Macquarie Research:: Semiconductors: A further look at implications of Intel's large capex budget

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MacqTech Express
Semiconductors: A further look at
implications of Intel's large capex budget
Event
 At its 2010 results, Intel announced a 2011 capex budget of US$9bn (+/-
US$0.3bn) -- up a hefty 73% YoY. We believe this strength came as a
surprise. This attributed to investment in the 22nm process migration (due in
2012) and in expanding leading-edge fab capacity.

 We believe another factor may be an increase in Intel's average chip size in
2011-12, entailing a need for greater wafer fab capacity overall. We do not
believe this was expected by the market.
Impact
 In 2011, we believe Intel's migration to a new microarchitecture "Sandy
Bridge" (on Intel's 32nm process) for 2nd generation "Core"-branded chips
may involve an increase in the company's average chip size, due to an
increase in the average processor core count coming from a larger number of
four-core processors in the mainstream processor mix.
 A dual-core "Sandy Bridge" processor, which includes a graphics processing
unit (GPU) integrated on-chip, is as much as 33% smaller than the equivalent
"Westmere" dual-core processor+GPU (two-chip) combo. If the average core
count is unchanged, Intel's average chip size would fall and the capex amount
and wafer capacity requirements would be mitigated.
 Given Intel's robust capex announcement, the direction is clearly opposite.
We calculate that a "Sandy Bridge" four-core processor is 11% bigger than a
"Westmere / Clarkdale" processor+GPU two-chip combo, and 45% bigger
than the equivalent "Sandy Bridge" two-core processor. Thus shipping more
four-core processors would tend to push up the average chip size.
 In addition, Intel is shipping proportionately more server processors due to
strong demand. Server processors are on average much larger than PC
processors, and this will also tend to drive up the average chip size.
 A rising average chip size at Intel, coupled with factors like longer production
cycle times and lower initial yields of its 22nm process, would push up Intel's
capex needs as well as wafer demand. This would tend to be positive for
vendors of semiconductor production equipment (SPE) and chip materials.
 We estimate that Intel will account for ~5% of the world's 300mm wafer
demand, which is modest (most of the 300mm wafer demand comes from the
memory sector), but will account for ~17% of the world's chip industry capex.
Outlook
 We are positive on the chip industry outlook in 2011, and are particularly
encouraged by the outlook for NAND flash memory. We are also positive on
the prospects of SPE vendors like Tokyo Electron and Dainippon Screen, and
those of material suppliers like SUMCO (wafers) and JSR (photoresists).
 Intel's strong capex indication supports our view that world chip industry
spending on SPE will grow by 15-20% YoY in 2011. We note that
GlobalFoundries has also indicated that it will double capex YoY to US$5.4bn.