Implications for Capital Equipment Even More Grim

Implications: Excess capacity, lower margins and price compression among the NAND flash producers will severely constrict investment in capital equipment.  A tough year for the device manufacturer will translate into a catastrophe for the flash test vendors.

Analysis: There are two principal drivers for purchases of semiconductor test equipment: increased capacity and technology change.  By far the largest of these is capacity, and if there was excess investment in 2006, as the article claims, there will be little of this kind of business in 2007.  In addition, technology change in flash test equipment in the past few years has been driven by the change from NOR to NAND, and improved productivity that has given the flash producers essentially free extra capacity.  A technology change in nonvolatile storage that would lead to a large-scale changeover of installed test equipment is, at best, several years away.