Lam Research sees mostly stable demand for chip gear

SAN FRANCISCO (Reuters) - Chip manufacturing equipment maker Lam Research's chief executive said he has not seen any major deterioration in demand from customers concerned about a downturn in global technology spending.

LAM Research CEO Martin Anstice's comments stood in contrast to rival Applied Materials , which this week slashed its full-year targets due to a sudden drop in orders in its biggest market towards the end of the current quarter. Applied Materials' warning stoked fears of a drop in technology spending and hit shares of Asian chip firms.

"There's a little bit of an appearance of neutral to slightly negative in commentary from customers in the last couple of weeks, but frankly it changes every day and everybody has a different baseline," Anstice told Reuters in an interview.

Investors often look to Lam Research, Applied Materials and other suppliers of semiconductor manufacturing equipment as early indicators for global microchip demand as they supply the machines that Intel , Samsung Electronics <005930.KS> and other chipmakers need to expand capacity.

Applied Materials cut its outlook for global spending on wafer fabrication equipment this year to between $30 billion and $33 billion, down from a previous estimate of $32 billion to $35 billion.

That new estimate from Applied Materials is closer to Lam Research's 2012 forecast of $30 billion to $32 billion.

"We're all seeing the same thing. What we're saying is defined by the baselines we've previously communicated," Anstice said.

Last month, Lam Research finalized its $3.3 billion purchase of smaller rival Novellus Systems as manufacturers and chip-gear makers wrestle with cutthroat competition, growing investment costs, waning PC sales growth and a weak economy.

OUTPACING EXPECTATIONS

A bright spot for Fremont, California-based Lam Research and its rivals has been a boom in smartphones and tablets, which has fed demand for cutting-edge chips made at contract manufacturers like Taiwan's TSMC <2330.TW>.

With demand outpacing expectations, mobile chipmaker Qualcomm has been scrambling to find additional manufacturing capacity at the advanced 28 nanometer technology node, looking to foundries besides TSMC.

Anstice estimated global 28 nm capacity would eventually grow to between 250,000 and 300,000 wafer starts per month from around 200,000 wafer starts per month forecast for the end of this year. That includes production being launched by Samsung Electronics, GlobalFoundries and UMC.

Adding additional capacity is a decision not be taken lightly for foundries trying to gauge how the macroeconomy, competition and product trends will affect future demand for chips. Underestimating chip demand means leaving money on the table, while overestimating demand may lead to losses on major investments.

Orders for expensive, high-end equipment from Lam Research and its competitors can take several months to deliver. It then takes more months to install, calibrate, test and qualify new tools with customers before chip production can begin.

Adding the equivalent capacity to start about 10,000 wafers per month costs about $1 billion, Anstice estimated.

"I don't know too many people that freely make billion dollar decisions speculatively. It's a high-stakes, high-reward kind of play," he said.

On Monday, ASML , the world's largest supplier to chipmakers of machines that etch transistors onto silicon wafers, signed up Intel Corp to bankroll its next-generation research and said it aims to reach similar deals with TSMC and Samsung.

ASML wants to spread the risk of developing cutting-edge equipment based on larger, 450-millimeter wafer sizes and "extreme-ultraviolet" or EUV lithography.

Intel said it would spend more than $4 billion to buy up to 15 percent of ASML and help fund its development.

Lam Research is not planning similar equity deals with customers to fund technology development, Anstice said.

"I don't really see the investment thing making a material difference. It's not on our list of priorities. Partnership, collaboration, building customer trust is on the list of priorities," he said.

Shares of Lam Research ended 0.74 percent lower at $33.75 on Nasdaq.

(Reporting By Noel Randewich; Editing by Phil Berlowitz and Andrew Hay)

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