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Semiconductor Capex Could Hit Record $100 Billion in 2018

Chipmakers are aggressively boosting capital expenditures, boosting capacity and supply.

Semiconductor buyers can expect chip supply to increase 8-10% in 2018, as suppliers will boost capital expenditures (capex) 14% to a record $100 billion to build new fabs and expand and upgrade existing facilities, according to IC Insights.

The researcher raised its forecast for semiconductor industry capital spending from 8% to 14% because major chipmakers were still aggressive with capital expenditures in the first quarter, said Bill McClean, president of IC Insights.

As a result, semiconductor capital expenditures will rise from $90 billion in 2017 to $102.6 billion in 2018, according to the researcher. The increase in capex means semiconductor capacity will increase at 8-10%, said McClean.

One example of aggressive capital spending is Samsung. The Korean chipmaker spent $6.72 billion in capex for semiconductor production in the first quarter, which is slightly more than the average of the previous three quarters, said McClean. “This figure is almost 4× the amount the company spent just two years earlier in the first quarter of 2016,” he said.

Over the past four quarters, “Samsung has spent an incredible $26.6 billion in capital outlays for its semiconductor group,” McClean added.

Subhead: Investing in Memory

Much of  semiconductor capital spending will be for memory IC production. Samsung, Micron, and SK Hynix all plan to come out with “capacity increases pretty much in concert in 2019,” said McClean.  Samsung is ramping up a fab in South Korea and Hynix is bringing a 3D NAND flash fab in Cheongju, South Korea online, in addition to expanding a DRAM fab in Wuxi, China.  The Cheongju fab may open in the fourth quarter and the Wuxi fab expansion is also expected to open by the end of this year.

In total, SK Hynix plans to boost capital spending 42% to $11.5 billion. In 2017, the semiconductor manufacturer made $8.1 billion capital expenditures, according to IC insights.

Much of the investment by memory IC manufacturers Chipmakers will focus on 3D NAND flash. Flash manufacturers will increase spending on 3D NAND production 3% to $16 billion in 2018 and another 3% in 2019 to $17 billion, according to SEMI, a global industry association serving the manufacturing supply chain for the electronics industry.

The growth rate for DRAM investment will rise 16% to $16 billion in 2018. However, DRAM capital expenditures spending will drop 14% to $12 billion in 2019, the association said.

Semiconductor foundries will boost capital expenditures by 2% in 2018 to $17 billion and then 26% in 2019 when foundry capex will total $22 billion, said SEMI. Much of that investment will be for new capacity including transition to the 7nm technology node.

Capex Impacting Supply

The increase in capacity is welcome news to semiconductor buyers because supply for some chips is tight, owing to continuing strong demand. The impact of capex Increases are already being felt in the supply chain. “In general, the 3D NAND flash memory supply  has caught up with demand,” said McClean. “We’re starting to see prices flatten.”

With capacity being added this year and next, there could be oversupply of 3D NAND flash over the next couple years, according to McClean.

With increases in capital expenditures, DRAM supply should catch up with demand sometime next year, McLean said. He noted that that while there are six major suppliers of NAND flash, there only three major DRAM suppliers: Samsung, SK Hynix, and Micron. In addition, there is strong demand especially for server manufacturers that are looking for more memory per system, and are not as “price-sensitive” as other electronics equipment manufacturers such as cell phone OEMs.

While most of the increases in capital spending is for integrated circuits, discrete semiconductor manufacturers are also investing in new capacity, but at a slower rate. There have been shortages of MOSFETs and other power transistors, with some manufacturers refusing to take orders because of backlogs.

“It is interesting,” said McClean. “There are some shortages in discretes, which are often indicative of general demand for semiconductors…A lot of times there’s not a lot of inventory building in the discretes area.” As a result, once demand increases sharply, lead times stretch and some discretes go on allocation.

McClean said the discretes market is not as volatile as integrated circuits such as memory chips. He said discrete manufacturers typically have a plan to increase capex 5% per year, and that “usually satisfies” increases in demand.

Chipmakers are investing in new equipment and building new fabs to meet growing demand.

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