Following several years of rapid capacity expansion and strong government incentives, a 40% decline in worldwide MOCVD purchases in 2012 will reduce overall LED equipment spending for the first time in over five years, according to SEMI.SEMI, an industry association representing microelectronic and nanoelectronic manufacturers based in San Jose, CA, has released its latest Opto/LED FabWatch and Forecast report. The report predicts a decline of worldwide spending on LED manufacturing equipment of 18% in 2012 overall and a 40% decline in spending on MOCVD systems.

However, the report does indicate a positive side to the business: spending for non-MOCVD equipment, including in lithography, etch, test and packaging equipment, will increase in 2012, as manufacturers optimize their production lines.

SEMI expects worldwide LED manufacturing capacity to reach two million wafers in 2012 (4-inch equivalent per month), a 27% jump over 2011. This is largely due to last year’s increase in equipment spending of 36% relative to 2010.

“Future equipment and capital spending will drive LED cost reduction through larger wafers, automation and dedicated equipment specifically designed to improve to LED manufacturing yield and throughput.” said Tom Morrow, executive vice president, Emerging Markets Group, at SEMI.

China will continue to be the largest spender with $719 million planned for 2012, followed by Taiwan ($321M), Japan ($300M) and Korea ($260M).

Taiwan will continue to lead in capacity at 25% of the world LED capacity, followed by China at 22%.

In regards to new fabs, SEMI recorded 29 new LED fabs in 2011. For 2012, SEMI forecasts 16 new fabs coming online during the year.