depending on how effectively they’ve cut costs and adjusted to reduced demand, companies will be able to show their investors solid financial improvements, especially in terms of cash flow.”

Five-step cycle

Jelenik identifies “five stages of grief” that typically occur in a downcycle. First, utilization remains at a fairly high level even though demand is starting to soften, a phase seen in Q2 and Q3 2008. Then in the second phase, as demand drops sharply, companies reduce their fab operator workforce and selectively shut down excess equipment. Depreciation is suspended on tools that have been shut down, a phase seen during the December 2008 through February 2009 period.

In the third phase, Jelenik said, shutting down some fab tools has the twin effects of reducing capacity and improving factory utilization. In phase four, as recovery takes hold, margins improve as companies make “judicious use of overtime by the existing staff to cover any short-term shortfall in capacity,” he said. Fab utilization continues to rise during this period, he said, adding that iSuppli expects the semiconductor industry to enter this fourth stage in June 2009.

The fifth stage involves bringing the suspended tools back in service as demand stabilizes. “This has the effect of increasing capacity with minimal actual capital investments,” Jelinek said. iSuppli expects stage five — when capacity utilization recovers to levels seen before the downturn — to commence around the end of Q2 2010.

 

 

 
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