SARATOGA, CA – State of the art wafer fabrication capacity reached a record high of 99% in the fourth quarter of 2005, prompting speculation over a potential recession.

According to research firm Advanced Forecasting Inc., the fourth-quarter utilization level is “reminiscent” of cycles in 1995 and 2000 in which utilization rates of the SoA technology (defined as line widths smaller than 0.12 microns) topped 97%, only to be followed by a recession.

“The state of the industry during the aforementioned examples was very different from today in that each occurred toward the end of an already overheated boom period in which inventories were accumulating and decisions were made to add capacity to an already capacity-loaded market,” said Rosa Luis, director of marketing and sales.

Currently, the industry is in a much stronger position in which overheating is not present, as IC sales have not yet exceeded the predicted underlying demand, the firm said. AFI also pointed to better decision-making on capacity additions.

Increases in production of wafers (6%) and in sales of IC units (10.6%) in 2005 over 2004 were in sharp contrast to the 11% decline in total sales of new semiconductor equipment. Billings of worldwide wafer processing equipment have actually been stagnant for the past six months, at $1.71 billion/month, after declining from a peak at the end of 2004, while both the assembly and test equipment segments have increased 16% and 7%, respectively, over the past five months.

“However, the current cautious behavior does not preclude the possibility of overheating from occurring,” said Luis. “We do believe both IC units and revenues in 2006 will grow in the double-digits over 2005 and this could very well lead revenues to exceed underlying demand and cause overheating, resulting in over-capacity and inventory buildup, precursors to a recession.” 

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