Fab utilisation is expected to rise to 60% in Q209, up from 49% in Q1, according to analysts iSuppli.
This will mark the first quarterly sequential increase in fab utilisation since Q208.
"The expected rise in utilisation rates in the second quarter signals the semiconductor industry has entered into the recovery phase," says Len Jelinek, director and chief analyst, semiconductor manufacturing for iSuppli.
"Semiconductor suppliers already have cut their fab workforces and have shut down pieces of manufacturing equipment that they have identified as excess gear that is not needed to serve the present low level of demand. These actions are paying off, boosting utilisation rates at these fabs," said Jelinek.
Because of these headcount reductions and equipment shutdowns, total semiconductor manufacturing capacity declined to 732m square inches of silicon in Q109, down from 756m square inches of silicon in Q408.
With capacity in better alignment with demand, utilisation is expected to rise to 75% Q309, before experiencing a modest decline in the fourth quarter. After a flat Q1 in 2010, utilisation will resume a sequential ascent during the following quarters.
On the demand side, semiconductor manufacturers late in the first quarter reported minor improvements in order rates.
"The results of these actions will be manifested in the form of improving margins for IDMs and foundries in the second quarter," Jelinek says, "depending on how effectively they’ve cut costs and adjusted to reduced demand, companies will be able to show their investors solid financial improvements, especially in terms of cash flow."
Rising utilisation should improve pricing.
"In the first phase of the downturn, semiconductor capacity and utilisation remains at a high level, although demand for chips is beginning to decline," explains Jelinek, "the global semiconductor industry was in this phase in the second and third quarters of 2008. In the second phase, amid dramatic reductions in demand and an inability among chip suppliers to forecast the time of a sustainable recovery, companies are forced into making decisions regarding factory operations. At this time, suppliers institute their first cut in the manufacturing workforce, usually in the form of reductions in machine operator staffing."
The semiconductor manufacturing business was in this second phase during the period from December 2008 through February 2009.
Shutting down some fab tools, without removing them from the fab represents the third stage of the process, which is the current state of the global chip manufacturing industry, says iSuppli.
In phase four, as the semiconductor manufacturing industry recovers, chipmakers actually can achieve better margins than before the downturn. This is accomplished through a judicious use of working overtime by the existing staff to cover any short-term shortfall in capacity. During this period, fab utilization will continue to rise.
iSuppli expects the semiconductor industry to enter this fourth stage in June 2009.
Eventually, as chip makers see the return of backlog that can be used to generate an accurate manufacturing forecast, they will release their suspended manufacturing assets. This has the effect of increasing capacity with minimal actual capital investments. Although chip makers will restart the tool depreciation as the tools return to service, a portion of the depreciation has already been taken.
This is stage five, when capacity utilization recovers to levels seen before the downturn. iSuppli expects stage five to commence around the end of second quarter of 2010.