During the worst global recession year in 63 years, the semiconductor industry has bounced back from last year’s dismal drop that caused Q1 shipments of semiconductors to fall by a staggering amount to 2005 levels.
While the world GDP (gross domestic product) is going to be negative for the first time this year since 1946, Bill McClean, president of market research company IC Insights, pointed out that factors such as rising capacity utilization and continuing demand for NAND flash are shockingly good. “It is our opinion that there is only upside to this year, not downside,” he said during a briefing late last week.
At the same time, the company predicts worldwide electronic system production will be down by 10 percent to $1.12 trillion from $1.23 trillion in 2008, with the semiconductor market down 17 percent to $218.9 billion, and the IC market specifically down by 16 percent from 2008. And with semiconductor capital spending expected to be 37 percent less than the nearly $43 billion spent in 2008 combined with capacity utilization figures on the rise, memory developers and foundry customers are showing concern for rising ASPs (average selling prices).
While the July IC ASP was down 5 percent from July 2008, the DRAM IC ASP in July was down 26 percent from July 2008 but was 33 percent higher than January. For NAND ICs, the ASP was up 9 percent in July and was 19 percent higher than January. When it comes to microprocessors, the segment did not suffer as the ASP in July was up 6 percent over July 2008 and 4 percent higher than January, according to the research house's data.
Economic indicators up, global GDPs turning positiveMcClean discussed a recent meeting with a contract IC assembly house that was being very fiscally conservative while getting flooded with orders and wondering how it would handle them. He said this is a good example of how most every other company in the semiconductor supply chain is treating the recession, which will lead to a lack of capacity when things turn around. “Everybody wonders if it’s real. That hesitation, because of how the IC industry works, by the time people realize it is real, they’re way behind the curve. That’s human nature, and that’s what we see going forward,” he said.
The same thing occurs with unemployment, McClean reminded. “If you look at every single recession, employment is a lagging indicator – always is, always has been.” He cited semiconductor equipment maker Applied Materials Inc, which is seeing business improving, but will not start hiring now. He believes business will have to be better for two or three more quarters before they realize it is real, they’ll push their people to the limit, and then they’ll start hiring in the middle of next year.
Still, because the electronics industry is interdependent on the GDP, there are strong indicators that with the global GDP turning positive, the electronics industry is well-positioned for this recovery, McClean explained. He advised it is best to think about the economy on a quarterly, or halves basis. As even though the overall world GDP is expected to be -0.8 for the year, it has been growing well for the second half of the year, showing recovery from the disastrous first half.
Other factors to keep in mind are the United States and China stimulus packages, which total $1.4 trillion dollars. Much of that money is to be spent in 2010 and is expected to drive next year’s global GDP forecast of 3.4 percent.
“Another thing to keep in mind about recessions is that it is a time of pent-up demand for electronics. You delay buying that new cell phone, you delay buying that new PC, but you don’t stop thinking about it when times get good,” he asserted. Because of that, after each global recession, there have always been two strong years of growth for the semiconductor industry. McClean doesn’t believe this situation will be any different, predicting 15 percent growth for both 2010 and 2011.
Reflecting on the July IC market data (the latest available from the WSTS), the total IC market in the month was down 10 percent from July 2008, but was 43 percent higher than January, while unit volume was down 4 percent year-over-year in July, but was up 61 percent from January -- all of this during the worst global recession year in 63 years, McClean reminded.
In terms of DRAM, while the July DRAM market was down 26 percent from July 2008, it was 61 percent higher than January, and unit volumes were up 1 percent and 27 percent from July 2008 and January, respectively.
For NAND ICs, the market in July was up 43 percent and was up a whopping 98 percent from January, while unit volume for NAND was up 32 percent in July, and 67 percent higher than January.
Microprocessors, an extremely strong segment, the overall market was up in July 15 percent from July 2008 and was 57 percent higher than January; while MPU unit volume was up 9 percent in July year-over-year, and was up 52 percent from January.
“This industry is strong. If it can take that punch and do this, what’s it going to do when we show 3 and 4 percent world GDP growth?” McClean posed.
With the backdrop of an improving global economic picture, IC Insights is looking forward to an improvement in unit demand for cell phones, PCs, and TVs, and a sharp climb in capacity utilization that will drive ASPs up. Again, McClean said, even during the worst recession since the 1940s, unit shipments of cell phones, TVs, and PCs only went down to 2007 levels.
To this end, it is a rebound of systems sales momentum that drove a “V-shaped” recovery in the semiconductor industry, even if it doesn’t seem like it yet from an employment point of view, and volatility being evident in quarterly data. Given that we will increasingly depend on electronics from medical to energy and automobiles to computers and telecommunications, IC Insights confidently forecasted a long-term CAGR (compound annual growth rate) from IC units of 9 to 10 percent.
On the supply side, with the IC industry closed to new major manufacturing start-ups, the fab-lite/conservative foundry movement gaining steam, record low capex as a percent of sales, and a delay in moving to 450-mm manufacturing technology, the company expects long-term, stable-to-increasing IC ASPs and IC market CAGRs of 8 to 10 percent.
IC Insights
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