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South Korea, Taiwan, China lead surging chip investment

Semiconductor capex seen passing 2000 peak this year as world craves memory

Samsung Electronics is pouring huge sums into making NAND flash memory at factories like this one.

TOKYO -- Global chipmaking leaders South Korea, Taiwan and mainland China likely will drive investment in semiconductor manufacturing equipment to an all-time high this year, with Samsung Electronics and others scrambling to fill roaring demand for memory.

Worldwide sales of chipmaking equipment are forecast to grow 19.8% in 2017 to $49.4 billion, says industry group SEMI, beating the roughly $47.6 billion record set in 2000 amid the dot-com bubble. The group projects sales to balloon a further 8% in 2018 to $53.2 billion, breaking $50 billion for the first time.

South Korea, the second-place spender, is expected to overtake leader Taiwan. But China, presently a distant third, likely will rush forward in 2018 to disrupt their ranks. Meanwhile, Japanese manufacturers of chipmaking equipment are benefiting handsomely from the sharp investment growth.

Thirsty for space

A growing hunger for NAND flash memory -- used for storage in smartphones and data centers -- drives this demand for chipmaking equipment.

Samsung's 2016 capital spending on semiconductors topped the equivalent of roughly 1 trillion yen (about $8.85 billion at today's exchange rate), and one director suggests the company is aiming even higher this year. South Korean compatriot SK Hynix looks to put profits from more stable operations in DRAM memory toward boosting NAND production.

Another tailwind comes from the shift toward 3-D memory, in which chips are stacked vertically to increase storage space.

"Memory is overwhelmingly insufficient to handle the data boom" and will continue to be so "until the first half of 2018 at least," said Tetsuya Wadaki, a Nomura Securities analyst.

The memory chip industry tends to move in three- to five-year cycles of boom and bust. But some say the field has entered a "supercycle" in which skyrocketing demand overcomes those ups and downs, known as "silicon cycle."

Jostling for top spot

South Korea likely will claim the lead in chip equipment spending for the first time this year, with a 70% jump to $12.9 billion expected. Taiwan would slip to second, but the amount is projected to exceed $10 billion, buoyed by cutting-edge investments from Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker.

Yet mainland China appears set to surge past Taiwan to second place in 2018 amid a massive government-backed push, with its chipmaking equipment purchases projected to reach $11 billion -- a year-on-year leap of roughly 60% and more than threefold growth over five years.

Digital storage company Yangtze River Storage Technology looks to construct a massive memory plant in Wuhan, Hubei Province. Yangtze -- whose parentage includes Tsinghua Unigroup, affiliated with Beijing's prestigious Tsinghua University -- has received some 2 trillion yen equivalent in government support to build the plant, which will be among the world's largest. Tsinghua Chairman Zhao Weiguo expressed an intent to join the ranks of the top worldwide memory makers in 2020.

Faded into memory

Japan held the market crown until the 2000s, but has dwindled to a global share of around 10%. The nation has no standout investments besides those at a chip plant belonging to embattled conglomerate Toshiba, and its sense of presence in the market has faded.

But the country's chip production equipment makers are largely enjoying the ride. Domestic market leader Tokyo Electron recently upgraded its sales target for the year through March 2020 by 50% to 1.2 trillion yen and plans a round of investment in equipment for silicon wafer etching. Its compatriot Disco, whose products include wafer-cutting equipment, projects record sales and operating profit for the first half of fiscal 2017. But Nikon, which makes semiconductor lithography equipment, heavily downsized its staff recently after losing a technological battle to Dutch rival ASML.

(Nikkei)

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