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Analyst slashes 2005 chip capex forecast - again

Chip makers to spend 15% less on new kit next year

Market watcher Gartner has once again cut the amount of money it reckons the world's chip makers will invest in new equipment next year.

Back in October, Gartner said capital expenditure will grow a mere 0.5 per cent in 2005, significantly lower than the company's July 2004 forecast of 13.4 per cent capex growth, and well below the 61 per cent increase it's expecting to see this year.

This week it cut its October forecast by a similar amount. Gartner now believes chip manufacturers will spend 15 per cent less next year than they did in 2004. Spending on equipment and facilities will fall 12 per cent.

The reason for the decline is clear: the chip industry's customers are continuing to buy far less product that the manufacturers had forecast when they drew up their 2004 capex budgets.

"The emergence of excess inventories, macroeconomic uncertainty and slowing end-user demand casts a shadow over the outlook for 2005," said Klaus Rinnen, Gartner's VP for semiconductor manufacturing and design research, in a statement. "Device production has slowed in recent months, and with it semiconductor manufacturers have readjusted their capacity ramp-up and equipment purchase plans."

Earlier this week, market watcher iSuppli said the amount of excess chip inventory in the electronics channel during Q3 was higher than it had anticipated. The final total came to $1.6bn worth of unsold semiconductors. It said it expects orders for new chip-making kit to fall this quarter as a result, which will surely have a knock-on effect on 2005's capex budgets.

The good news is that the downturn will be less long-lasting than the previous one. "Given more modest-capacity investments during the cycle, the supply-demand imbalance will be far less severe than in the prior two cycles. Consequently, the approaching downcycle will be mild, allowing for a return to positive annual investment growth possibly as early as 2006," Rinnen said. ®

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