USA: South Korea has experienced impressive growth in the semiconductor equipment market for the last five years, but the current turmoil with the global economy has temporarily slowed down capital expenditures in this region. When the economy starts to recover, South Korea will most likely be one of the first regions to invest in capacity additions.

Due to significant investments over the past five years, the semiconductor materials market here is expected to withstand the current economic storm and show positive growth in 2008, with both the fab materials and packaging materials markets forecasted to experience modest growth.

In the past few years, South Korea has focused its development on consumer mobile devices, which have resulted in big dividends. Brands like Samsung and LG Electronics have successfully penetrated the market with sleek gadgets ranging from portable MP3 players to the latest cell phones. In fact, according to BusinessWeek, Samsung this year has increased its market share in the mobile phone market and is solidly positioned as the number two player ahead of Motorola.

In the past few years, Samsung has also invested heavily in fabs for producing large capacity memory devices. This year, the unstable global economy has slowed Samsung as well as some of the larger fabs in Korea. The oversupply of memory products has caused prices to drop dramatically, influencing fabs at these companies to delay equipment purchases and/or push out fab construction projects.

It is estimated that the global market for semiconductor equipment will be $31 billion in 2008, a contraction of 28 percent compared to last year. South Korea has experienced impressive growth for the last five years. But it appears that growth this year will sync with the global equipment market. The South Korean semiconductor equipment market for 2008 is expected to contract 28 percent year-over-year, from $7.35 billion to $5.30 billion.

On a brighter note, the semiconductor materials market in South Korea, which consists of wafer fab materials and packaging materials, has enjoyed a considerable upswing for the past four years and is expected to continue its growth. It is estimated that for 2008, the materials market will grow from $6.05 billion to $6.12 billion, an increase of 1 percent. It is predicted that this market will reach $6.5 billion by 2010.

The global semiconductor materials market is expected to grow 6 percent reaching $45.1 billion in 2008, up from $42.5 billion in 2007. Unlike the equipment market, which shows double digit declines, the materials market is predicted to contract slightly next year and experience modest growth in 2010.

As companies weather the current economic storm, all eyes will be focused on the next rebound. When this occurs, the Korean semiconductor device makers will continue its investment and ramp-up to more healthy levels in terms of spending on equipment and materials.

Companies like Samsung and LG Electronics will have to continue its production of electronic products. For Samsung, this includes investments in new fabs to maintain its goal and leadership position. The tricky part is avoiding a false start.

Source: SEMI, USA

The authors, Lara Chamness, is senior market analyst, and Edwin Hall, is senior business development manager, SEMI Industry Research and Statistics.