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2Q03 Semiconductor Capital Equipment Update: Still Positive for 2003 Host: Speakers: Klaus-Dieter Rinnen Richard Gordon Jim Hines Jim Walker SCEM Telebriefing 27 March 2003 Major Forecast Changes Since Year-End Macroeconomic Hold to improvement; war factored in; uncertainty still significant Electronic equipment PC unit forecast reduced to 6.6% Cellular phone forecast still holding Devices Revenue forecast for 2003 cut back from 12% to 9%, with greater downside than upside Capital spending and equipment forecasts Capital spending — Reduced from 15% to 7% Wafer fab equipment — Reduced from 16% to 8% Packaging and assembly equipment — Largely holding to prior forecast Outsourcing Foundry — Now at 23%; tied to device demand SATS — Holding at 20% year-over-year growth in 2003 <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Forecast Growth Scorecard Revenue Growth (%) World GDP U.S. GDP Electronic Equipment* Semiconductor Capital Spending Equipment Spending WFE Equipment P&A Equipment Silicon Ship (MSI) *Production revenue <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. 2002 Base +2.0 +2.5 +0.3 +1 -37 -30 -31 -22 +19 Up +12 +15 +18 +16 +32 2003 Base Down +2.4 +2.7 +5 +9 +7 +10 +8 +21 +5 -6 -5 -2 -4 +10 Global GDP Growth Scenarios, 2000-2004 Real GDP Growth (%) Most Optimistic, P=5% Quick War (<1 Month) 5 3.8 3.5 3.9 4 2.1 Long War, P=23% Short War (1 Month) 0.9 1.2 1 Most Likely, P=70% Short War (1 Month) 1.3 2.0 2 2.4 2.6 3 2000 2001 2002 -1 2003 2004 -0.4 0 Bad War (Regional Conflict) Most Pessimistic, P=2% Source: Global Insight (March 2003) <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Global Insight's War Scenarios Scenario Probability Was Now Real GDP Growth [%] 2002 2003 2004 Most Optimistic Regime Collapse/ Quick War 20% 5% 2.0 2.6 3.8 Baseline — Short War 60% 70% 2.0 2.4 3.5 No War/No Resolution 10% 8% 23% 2.0 1.3 2.1 2% 2.0 0.9 -0.4 Long War 0% Most Pessimistic Bad War <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. 2% Source: Global Insight (March 2003) Global Economic Issue Without Much Progress Eurozone and Japanese economies remain weak Deflationary threat is present (China, Japan and possibly Germany) Bulging U.S. current account deficit threatens sharp decline in dollar High degree of risk and uncertainty makes economic outlook volatile; expect continued market volatility <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. 1Q03 Semiconductor Market Outlook Short term – Phased recovery continuation depends on PCs in 2003 • Sequential growth weakened in 4Q02, and a continued slowdown in 1H03 means 2003 will likely show only a moderate AGR • Worries about geopolitical and macroeconomic environment – War/terrorism uncertainty = lack of confidence » Will consumer spending remain firm? » When will corporations invest in capital expenditure? Longer term – Boom year likely in 2004, spilling into 2005 • Semiconductor vendors still cautious about CAPEX in 2003 – Downturn likely delayed until 2006 • Capacity likely to be tight beginning 2H03 through 1H05 • Oversupply forecast for 2H05 onward, assuming CAPEX returns <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Semiconductor Quarterly Sequential Growth: Stronger Growth Follows Weak 1H03 1Q 2Q 3Q 4Q AGR 5.7% 5.8% 6.4% 1.7% 0.6% -1.4% -4.6% -5.1% 2.3% 2.1% -5.2% 7.8% 9.6% -4.1% 6.2% 5.1% -1.4% 12.0% 8.9% -5.8% 6.8% 5.5% 1.4% 14.0% 9.4% 4.3% 8.8% 4.8% 11.0% 4.8% 5.5% 6.2% 36.2% 27.8% 7.3% 2002 Actual (Preliminary) 2003 Best Case Most Likely Case Worst Case 2004 Best Case Most Likely Case Worst Case <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Worldwide Semiconductor Revenue Five-Year Forecast Revenue (Millions of Dollars) 250,000 ASSP 200,000 ASIC Opto 150,000 Discrete Analog IC 100,000 Logic 50,000 Micro Memory 0 2000 2001 2002 2003 2004 2005 2006 2007 <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Capital Spending in 2003: Still Positive Reasons why – 2002 capital spending was below 1998 – Leading-edge utilization held at >85% throughout 2002 – Overall utilization improved, holding around 75% in 1H03 – Industry entered 2003 with 14% underinvestment – Empty shells/unfinished fabs allow fast response to new demand – As order flow remains slow in 1Q03 and possibly 2Q03, the question is how much equipment can be shipped in 2003; stepper lead times are an issue – Potential semiconductor opportunity loss for 2004 rises if industry procrastinates Who is spending? – Foundry, 3% — Spending on hold until more signs of life; expect 2H02 lift – Memory, 20% — Strategic investments and funding of new JVs drive spending growth – Japan, 15% — After restructuring, spending is coming alive <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Overall Wafer Fab Utilization Ratio of Silicon Consumed to Fab Capacity 100% 90% 80% 70% 60% 50% 40% <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Leading Edge Foundry Fab Utilization Ratio of Silicon Consumed to Fab Capacity 100% 90% 80% 70% 60% 50% 40% <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Leading Edge Foundry Market Revenue Forecast Billions of Dollars 2001-2007 CAGR = 20.9% 30,000 25,000 20,000 15,000 10,000 5,000 0 2001 2002 2003 <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. 2004 2005 2006 2007 Quarterly WFE Forecast Scenarios Scenarios (Probability) Optimistic Most Likely Pessimistic Billions of Dollars 11 2002 2003 -32% 16% (0.20) 8% (0.50) -4% (0.30) 10 9 Optimistic Most Likely Pessimistic 8 7 6 5 4 3 1Q00 3Q00 1Q01 3Q01 <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 Total Industry Packaging and Assembly Factory Utilization Factory Utilization 100% 90% 80% 70% 60% 50% 40% 30% <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Leading Edge Utilization for Semiconductor Assembly and Test Services (SATS) SATS Utilization 100% 90% Leading-Edge Utilization 10 8 80% 70% 6 60% 4 50% 40% 30% <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. 2 0 Semiconductor Packaging and Test Market Forecast Revenue (Billions of Dollars) 50 SATS 40 IDM/OEM 30 20 10 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Quarterly Packaging and Assembly Equipment Forecast Scenarios Scenarios (Probability) Optimistic Most Likely Pessimistic Billions of Dollars 2.0 2002 2003 -22% 32% (0.25) 21% (0.50) 10% (0.25) Optimistic Most Likely 1.5 Pessimistic 1.0 0.5 0.0 1Q00 3Q00 1Q01 3Q01 <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 Long-Term View: Cycles Continue … Capital Spending and Equipment Forecasts Capital Spending Semiconductor Equipment (Excluding Test) Billions of Dollars Billions of Dollars 70 45 40 60 35 50 30 40 25 30 20 15 20 10 10 5 0 0 1999 2001 2003 2005 <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. 2007 1999 2001 2003 2005 2007 Gartner Dataquest's Index of Semiconductor Market Leading Indicators, March 2003 Semiconductor Revenue Growth 60% Actual 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Semiconductor Growth Indicator <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Forecast Conclusions Economy Expect improvement in 2003, albeit back-end loaded High market volatility in near term as course of war remains open Electronic equipment Expect gradually improving macro conditions to spur phased recovery Kick-in of Y2K PC replacement cycle expected; strength questionable Corporate spending returns in 2003; strength dependent on economy Chips Expect typical, slow 1Q03, with slow demand return in 2Q03 Expect revenue growth of 9% <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved. Conclusions Capital spending and equipment Supply-side fundamentals improve because of two years of spending cuts Anticipate overall utilization to reach over 85% trigger level, 2H03 Leading-edge packaging utilization tight; additional equipment required More optimistic outlook on CAPEX with 7% growth in 2003 Second down-leg in quarterly WFE revenue for 4Q02 into 2Q03 "Ready for equipment" fabs afford rapid equipment move-in for 2003, allowing for 8% growth in WFE Next fab build cycle slips to 2004; next downcycle is expected in late 2005/early 2006 <Title> | <Date> | Entire contents © 2003 Gartner, Inc. All rights reserved.