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Chip production rises faster than capacity -survey
Thu Sep 21, 2006 6:15am ET

http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20060921:MTFH03935_2...

AMSTERDAM, Sept 21 (Reuters) - Global semiconductor output is rising faster than new production lines are being built, increasing the sector's capacity utilisation to 95 percent in the second half year, a survey found on Thursday.

Chip production will increase 12 percent in 2006, measured in silicon consumption in millions of square inches, up from 2.8 percent in 2005 and 14 percent in 2004, according to U.S.-based market research group VLSI.

Part of the increase is strong demand for NAND flash memory chips, used in MP3 music players and digital cameras, of which shipments rose 55 percent in the first six months of 2006 from 2005. The total number of chips produced in the January to end-June period was 77.8 billion units.

Chip production capacity has lagged behind, growing 1.7 percent in the first quarter and 2.8 percent in the second. VLSI expects quarterly growth of around 2.5 percent for the rest of the year, for a total capacity expansion of 6 percent in 2006.



Factory utilisation rates, a key measure of efficiency, will be around 95 percent in the third and fourth quarter, up from 92.4 percent in the first.

Utilisation rates of more than 90 percent traditionally trigger more aggressive investments from semiconductor companies, which is good news for equipment providers like Applied Materials (AMAT.O: Quote, Profile, Research) and ASML (ASML.AS: Quote, Profile, Research)(ASML.O: Quote, Profile, Research).

ASML raised its third quarter guidance a few weeks ago after it received more orders than expected. It usually takes three to six months before orders translate into shipments of equipment and expansion of production capacity.



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