Global capital spending by semiconductor firms will reach $44.8bn this year, a surge of 50.9 per cent from 2003, according to Gartner.
The analyst firm further expects capital equipment spending in the sector to grow 63.5 per cent in 2004.
Klaus Rinnen, vice president for Gartner's semiconductor manufacturing and design research group, suggested that the surge in new equipment sales is a direct result of demand visibility and capacity tightness.
"However, now that capacity increases are keeping pace with unit demand, equipment orders are slowing," he said in a statement.
"It seems that the industry is attempting to more closely match its supply and demand ramps to maximise much needed profits."
According to Gartner, other segments in the semiconductor industry are all projected to increase spending by more than 60 per cent in 2004.
The wafer fabrication equipment market is estimated to rise 63.4 per cent, while the packaging and assembly equipment market is expected to grow 63.2 per cent. The automated test equipment market will increase 64.2 per cent.
Worldwide semiconductor wafer fabrication use was estimated to have reached 94.3 per cent at the end of the second quarter of 2004, up from 93.2 per cent at the end of the first quarter.
The figures indicate that the most advanced fabrication plants are running flat out.
"The industry needs more capacity to continue meeting increased device demand, and the industry is finally reacting to the need with a degree of urgency," said Rinnen.
In the longer term Gartner predicts that a cyclical decline will begin in the fourth quarter of 2005, as the industry repeats its historical over- and under-investment pattern.
The current acceleration of spending has increased the industry's risk, Gartner warned.
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