The capex derivative for ICs (Part III)

Last week, I reviewed how solar charts can point up and up, yet the sales of lasers into solar fab tools can languish because they go as the derivative, not directly with sales. In this post, I will show how the same thing happens in semiconductor chips. And for that matter, in any capital equipment business.

The shipments of the end product made from semiconductor fab tools tend to go up and up (the Great Recession notwithstanding) because the world keeps getting bigger.  The installed base of tools tracks that trend.  (The installed base and chip revenues don't completely march in step, since installed equipment can sit idle, or chip prices can fluctuate.)  But the shipments of new tools tracks the 1st derivative of the installed base--you only ship new tools to add capacity or upgrade dated equipment.  The laser sales track this trend--the 1st derivative.  (It's actually the 2nd derivative of the revenues generated by the electronics, but that's not important here.)

That's shown in the figure below, using actual data for the semiconductor industry over the last several years. The installed base (in units of 10 million 200-mm equivalent wafer starts per month--got that?) ramps up and up. The current recession was an exception, when so many companies closed fabs that the installed base actually declined. But that's rare.


Source: SEMI


While the end product shipments grew and grew, the capex spending itself oscillated dramatically during that time.  While the capex business is a sizable business of its own, it isn't really growing so much as it's cyclic. Let that be a lesson.

Of course, we could make similar charts for displays, data storage, and any capital equipment business you like.

The important thing to remember is that the equipment shipments don't scale with the production, they go as the derivative. That's how component sales can languish even as forecasts for a downstream product go up and up.