Strong demand and rising prices for DRAM and NAND flash memory is driving capital expenditure budgets in 2017. Semiconductor capital spending is forecast to grow between 10 to 20 percent this year. Although memory device manufacturers are investing in both production capacity as well as technology migrations, tight supply of DRAM and NAND flash is not expected to ease until 2018.
Semiconductor manufacturers will continue to make significant capital investments in the second half of 2017, after increasing their capex in the first half, according to industry analysts. IC Insights recently raised its annual semiconductor capex forecast to a record high of $80.9 billion for 2017, up 20 percent from 2016. The market research firm previously forecast 12 percent growth in 2017.
Gartner Inc. also increased its semiconductor capital spending forecast, although not as aggressively as IC Insights. The market research firm forecasts capital spending to increase by 10.2 percent in 2017, reaching $77.7 billion. This is up 1.4 percent from the previous quarter’s forecast, “due to continued aggressive investment in memory and leading-edge logic, which is driving spending in wafer-level equipment.”
"Spending momentum is more concentrated in 2017 mainly due to strong manufacturing demand in memory and leading-edge logic,” said Takashi Ogawa, research vice president at Gartner, in a statement. “The NAND flash shortage was more pronounced in the first quarter of 2017 than the previous forecast, leading to over 20 percent growth of etch and chemical vapor deposition (CVD) segments in 2017 with a strong capacity ramp-up for 3D NAND.”
Wafer foundries (28%) and upgrades for NAND flash memory (24%) will gobble up more than half of the 2017 capex spending forecast. The DRAM/SRAM segment leads in capex spending at a projected 53 percent growth rate, followed by NAND flash memory at 33 percent, according to IC Insights. Despite the higher growth rate, capital spending for DRAM will be lower than flash memory, forecast to reach $13 billion and $19 billion, respectively, in 2017.
“With DRAM prices surging since the third quarter of 2016, DRAM manufacturers are once again stepping up spending in this segment,” reported IC Insights. “Although the majority of this spending is going towards technology advancement, DRAM producer SK Hynix recently admitted that it can no longer keep up with demand by technology advancements alone and needs to begin adding wafer start capacity.”
IC Insights expects flash memory spending in 2017 will be dedicated to 3D NAND process technology, which includes production at Samsung’s new fab in Pyeongtaek, South Korea.
Samsung is the “wild card” in terms of semiconductor capital spending in the second half of 2017. “Not only has Samsung Semiconductor been on a tear with regard to its semiconductor sales, surging into the number one ranking in 2Q17, but the company has also been on a tremendous capital spending spree for its semiconductor division this year,” said IC Insights.
Samsung’s capital expenditure in the first half of 2017 accounted for 25 percent of the total semiconductor industry’s capital spending and 28 percent in the second quarter, according to IC Insights. The company’s 2017 capital expenditures could reach $15 to $22 billion, according to the market researcher.
During a second quarter earnings call, Samsung reported that it would expand the Pyeongtaek fab to meet increasing demand for V-NAND, and convert a part of its existing planar capacity to V-NAND. Recent industry reports indicate that Samsung expects to invest $7 billion over the next three years to expand NAND flash production capacity.
SK Hynix also recently reported during a Q2 webcast that it expected to increase bit shipment growth for NAND in the mid-20 percent range during the third quarter, and is building a new NAND fab in Cheongiu, Korea, that is expected to be completed in the fourth quarter of 2018.
Other big semiconductor spenders include TSMC and Intel. TSMC has a capital spending budget of $10 billion in 2017 and spent about $6.8 billion in the first half of 2017. Intel’s 2017 spending budget is $12 billion and expended about $4.7 billion in the first half of 2017.
However, IC Insights warns that historically when there is “too much spending” in the memory market, it typically leads to overcapacity and pricing weakness. The market researcher believes the risk of “overshooting 3D NAND flash market demand is high and growing” due to several suppliers, including Samsung, SK Hynix, Micron, Intel, Toshiba/Western Digital/SanDisk, and XMC/Yangtze River Storage Technology all planning to significantly ramp up 3D NAND flash capacity over the next couple of years, coupled with Chinese producers potentially entering the market.
Gartner’s Ogawa believes the next cyclical down cycle in capital spending will occur in 2018 to 2019, compared with 2019 to 2020 in the previous quarter's forecast. "Spending on wafer fab equipment will follow a similar cycle with a peak in 2018. While the most likely scenario will still keep positive growth in 2018, there is a concern that the growth will turn negative if the end-user demand in key electronics applications is weaker than expected," he said.