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January 26, 2011, 4:47 PM EST
By Ian King
Jan. 27 (Bloomberg) -- Applied Materials Inc. and other semiconductor-equipment makers stand to get a boost as Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. unveil spending plans aimed at increasing chip production.
The two Asian companies will follow Intel Corp. and Globalfoundries Inc. in releasing their 2011 budgets. They may echo Intel and smaller chipmakers by investing more in manufacturing capacity to prepare for a jump in output amid rising demand for tablet computers, smartphones and the servers that supply them with information.
“It’s going to be a very positive year, much more positive than folks had anticipated,” said Dean Freeman, an analyst at Gartner Inc. The research firm now predicts spending on equipment will rise 10 percent this year to at least $42.2 billion, from an estimated $38.4 billion spent in 2010, said Klaus Rinnen, another Gartner analyst. Gartner previously had projected a 1 percent decline for 2011.
Intel, the world’s largest chipmaker, said Jan. 13 it will spend as much as $9.3 billion on new plants and equipment this year, a 79 percent increase from 2010. Globalfoundries said it will double spending to $5.4 billion. That bodes well for Applied Materials and makers of the machinery used in chip production, and it may extend the rally that has helped lift the Philadelphia Semiconductor Index 33 percent in the past year.
TSMC, Globalfoundries and Samsung, which manufacture chips for other companies, want to showcase their spending plans to help persuade customers to remain loyal, said Patrick Ho, a Dallas-based analyst for Stifel Nicolaus & Co.
‘Arms Race’
“It becomes an arms race of ‘I’ll one-up you,’” said Ho, who is estimating that spending will increase 10 percent to 15 percent this year. “2011 was going to be a good year. It could be bordering on a great year.”
Suwon, South Korea-based Samsung, the second-largest chipmaker, will announce its fourth-quarter earnings tomorrow.
TSMC, the largest made-to-order chipmaker, expects to outline its 2011 spending plan at a conference today, said Elizabeth Sun, head of investor relations. Analysts expect TSMC to announce a record $7.4 billion in capital spending, the average of six estimates compiled by Bloomberg News.
Taiwan-based Economic Daily News reported that TSMC may raise capital spending by 36 percent to $8 billion this year, citing unidentified people from equipment companies.
Sun declined to comment on the report. In October, Chairman Morris Chang told investors that spending this year would surpass 2010’s $5.9 billion.
Samsung Group, which includes Samsung Electronics, will spend 10.3 trillion won ($9.2 billion) on improving semiconductor production this year, the company said on Jan 5. Samsung Electronics will give further details when it reports earnings, group spokesman Kevin Cho said in an e-mail.
Swings in Demand
For investors in shares of equipment makers, a second year of growth may be a welcome change from the cycles of boom and bust in the industry. In 2010, sales doubled from 2009’s “worst year ever” decline, according to Gartner.
Applied Materials, Tokyo Electron Ltd. and ASML Holding NV have suffered swings in demand for their machinery as customers failed to match the timing of spending on equipment for multibillion-dollar plants with short-term fluctuations in demand for electronic components.
What may be different this time, according to Caris & Co. analyst Ben Pang, is the increasing diversity of demand for semiconductors, which are playing a more important role in everything from phones to cars. That’s making the industry less dependent on personal-computer demand and therefore less volatile, he said. Ultimately, spending on future output is most influenced by executives’ confidence in future demand, and plans can be cut quickly.
“It’s still all about the economy,” Pang said.
Applied Materials, based in Santa Clara, California, has gained 10 percent this year on the Nasdaq Stock Market. Tokyo Electron, Applied’s nearest rival in overall sales, has risen 5.5 percent on the Tokyo Stock Exchange, and ASML is up 4.8 percent in Amsterdam trading.
“I don’t think the group’s done rallying,” said Stifel’s Ho. “The momentum is still behind the stocks.”
--With assistance from Tim Culpan in Taipei. Editors: Jillian Ward, Lisa Wolfson
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles@bloomberg.net
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Jan. 27 (Bloomberg) -- Applied Materials Inc. and other semiconductor-equipment makers stand to get a boost as Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. unveil spending plans aimed at increasing chip production.
The two Asian companies will follow Intel Corp. and Globalfoundries Inc. in releasing their 2011 budgets. They may echo Intel and smaller chipmakers by investing more in manufacturing capacity to prepare for a jump in output amid rising demand for tablet computers, smartphones and the servers that supply them with information.
“It’s going to be a very positive year, much more positive than folks had anticipated,” said Dean Freeman, an analyst at Gartner Inc. The research firm now predicts spending on equipment will rise 10 percent this year to at least $42.2 billion, from an estimated $38.4 billion spent in 2010, said Klaus Rinnen, another Gartner analyst. Gartner previously had projected a 1 percent decline for 2011.
Intel, the world’s largest chipmaker, said Jan. 13 it will spend as much as $9.3 billion on new plants and equipment this year, a 79 percent increase from 2010. Globalfoundries said it will double spending to $5.4 billion. That bodes well for Applied Materials and makers of the machinery used in chip production, and it may extend the rally that has helped lift the Philadelphia Semiconductor Index 33 percent in the past year.
TSMC, Globalfoundries and Samsung, which manufacture chips for other companies, want to showcase their spending plans to help persuade customers to remain loyal, said Patrick Ho, a Dallas-based analyst for Stifel Nicolaus & Co.
‘Arms Race’
“It becomes an arms race of ‘I’ll one-up you,’” said Ho, who is estimating that spending will increase 10 percent to 15 percent this year. “2011 was going to be a good year. It could be bordering on a great year.”
Suwon, South Korea-based Samsung, the second-largest chipmaker, will announce its fourth-quarter earnings tomorrow.
TSMC, the largest made-to-order chipmaker, expects to outline its 2011 spending plan at a conference today, said Elizabeth Sun, head of investor relations. Analysts expect TSMC to announce a record $7.4 billion in capital spending, the average of six estimates compiled by Bloomberg News.
Taiwan-based Economic Daily News reported that TSMC may raise capital spending by 36 percent to $8 billion this year, citing unidentified people from equipment companies.
Sun declined to comment on the report. In October, Chairman Morris Chang told investors that spending this year would surpass 2010’s $5.9 billion.
Samsung Group, which includes Samsung Electronics, will spend 10.3 trillion won ($9.2 billion) on improving semiconductor production this year, the company said on Jan 5. Samsung Electronics will give further details when it reports earnings, group spokesman Kevin Cho said in an e-mail.
Swings in Demand
For investors in shares of equipment makers, a second year of growth may be a welcome change from the cycles of boom and bust in the industry. In 2010, sales doubled from 2009’s “worst year ever” decline, according to Gartner.
Applied Materials, Tokyo Electron Ltd. and ASML Holding NV have suffered swings in demand for their machinery as customers failed to match the timing of spending on equipment for multibillion-dollar plants with short-term fluctuations in demand for electronic components.
What may be different this time, according to Caris & Co. analyst Ben Pang, is the increasing diversity of demand for semiconductors, which are playing a more important role in everything from phones to cars. That’s making the industry less dependent on personal-computer demand and therefore less volatile, he said. Ultimately, spending on future output is most influenced by executives’ confidence in future demand, and plans can be cut quickly.
“It’s still all about the economy,” Pang said.
Applied Materials, based in Santa Clara, California, has gained 10 percent this year on the Nasdaq Stock Market. Tokyo Electron, Applied’s nearest rival in overall sales, has risen 5.5 percent on the Tokyo Stock Exchange, and ASML is up 4.8 percent in Amsterdam trading.
“I don’t think the group’s done rallying,” said Stifel’s Ho. “The momentum is still behind the stocks.”
--With assistance from Tim Culpan in Taipei. Editors: Jillian Ward, Lisa Wolfson
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles@bloomberg.net
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