Applied sees foundry buying up in '09

By Peter Henderson and Scott Hillis

NEW YORK/SAN FRANCISCO (Reuters) - Applied Materials Inc (AMAT.O: Quote, Profile, Research, Stock Buzz) expects capital spending by contract chip makers to pick up next year as demand begins to overcome excess capacity in memory chip manufacture, Chief Executive Mike Splinter said on Tuesday.

Contract chipmakers who use Applied Materials' equipment, which include Taiwan Semiconductor Manufacturing Co (2330.TW: Quote, Profile, Research, Stock Buzz) and United Microelectronics Corp (2303.TW: Quote, Profile, Research, Stock Buzz), would step up spending next year as they increased production of chips etched with smaller circuitry, Splinter said.

"I think you can expect double digits, significant double digits," Splinter said when asked about chipmaker spending at the Reuters Global Technology, Media and Telecoms Summit in New York.

Other chip companies looking to survive the current downturn could link up resources, though not necessarily in outright mergers, he said.

"I'm not so sure that companies go away so much as there are manufacturing and capacity and R&D alliances," he said.

SLOW RECOVERY

Applied Materials is the world's largest supplier of tools and equipment for making microchips. Last week the company said it saw a semiconductor equipment industry downturn hitting bottom, and on Tuesday Splinter added that recovery would be slow, especially in the face of weak memory demand.

Memory chip market prices have plummeted this year as manufacturers race to protect market share by adding capacity.

"As demand grows in the second half of the year we'll see that start to come back modestly, but I'm not calling for a very fast recovery here at all," Splinter said.

"It's really going to be the first half of '09 before we really see strengthening," he said on a video conference call with the summit from his company's headquarters.

A bright spot for Applied has been the display market, where the company is the largest supplier of gear for making flat-panel screens. Splinter predicted many new generations of equipment would be needed to make ever-larger screens, addressing concerns that TVs would top out in size.

The arrival of new, more efficient technologies allowing display makers to work with ever-larger sheets of glass would help sustain growth, Splinter said. He also said that Asia would not settle for smaller screens, even 32 inches wide, since new technology made screens 40 inches and larger viewable in small spaces.

"I don't know where the limit is," said Splinter, adding that spending on so-called Generation 10 equipment could pick up after an industry lull next year.

SOLAR POWER

In solar, where Applied has adapted its display-making technology to enable the production of photovoltaic cells, Splinter said the company was racing to push for technological breakthroughs.  Continued...