Semiconductor Fab Buildout Delays – 2023 to 2025 Wafer Fabrication Equipment Outlook

2023 Below $70B WFE?

The semiconductor manufacturing world has seemingly flipped in a few months, with multiple fab buildouts and expansions slowed or delayed. Today we will address these slowdown rumors by company, specific fabs, geography, and class of semiconductor devices. This includes slowdowns we have heard about for expansion at giants such as TSMC, Intel, Samsung, Micron, SK Hynix, and more. As a reminder, we track 112 ongoing and planned expansions within the supply chain. Based on this and sources within the supply chain, we will share our wafer fabrication equipment expenditure estimates for 2022, 2023, 2024, and 2025 for foundry, logic, NAND, and DRAM each.

Before we dive into our projections, let’s start by level-setting the historical figures, as different sources will estimate these freely. The core metrics to watch in this industry are semiconductor revenue, capacity additions (wafer fabrication equipment), and existing capacity (millions of wafer square inches shipped).

The key metric determining margins for the fabs and the industry is revenue per unit area of silicon. As such, we track this metric very closely alongside capacity adds. Industry margins have soared as revenue per square inch increased rapidly in 2021. This metric will not remain this high. Current and future fab buildouts will bring it below historical levels.

Much of the capacity here is older than 300mm, 90nm to 28nm. These nodes tend to run much lower revenue per shipped square inch. They continue to ramp to a larger portion of shipped square inches, especially in Chinese fabs.

To dive deeper into historical figures, here are our figures for front-end wafer fabrication equipment by semiconductor device type.

Now let’s get into projections. Even the industry group, Semi, has cut their 2022 figures to a mere 9% year-over-year growth, but we believe their figures lag behind reality. We have 2022 WFE down 0.6% versus 2021. The breakdown for spending from 2022 to 2025 will be shown at the end of this report. The market is very dynamic, and there are delays out of 2022 for specific fabs and entire segments. China has been the biggest contributor to growth over the last few years. We believe that Chinese wafer fabrication equipment purchases will be down 14% year-on-year, primarily due to utilization rates dropping rapidly. There is also a component of fraudulent companies being taken down, with more than a dozen arrests and general prudence surrounding semiconductor subsidies in China.

The lion in the room is, of course, memory. Micron, Samsung, SK Hynix, Kioxia, and Western Digital.

We made significant reductions to CapEx and now expect fiscal 2023 CapEx to be around $8 billion, down more than 30% year-over-year. WFE CapEx will decline nearly 50% year-over-year, and reflects a much slower ramp of our 1-beta DRAM and 232-layer NAND versus prior expectations.

Sanjay Mehrotra, Micron CEO

The other memory vendors will follow suit, with Samsung and Kioxia announcing cuts to pricing, wafer starts, and/or fabrication equipment spending. It should be noted that Micron and others will continue to build the fab facilities and keep existing EUV orders in place. They will be delaying equipment spending on DUV and other fabrication tools significantly. There will be a different spending profile and degree of cuts with NAND versus DRAM industry.

On the Intel side, there are many questions about whether or not Intel will cut spending on their capacity expansion as their business slows down significantly. This week, Dr. Randhir Thakur and Pat Gelsinger responded to these questions at the Intel Innovation conference.

When is the last time that a recession lasts for four or five years? Its impact on the industry may last several quarters like two, three or four quarters. You cannot be driven by near-term financials. We are investing for the long term. That’s our strategy.

Pat Gelsinger, Intel CEO

This quote is in stark contrast to what they are telling some suppliers. We know suppliers who have already received cancellations in orders. Others have already received pushbacks in order delivery dates. These cuts pertain to both the Malaysia packaging facility build-out and wafer fabs in other geographies. While most media fawned over the prior quote as proof Intel will not waiver on spending, we want to draw special attention to this portion of that same response.

Yes, we need to manage our cash carefully.

Pat Gelsinger, Intel CEO

Intel must manage its working capital very closely due to the implosion of the PC business and major share losses in servers. We believe the “short-term” business issues have affected their original buildout plans. Through multiple sources within the supply chain, SemiAnalysis can confirm that the recent significant demand decrease is causing Intel to undergo a review of all supplier purchase orders. Intel is at least partially driven by short-term working capital concerns.

Moving onto the industry giant of TSMC, they are slowing their buildout due to an overcapacity of 7nm wafers in Q1 next year. The 3nm node is also having very slow uptake. The buildout plans for N3 are much more tepid versus what may have been planned previously. For reference, we expect TSMC to ramp up to 45,000 wafers per month for the N3 process family ~1 year after initial shipment. Compare this to the N5 and N7 buildouts, where wafer starts eclipsed 45,000 wafers per month within only ~6 months of initial shipment.

While 5nm buildouts are still going strong, despite Nvidia cuts, we believe other TSMC expansion projects will be slowed. The small Arizona fab was already behind schedule. In particular, we believe the buildout of giga-Fab 22 (28nm/7nm) in Kaohsiung Taiwan is slowing significantly on the 7nm capacity front.

We believe Samsung is cutting buildouts significantly as well. This pertains not only to memory. This is due to a major slowdown in mobile, share losses in foundry, and system LSI. In particular, we hear their expansions into equipment for Pyeongtaek’s P fabs are slowing down. As a reminder, Samsung has no real flagship Exynos product for their 3nm node. As we reported in the past, even the 2024 flagship smartphone chip, Exynos 2400, is still based on their older 4nm class technology. Oddly Samsung is picking up on orders for wafer-level packaging equipment in a new Vietnam facility despite the packaging industry slowing much more significantly than the wafer-level fabrication industry.

We have probability weighted the over hundred ongoing and planned projects. Rolling it all up, below are our estimates for wafer fabrication equipment spend in DRAM, NAND, Logic, and Foundry for 2022, 2023, 2024, and 2025. This accounts for long-term semiconductor revenue growth, structural revenue per square inch, capital intensity, spending by fab location, and subsidies.