While next year is likely to bring a yawner of an electronics systems sales increase -- 7 percent -- IC Insights is speculating that 2008 might actually be “a surprisingly good year,” for the semiconductor industry.
With a U.S. Presidential election, Beijing hosting the Olympics and the consumer version of Microsoft’s Windows operating system on the market for about a year, many factors are pointing to brighter days for the semiconductor space. In addition, the mandated switch from analog to digital television in the United States is set for 2009 and will push new systems into the market soon.
The economics and market analysis firm presented its take on trends in the industry during the IC Insights Fall IC Industry Forum in Sunnyvale, California.
Among the observations offered by President Bill McLean:
Inventory issues will be resolved soon and painlessly
Inventory in the industry is 10 percent above IC Insight’s trend line right now, but because the economy and demand is expected to remain stable, McLean is currently forecasting a “soft landing.” It will be far different from the bubble time in 2000 when inventory went 28 percent above the trend line and then demand completely collapsed, McLean said.
“In our view that is not happening,” he said. “We’ve got slowing cell phone growth, but not a collapse.” McLean also noted that inventory issues are not just in the PC arena, but industry-wide. TSMC and National Semiconductor are also talking about inventory issues he said.
China is not as big as first thought in terms of production
While most in the industry had speculated that China’s production would rapidly increase, by 2010 it will make up only 2.52 percent of the total integrated circuit production, according to IC Insights. That represents a lowered forecast by the firm which previously had said that China would represent 4 percent.
Intel was the only semi supplier in the top 15 whose sales declined year over year
Among the top 15 semiconductor suppliers, number one Intel has lost significant ground. IC Insights is forecasting the chip giant’s sales to be down 11 percent this year from last year. That’s at the same time that its main challenger in the processor space, Advanced Micro Devices (AMD) has increased its sales by 41.8 percent.
Other big movers include Texas Instruments, TSMC, Infineon and Hynix, all of which increased their sales year over year by more than 20 percent. Qualcomm, number 15 in the rankings, increased its sales by 30 percent.
Intel was the only company that saw a decrease.
Capital spending will remain at about 20 percent of semi sales next year.
Capital spending for the year has so far remained close to in line with forecasts provided by companies. And companies typically spent about half of their budget it the first half of the year, evenly distributing their spending.
Overall, capital spending typically makes up 20 to 21 percent of semiconductor sales, said McLean, and he expects that to be the case in 2007 too.
Capacity utilization and ASPs are out of synch
While capacity utilization has historically been in synch with average selling prices – both rising at the same time and both falling at the same time – since the second half of 2005 they have been completely out of synch, McLean noted.
Some reasons behind that include the lowered cost structure enabled by 300mm wafers; increased competitive pressures on the foundry, flash and microprocessor markets; slower performance gains in IC technology and more emphasis on selling price as a competitive advantage; a 90 percent capacity utilization rate that maybe is not high enough to spark significant ASP increases; and an increase in electronic systems to the price sensitive consumer market.
The foundry market is closed
The foundry market is effectively closed to new entrants, and in spite of efforts to lure manufacturing abroad, companies are most likely to build new foundries in familiar locations where they already have management and infrastructure in place, McLean said.
Don’t look for significant new fab construction in China or especially not in India, he said.
“After five years of ramping up production, China produces a half a percent of the total market,” McLean said. “Consumption in China is $30 billion a year and in India consumption is less than $1 billion a year. Why would I put a big fab in India?”
So while Texas Instruments may be putting designers there, they won’t be building a new fab there. Instead TI is expanding in Dallas. And AMD is building a new fab in New York, according to McLean, who is working on a report about the factors that go into fab site selection.
“We are surprised at how much is not going into Asia/Pacific,” McLean said. “Companies are comfortable where they already have fabs.”
McLean expects the recent leveraged buyout of Freescale and spin-off of Philips Semiconductor to become NXP to move those companies closer to a fabless model.
The financial players that did these deals are “not interested in making these companies big players in semiconductor industry 10 years from now,” he said. Historically deals like this have shown the new investor owners disposing of fabs immediately. McLean expects that the same will happen with Freescale and NXP.
Intel doesn’t have a growth plan
McLean has some doubts about some of Intel’s recent business moves such as selling off the communications business.
“They are going into a defensive position,” he said, with a focus on only microprocessors which are a mature market. “I don’t see the big 5 and 10 year growth plan of where this company is going to go. What about communications, automotive, industrial? They seem like they are not targeting new markets. Instead they are just protecting their microprocessor business against AMD.
By Jessica Davis, Electronic News
