A recent report from Future Horizons suggests an 18 percent growth for the chip market in Q2-2009! So, is this a sign of the chip market recovery or a mere blip on the statistics radar screen?
It is both, said, Malcolm Penn, chairman, founder and CEO of Future Horizons, and counselled that: "The fourth quarter market collapse was far too steep -- a severe over-reaction to last year's gross financial uncertainty -- culminating with the Lehman Brothers collapse in September. The first quarter saw this stabilise with the second quarter restocking, but there are other positive factors also in play."
Examining a bit further, here's what he further revealed. One, the memory market is seeing some signs of slow recovery. He said, "This has already started DDR3 driven!" Likewise, companies are also in the process of revising their forecasts. The reason, Penn contended, being, "The maths has changed dramatically since Jan 2009!"
According to him, factors now leading to conditions looking up in H2 2009, include the normal seasonal demand -- from a tight inventory base -- and tightening capacity. There is also a clear indication of the correction phase to rebalance over-depleted inventories having started. "This is what's driving Q2's high unit, and therefore, sales growth," he contended.
Firms advised to stop seeing and waiting!
This isn't all! Penn further counselled firms who are still in a wait-and-see mode to 'stop seeing and waiting'! Next, fabs are also looking to maximize their returns. For one, they have stopped over-investing.
Do we have enough stats from others to back up what's been happening in the global semiconductor industry? Perhaps, yes!
IC Insights stands out
First, look at IC Insights! It has stood out by pointing out in early July that H2-09 is likely to usher in strong seasonal strength for electronic system sales, a period of IC inventory replenishment, which began in 2Q09, and positive worldwide GDP growth.
IC Insights has predicted global IC market to grow +18 percent; IC foundry sales to grow +43 percent; and semiconductor capital spending to grow +28 percent in H2-09.
DDR3 driving memory recovery? Flat NAND?
Elsewhere, Converge Market Insights said that according to major DRAM manufacturers, DDR3 demand has been on the rise over the last two months and supply is limited.
This is quite in line with Future Horizons contention that there is a DDR3 driven memory recovery, albeit slow. It would be interesting to see how Q3-09 plays out.
As for NAND, according to DRAMeXchange, the NAND market may continue to show the tug-of-war status in July due to dissimilar positive and negative market factors perceived and expected by both sides. As a result, NAND Flash contract prices are likely to somewhat soften or stay flat in the short term.
Semicon equipment market to decline 52 percent in 2009!
According to SEMI, it projects 2009 semiconductor equipment sales to reach $14.14 billion as per the mid-year edition of the SEMI Capital Equipment Forecast, released by SEMI at the annual SEMICON West exposition.
The forecast indicates that, following a 31 percent market decline in 2008, the equipment market will decline another 52 percent in 2009, but will experience a rebound with annual growth of about 47 percent in 2010.
EDA cause for concern
The EDA industry still remains a cause for concern. The EDA Consortium's Market Statistics Service (MSS) announced that the EDA industry revenue for Q1 2009 declined 10.7 percent to $1,192.1 million, compared to $1,334.2 million in Q1 2008, driven primarily by an accounting shift at one major EDA company. The four-quarter moving average declined 11.3 percent.
If you look at the last five quarters, the EDA industry has really been having it rough. Here are the numbers over the last five quarters, as per the Consortium:
* The EDA industry revenue for Q1 2008 declined 1.2 percent to $1,350.7 million compared to $1,366.8 million in Q1 2007.
* The industry revenue for Q2 2008 declined 3.7 percent to $1,357.4 million compared to $1,408.8 million in Q2 2007.
* The industry revenue for Q3 2008 declined 10.9 percent to $1,258.6 million compared to $1,412.1 million in Q3 2007.
* The industry revenue for Q4 2008 declined 17.7 percent to $1,318.7 million, compared to $1,602.7 million in Q4 2007.
Therefore, at the end of the day, what do you have? For now, the early recovery signs are more of a blip on the stats radar screen and there's still some way to go and work to be done before the global semiconductor industry can clearly proclaim full recovery!
Before I close, a word about the Indian semiconductor industry. Perhaps, it needs to start moving a bit faster and quicker than it is doing presently. Borrowing a line from Malcolm Penn, the Indian semiconductor industry surely needs to "stop waiting and watching."
I will be in conversation next with iSuppli on the chip and electronics industry forecasts. Keep watching this space, friends.
Showing posts with label Malcolm Penn. Show all posts
Showing posts with label Malcolm Penn. Show all posts
Sunday, July 19, 2009
Monday, July 13, 2009
Q2-09 chip market shows 18 percent growth: Mid-year semicon update
Here are the excerpts from the Global Semiconductor Monthly Report, July 2009, provided by Malcolm Penn, chairman, founder and CEO of Future Horizons.
Following hot on the heels of April's 16 percent month-on-month sales growth, May grew a further 0.9 percent sequentially, putting June on track to break through the $20 billion barrier, for the first time since the chip market collapsed last September.
"Psychologically this will give everyone a shot in the arm," commented Malcolm Penn. "Second quarter growth is usually pretty pathetic; there have been only three historical precedents when such a spurt has happened. The big question now is: Is this the start of the chip market recovery or is it merely a blip on the statistics radar screen?"
"It's both," Penn counselled. "The fourth quarter market collapse was far too steep -- a severe over-reaction to last year's gross financial uncertainty -- culminating with the Lehman Brothers collapse in September. The first quarter saw this stabilise with the second quarter restocking, but there are other positive factors also in play."
The normal dynamics following any market collapse is: (1) over-reaction, cutting back production and inventories too far, (2) a correction phase to rebalance over-depleted inventories, and (3) a resumption of demand-driven built.
"Whilst in Phase 1, chip sales equals OEM requirement minus inventory burn, hence understating real demand, Phase 2 results in sales equal to OEM demand plus inventory rebuild, thus overstating the actual demand," continued Penn. "We are currently in Phase 2 of the recovery cycle."
Underlying issues
Commenting on some of the other underlying issues, Future Horizons believes that the timing of this recovery is 'as good as it gets', given that third quarter seasonal demand will be on the increase just as the sales decline caused by inventory build ends.
Capacity will also shortly start to come into play, given the unprecedented three years of fab under-investment. Traditionally tight availability positively impacts IC ASPs, but delayed by 12 months as existing contracts run their course.
This time, Future Horizons believes things could be faster, given the extent of the cutbacks, as already witnessed in the 2009 memory market.
"This (under-investment) eagle is one day coming home to roost," warned Penn. "We are already seeing the first signs of shortages at UMC affecting Xilinx and other firms second quarter sales. And for shortages read ASP increases, it's inevitable, it's just a matter of time, the fabs will be looking to maximise the return on their costly and precious resources, especially now more and more firms are seeking their share of the foundry pie. Better to pay 5x the price and get the parts you need."
On the cautionary side, the overall economic outlook remains uncertain and moribund, and firms are still in a wait-and-see mode, which ironically will only serve to make the market dynamics worse, as firms are then faced with a massive catch-up problem.
"Never forget market trends are not based just on rational decisions, but emotional ones as well, it is this that makes the outcome sometimes so difficult to predict," Penn reminded.
I hope to get into further conversation with Malcolm Penn on this recovery or blip!
Following hot on the heels of April's 16 percent month-on-month sales growth, May grew a further 0.9 percent sequentially, putting June on track to break through the $20 billion barrier, for the first time since the chip market collapsed last September.
"Psychologically this will give everyone a shot in the arm," commented Malcolm Penn. "Second quarter growth is usually pretty pathetic; there have been only three historical precedents when such a spurt has happened. The big question now is: Is this the start of the chip market recovery or is it merely a blip on the statistics radar screen?"
"It's both," Penn counselled. "The fourth quarter market collapse was far too steep -- a severe over-reaction to last year's gross financial uncertainty -- culminating with the Lehman Brothers collapse in September. The first quarter saw this stabilise with the second quarter restocking, but there are other positive factors also in play."
The normal dynamics following any market collapse is: (1) over-reaction, cutting back production and inventories too far, (2) a correction phase to rebalance over-depleted inventories, and (3) a resumption of demand-driven built.
"Whilst in Phase 1, chip sales equals OEM requirement minus inventory burn, hence understating real demand, Phase 2 results in sales equal to OEM demand plus inventory rebuild, thus overstating the actual demand," continued Penn. "We are currently in Phase 2 of the recovery cycle."
Underlying issues
Commenting on some of the other underlying issues, Future Horizons believes that the timing of this recovery is 'as good as it gets', given that third quarter seasonal demand will be on the increase just as the sales decline caused by inventory build ends.
Capacity will also shortly start to come into play, given the unprecedented three years of fab under-investment. Traditionally tight availability positively impacts IC ASPs, but delayed by 12 months as existing contracts run their course.
This time, Future Horizons believes things could be faster, given the extent of the cutbacks, as already witnessed in the 2009 memory market.
"This (under-investment) eagle is one day coming home to roost," warned Penn. "We are already seeing the first signs of shortages at UMC affecting Xilinx and other firms second quarter sales. And for shortages read ASP increases, it's inevitable, it's just a matter of time, the fabs will be looking to maximise the return on their costly and precious resources, especially now more and more firms are seeking their share of the foundry pie. Better to pay 5x the price and get the parts you need."
On the cautionary side, the overall economic outlook remains uncertain and moribund, and firms are still in a wait-and-see mode, which ironically will only serve to make the market dynamics worse, as firms are then faced with a massive catch-up problem.
"Never forget market trends are not based just on rational decisions, but emotional ones as well, it is this that makes the outcome sometimes so difficult to predict," Penn reminded.
I hope to get into further conversation with Malcolm Penn on this recovery or blip!
Tuesday, June 30, 2009
Future Horizons signs up Israeli representative
LONDON, UK: Future Horizons, the global semiconductor industry analyst house, has entered the Israeli market by signing up Amir Ben-Artzi as a representative.
Formerly a journalist with EE Times and IDG, editor of several technology magazines and a public relations supervisor for companies such as Intel, Ben-Artzi brings an impressive track record within the semiconductor industry to the world’s leading independent semiconductor analyst house.
“The Israeli market offers incredible potential for technology companies and is fast becoming a centre of innovation for our industry,” said Malcolm Penn, Chairman and CEO, Future Horizons. “We have known Amir for many years now from his days as a journalist, and his track record and connections in and outside of Israel make him the perfect representative to help bring Future Horizons to this new market.”
Ben-Artzi, the founder and head of Amir Ben-Artzi Content & Media, brings over 15 years of experience in the industry to Future Horizons. Both organisations are expanding into new areas and offer each other a multitude of benefits and contacts.
Ben-Artzi will represent Future Horizons in Israel and help promote the upcoming International Electronics Forum alongside the Start Up Service and consulting opportunities.
“With so many new and existing companies in Israel, Future Horizons’ upcoming International Electronics Forum and Start Up Service are just two of the services that will really appeal to this market,” said Ben-Artzi. “Future Horizons is one of the most respected analyst houses in the industry, and Malcolm’s impartial and honest analysis will be of real benefit to many of the technology companies here.”
Future Horizons’ International Electronics Forum will be held in Geneva, Switzerland, from Wednesday 30 September-Friday 2 October 2009. With high-level speakers and a broad pool of delegates, it maximises productivity and delegate ROI.
It is specifically designed to foster networking opportunities across a broad pool of disciplines in a condensed, value-added period. Such is the established reputation of the Forum, the vast majority of speakers and delegates stay for the full duration of the meeting.
Formerly a journalist with EE Times and IDG, editor of several technology magazines and a public relations supervisor for companies such as Intel, Ben-Artzi brings an impressive track record within the semiconductor industry to the world’s leading independent semiconductor analyst house.
“The Israeli market offers incredible potential for technology companies and is fast becoming a centre of innovation for our industry,” said Malcolm Penn, Chairman and CEO, Future Horizons. “We have known Amir for many years now from his days as a journalist, and his track record and connections in and outside of Israel make him the perfect representative to help bring Future Horizons to this new market.”
Ben-Artzi, the founder and head of Amir Ben-Artzi Content & Media, brings over 15 years of experience in the industry to Future Horizons. Both organisations are expanding into new areas and offer each other a multitude of benefits and contacts.
Ben-Artzi will represent Future Horizons in Israel and help promote the upcoming International Electronics Forum alongside the Start Up Service and consulting opportunities.
“With so many new and existing companies in Israel, Future Horizons’ upcoming International Electronics Forum and Start Up Service are just two of the services that will really appeal to this market,” said Ben-Artzi. “Future Horizons is one of the most respected analyst houses in the industry, and Malcolm’s impartial and honest analysis will be of real benefit to many of the technology companies here.”
Future Horizons’ International Electronics Forum will be held in Geneva, Switzerland, from Wednesday 30 September-Friday 2 October 2009. With high-level speakers and a broad pool of delegates, it maximises productivity and delegate ROI.
It is specifically designed to foster networking opportunities across a broad pool of disciplines in a condensed, value-added period. Such is the established reputation of the Forum, the vast majority of speakers and delegates stay for the full duration of the meeting.
Saturday, June 20, 2009
Green shoots or desert? V, U, W-shape or alphabet spaghetti?: Semicon update Jun'09
Here are the excerpts from the Global Semiconductor Monthly Report, June 2009, provided by Malcolm Penn, chairman, founder and CEO of Future Horizons. There are a lot of charts associated with this report. Those interested to know more about this report should contact Future Horizons.
It will be quite interesting to see whether the so-called fab shortage does happen in 2010, given that there might not be enough capacity to handle demand... (Are Indian fab backers listening?) In the meantime, I am awaiting Malcolm's responses. So, watch this space!
Executive overview
"On the face of it, April's data showed a 7.6 percent decline in total semiconductor sales versus March 2009 but, after adjusting for the five-week long March, this translates into a whopping 15.5 percent growth. The corresponding numbers for total ICs were minus 9.3 and plus 13.4 percent respectively. This is the strongest April month-on-month growth since April 1996. That's the good news!
Given the still delicate state of the global economy, this growth is not however directly driven by increased end-user demand, instead it is purely a correction to the steep Q4-08/Q1-09 inventory declines.
In other words, the markets clearly over-reacted to the September 2008 global economic collapse, sucking the supply chain dry, paving the way for this counter-balancing period of inventory replenishment. Historically, we can expect this to last through to Q3-09. Beyond that, growth will depend on the underlying end-market demand.
What then does this mean for the 2009 outlook? Whilst much of the current industry tittle-tattle focuses on the 'green shoots of recovery' debate (are there/aren't there?) and/or the 'shape of the downturn' (V, U, W, sharp, stretched, extended, etc), we prefer to take a more sober look at the underlying trends.
As mentioned in our May Global Semiconductor Report, at minus 24.2 percent growth, Q4-08 was a little worse than our 22.5 percent January IFS forecast, whereas Q1-09's 15.5 percent fall was slightly better than out minus 18 percent number.
The counterbalancing overall effect of the two was to put the 2009 market slightly ahead of our official minus 28 percent forecast, to minus 25.3 percent. In our book, this does not constitute a 'forecast revision' given that basic forecast assumptions and analysis had not changed; it was merely 'finetuning the number'. So far, so good!
Q2-09, however, might well be different in that it now looks to be coming in with the growth in the 4-5 percent range, versus our -2 percent January estimate. If true, it would represent a material change to our 2009 forecast, improving it from -28 percent to -21.3 percent, assuming that the second half of the year rolled out as planned, and removing most of the down-side risk potentials. Our verdict on this will be presented at our upcoming July 21st Mid-Term Industry Forecast Seminar in London.
In the meanwhile, here is a snapshot of what is actually going on in the markets. The first quarter was clearly a difficult time for the industry, the combined effect of the global recession on top of the normal Q1 seasonality weakness. Not quite a knockout punch, but a real double-whammy. Based on a reasonable cross industry sampling, the overall result was a net 12 percent fall in electronic equipment sales versus Q1-08.
Aside from government/military -- the only sector to grow -- every market and geographic region was negatively impacted, with Japan and Taiwan/China the worst hit, the latter however being the first to show a rebound.
Source: Future Horizons
Looking at the key mobile and PC industry sectors, both of these have been hit badly by the discretional consumer spending slowdown, with Q1-09 phone and PC unit sales down 16 and 20 percent respectively versus Q1-08.
Given the magnitude of these declines -- all markets, all sectors, all regions, all customers, consumers and enterprise -- the industry and chip market exited the first quarter in remarkably good shape relatively speaking. That is, not to say that it will be plain sailing hereon out, far from it, but that the industry has clearly weathered the worst of the storm, bloodied but (mostly) not beaten.
The 12 percent, 16 percent and 20 percent OEM, mobile and PC sales declines are key industry benchmarks in that they represent the absolute worst-case full-year scenarios. Our January 2009 forecast called for 8.2 percent, 15 percent and 22 percent declines here, respectively, which are all well in line with the way the market is unwinding. Given that we expect the Q1-09 12:12 declines to improve as the year rolls out, the downside risks to our forecast are clearly diminishing.
From an economic perspective, our 8.2 percent electronic equipment industry decline was based on the then IMF's World GDP growth forecast of plus 1.8 percent. This however has been subsequently revised down three times, first to +0.5 percent on January 28, then to -0.5 to -1.0 percent on March 13, to the current forecast of -1.3 percent in the April 2009 World Economic Output Report.
Intuitively, one would worry that these downward revisions ought to force a corresponding revision to the electronics equipment market; in reality this does not seem to be the case.
Which in turn beggars the big unanswerably question: "to what extent are these downward revisions to world GDP growth the cause or effect of the electronic equipment industry decline and what impact will their downward revision, and for that matter subsequent recovery, have on the 2009 and beyond electronic equipment industry absolute growth number?"
The bottom line answer? No one really has the faintest idea; moreover, it is impossible to calculate. While anecdotally and intellectually, there is an obvious link between GDP and electronic equipment industry growth rates, the electronic equipment industry represents only 2-3 percent of total world GPD. In contrast, at their peak, the financial derivatives markets totalled 120 percent of world GDP!
With recession, cutbacks clearly hit the electronic equipment industry early, as both enterprises and consumers hit the 'stop spending' button relatively quickly. In the case of the 2008 downturn, for 'relatively quickly' read 'instantaneously fast'. The impact on the chip market is immediate, aggravated by the associated component and WIP inventory burn, with overshoot inevitable.
Inventory levels clearly stabilised during Q1-09 and are being rebuilt in Q2, most probably targeting an electronics equipment production level 12 percent down on this time last year, i.e. in line with first quarter actual. This being the case, the industry will have adjusted much faster than in previous cycles, with today's inventory imbalance levels already peaked and much more in line with the 2H-06 'course-adjusting' excess than the post-dot com bubble burst 2001 flood.
To summarise, the downside risks to the 2009 market are clearly abating with our 13 percent third quarter growth forecast still looking reasonably robust, given the current inventory rebuild plus a touch of seasonal strength. Likewise, it is still credible for this to be followed by a seasonally weak 3 percent forth quarter growth given the normal end of year inventory clean out.
With the global economic recovery then starting to gain traction in 2010, a 'normal' quarterly (-2 percent, +2 percent, +14 percent, +3 percent) 2010 growth pattern would be reasonable, yielding a 2010 annual growth of around 17 percent, well in line with our '15 percent with lots of upside potential' January 2009 forecast.
While the slightly revised 2009 quarterly growth pattern would call for an (upwards) formal forecast revision to the actual 'growth number', the underlying market analysis and assessment presented at our January 2009 Forecast Seminar will not have materially changed, either for 2009 or 2010.
Market summary
We tracked the worldwide and European 12/12 industry growth rates for ICs, Opto, and Discrete Devices from January 1998 to date. These show the current month as compared with the same period 12 months ago, and are a useful industry momentum indicator. We also show 15-month rolling worldwide and European sales by major product category.
Industry capacity
Overall MOS wafer fab capacity decreased by 7.8 percent in Q1-09 versus Q4-08, from 2110.4k 200mm equivalent wafer starts per week to 1945.1k. Whilst no category was immune, the decreases were highest in the 200mm and below wafer sizes, and at 150nm and tighter feature sizes.
These cutbacks add to the previous quarter's 1.6 percent decline and compared with a 1.7 percent quarterly growth this time last year. Whilst some of the decline can be attributed to closing of older lines due to the recession, for the most part they are the direct result of the deliberate slowdown in capital expenditure that began mid-2007, well before the current recession started.
The 300mm wafers now account for 50.1 percent of the total MOS capacity, up from 48.2 percent in Q4-08 and 40.7 percent from the same period last year. 300mm wafers now account for over half the total capacity, with 200mm in second place at 37.7 percent, down from 39.1 percent in Q1-09 and 45.7 percent in Q1-08.
At 733.5k wafer starts per week, Q1-09 200mm capacity continued its absolute value decline, from 826.0k in Q4-08, a fall of 11.2 percent. 200mm capacity is now down 22.8 percent versus the same period last year.
Even advanced capacity (i.e., 0.08 micron and below) declined, primarily due to the DRAM firm's bankruptcy problems. Only the 120-159nm category, escaped with capacity up 1.4k wafer starts per week, or 0.6 percent.
Despite sizeable capacity decrease, Q1 utilisation rates plummeted still further to 57.2 percent, from 87.5 percent in Q3-08 and 68.4 percent in Q4-08. The comparable figure for Q1-08 was 90.7 percent. Advanced IC capacity, i.e., 0.08 micron and below, also fell to 69.9 percent (from 84.4 percent in Q4), whilst 300mm and 200mm wafers checked in at 72.8 percent (Q4 = 83.2 percent) and 44.0 percent (Q4 = 55.5 percent), respectively.
The fall in Q4-08/Q1-09 utilisation rates was a result of massive order cancellations and demand collapse triggered by the September 2008 Lehman Brothers ollapse and was much faster and deeper than the 2001 dot-com driven recession. Q1 is however expected to be the trough, with rates climbing back fast in Q2 and thereafter.
Given the significant cutbacks in capex since mid-2007, we expect to see utilisation rates trending back to the 90 percent 'full capacity' threshold much faster than in previous recessions, accelerating the supply-side recovery dynamics by at least four quarters.
Fab shortage waiting to happen?
Looking ahead to 2010, demand should start to accelerate in line with the anticipated global economic recovery, tightening the capacity screw still further. And, with 2010's capacity fixed by 2009's spend, at a currently estimated $20 billion, this spend represents barely one third its 2000 $60 billion peak. That means, in round numbers, 2010's new capacity will be only 40k 200mm wafer starts/week minus any capacity closures.
We have said it before and we will say it again. There will not be enough 2010 capacity in place to meet demand... this is a fab shortage waiting to happen!"
It will be quite interesting to see whether the so-called fab shortage does happen in 2010, given that there might not be enough capacity to handle demand... (Are Indian fab backers listening?) In the meantime, I am awaiting Malcolm's responses. So, watch this space!
Executive overview
"On the face of it, April's data showed a 7.6 percent decline in total semiconductor sales versus March 2009 but, after adjusting for the five-week long March, this translates into a whopping 15.5 percent growth. The corresponding numbers for total ICs were minus 9.3 and plus 13.4 percent respectively. This is the strongest April month-on-month growth since April 1996. That's the good news!
Given the still delicate state of the global economy, this growth is not however directly driven by increased end-user demand, instead it is purely a correction to the steep Q4-08/Q1-09 inventory declines.
In other words, the markets clearly over-reacted to the September 2008 global economic collapse, sucking the supply chain dry, paving the way for this counter-balancing period of inventory replenishment. Historically, we can expect this to last through to Q3-09. Beyond that, growth will depend on the underlying end-market demand.
What then does this mean for the 2009 outlook? Whilst much of the current industry tittle-tattle focuses on the 'green shoots of recovery' debate (are there/aren't there?) and/or the 'shape of the downturn' (V, U, W, sharp, stretched, extended, etc), we prefer to take a more sober look at the underlying trends.
As mentioned in our May Global Semiconductor Report, at minus 24.2 percent growth, Q4-08 was a little worse than our 22.5 percent January IFS forecast, whereas Q1-09's 15.5 percent fall was slightly better than out minus 18 percent number.
The counterbalancing overall effect of the two was to put the 2009 market slightly ahead of our official minus 28 percent forecast, to minus 25.3 percent. In our book, this does not constitute a 'forecast revision' given that basic forecast assumptions and analysis had not changed; it was merely 'finetuning the number'. So far, so good!
Q2-09, however, might well be different in that it now looks to be coming in with the growth in the 4-5 percent range, versus our -2 percent January estimate. If true, it would represent a material change to our 2009 forecast, improving it from -28 percent to -21.3 percent, assuming that the second half of the year rolled out as planned, and removing most of the down-side risk potentials. Our verdict on this will be presented at our upcoming July 21st Mid-Term Industry Forecast Seminar in London.
In the meanwhile, here is a snapshot of what is actually going on in the markets. The first quarter was clearly a difficult time for the industry, the combined effect of the global recession on top of the normal Q1 seasonality weakness. Not quite a knockout punch, but a real double-whammy. Based on a reasonable cross industry sampling, the overall result was a net 12 percent fall in electronic equipment sales versus Q1-08.
Aside from government/military -- the only sector to grow -- every market and geographic region was negatively impacted, with Japan and Taiwan/China the worst hit, the latter however being the first to show a rebound.
Source: Future HorizonsLooking at the key mobile and PC industry sectors, both of these have been hit badly by the discretional consumer spending slowdown, with Q1-09 phone and PC unit sales down 16 and 20 percent respectively versus Q1-08.
Given the magnitude of these declines -- all markets, all sectors, all regions, all customers, consumers and enterprise -- the industry and chip market exited the first quarter in remarkably good shape relatively speaking. That is, not to say that it will be plain sailing hereon out, far from it, but that the industry has clearly weathered the worst of the storm, bloodied but (mostly) not beaten.
The 12 percent, 16 percent and 20 percent OEM, mobile and PC sales declines are key industry benchmarks in that they represent the absolute worst-case full-year scenarios. Our January 2009 forecast called for 8.2 percent, 15 percent and 22 percent declines here, respectively, which are all well in line with the way the market is unwinding. Given that we expect the Q1-09 12:12 declines to improve as the year rolls out, the downside risks to our forecast are clearly diminishing.
From an economic perspective, our 8.2 percent electronic equipment industry decline was based on the then IMF's World GDP growth forecast of plus 1.8 percent. This however has been subsequently revised down three times, first to +0.5 percent on January 28, then to -0.5 to -1.0 percent on March 13, to the current forecast of -1.3 percent in the April 2009 World Economic Output Report.
Intuitively, one would worry that these downward revisions ought to force a corresponding revision to the electronics equipment market; in reality this does not seem to be the case.
Which in turn beggars the big unanswerably question: "to what extent are these downward revisions to world GDP growth the cause or effect of the electronic equipment industry decline and what impact will their downward revision, and for that matter subsequent recovery, have on the 2009 and beyond electronic equipment industry absolute growth number?"
The bottom line answer? No one really has the faintest idea; moreover, it is impossible to calculate. While anecdotally and intellectually, there is an obvious link between GDP and electronic equipment industry growth rates, the electronic equipment industry represents only 2-3 percent of total world GPD. In contrast, at their peak, the financial derivatives markets totalled 120 percent of world GDP!
With recession, cutbacks clearly hit the electronic equipment industry early, as both enterprises and consumers hit the 'stop spending' button relatively quickly. In the case of the 2008 downturn, for 'relatively quickly' read 'instantaneously fast'. The impact on the chip market is immediate, aggravated by the associated component and WIP inventory burn, with overshoot inevitable.
Inventory levels clearly stabilised during Q1-09 and are being rebuilt in Q2, most probably targeting an electronics equipment production level 12 percent down on this time last year, i.e. in line with first quarter actual. This being the case, the industry will have adjusted much faster than in previous cycles, with today's inventory imbalance levels already peaked and much more in line with the 2H-06 'course-adjusting' excess than the post-dot com bubble burst 2001 flood.
To summarise, the downside risks to the 2009 market are clearly abating with our 13 percent third quarter growth forecast still looking reasonably robust, given the current inventory rebuild plus a touch of seasonal strength. Likewise, it is still credible for this to be followed by a seasonally weak 3 percent forth quarter growth given the normal end of year inventory clean out.
With the global economic recovery then starting to gain traction in 2010, a 'normal' quarterly (-2 percent, +2 percent, +14 percent, +3 percent) 2010 growth pattern would be reasonable, yielding a 2010 annual growth of around 17 percent, well in line with our '15 percent with lots of upside potential' January 2009 forecast.
While the slightly revised 2009 quarterly growth pattern would call for an (upwards) formal forecast revision to the actual 'growth number', the underlying market analysis and assessment presented at our January 2009 Forecast Seminar will not have materially changed, either for 2009 or 2010.
Market summary
We tracked the worldwide and European 12/12 industry growth rates for ICs, Opto, and Discrete Devices from January 1998 to date. These show the current month as compared with the same period 12 months ago, and are a useful industry momentum indicator. We also show 15-month rolling worldwide and European sales by major product category.
Industry capacity
Overall MOS wafer fab capacity decreased by 7.8 percent in Q1-09 versus Q4-08, from 2110.4k 200mm equivalent wafer starts per week to 1945.1k. Whilst no category was immune, the decreases were highest in the 200mm and below wafer sizes, and at 150nm and tighter feature sizes.
These cutbacks add to the previous quarter's 1.6 percent decline and compared with a 1.7 percent quarterly growth this time last year. Whilst some of the decline can be attributed to closing of older lines due to the recession, for the most part they are the direct result of the deliberate slowdown in capital expenditure that began mid-2007, well before the current recession started.
The 300mm wafers now account for 50.1 percent of the total MOS capacity, up from 48.2 percent in Q4-08 and 40.7 percent from the same period last year. 300mm wafers now account for over half the total capacity, with 200mm in second place at 37.7 percent, down from 39.1 percent in Q1-09 and 45.7 percent in Q1-08.
At 733.5k wafer starts per week, Q1-09 200mm capacity continued its absolute value decline, from 826.0k in Q4-08, a fall of 11.2 percent. 200mm capacity is now down 22.8 percent versus the same period last year.
Even advanced capacity (i.e., 0.08 micron and below) declined, primarily due to the DRAM firm's bankruptcy problems. Only the 120-159nm category, escaped with capacity up 1.4k wafer starts per week, or 0.6 percent.
Despite sizeable capacity decrease, Q1 utilisation rates plummeted still further to 57.2 percent, from 87.5 percent in Q3-08 and 68.4 percent in Q4-08. The comparable figure for Q1-08 was 90.7 percent. Advanced IC capacity, i.e., 0.08 micron and below, also fell to 69.9 percent (from 84.4 percent in Q4), whilst 300mm and 200mm wafers checked in at 72.8 percent (Q4 = 83.2 percent) and 44.0 percent (Q4 = 55.5 percent), respectively.
The fall in Q4-08/Q1-09 utilisation rates was a result of massive order cancellations and demand collapse triggered by the September 2008 Lehman Brothers ollapse and was much faster and deeper than the 2001 dot-com driven recession. Q1 is however expected to be the trough, with rates climbing back fast in Q2 and thereafter.
Given the significant cutbacks in capex since mid-2007, we expect to see utilisation rates trending back to the 90 percent 'full capacity' threshold much faster than in previous recessions, accelerating the supply-side recovery dynamics by at least four quarters.
Fab shortage waiting to happen?
Looking ahead to 2010, demand should start to accelerate in line with the anticipated global economic recovery, tightening the capacity screw still further. And, with 2010's capacity fixed by 2009's spend, at a currently estimated $20 billion, this spend represents barely one third its 2000 $60 billion peak. That means, in round numbers, 2010's new capacity will be only 40k 200mm wafer starts/week minus any capacity closures.
We have said it before and we will say it again. There will not be enough 2010 capacity in place to meet demand... this is a fab shortage waiting to happen!"
March's data validated forecast; Q1 WAS cyclical bottom! Semicon update May'09
Here are the excerpts from the Global Semiconductor Monthly Report, May 2009, provided by Malcolm Penn, chairman, founder and CEO of Future Horizons. There are a lot of charts associated with this report. Those interested to know more about this report should contact Future Horizons.
This will be followed by the update for June, and I am speaking with Malcolm Penn to find out more!
Executive overview
"At $14.085 billion, March's IC sales were up 28.4 percent versus February, equivalent to plus 2.7 percent on a five-week month adjusted basis. Whilst this still puts the market down 31.2 percent versus March 2008, the momentum that started in January 2009 continues to steadily gain traction.
Overall, the ICs in Q1 were down just 13.4 percent in value, comprising a 19.6 percent fall in units offset by a whopping 7.8 percent gain in ASPs. At the total semiconductor level, sales came in at $17.271 billion, up 27.1 percent on February (1.7 percent on a 5-week month adjusted basis), slightly higher than our $17.019 billion April Report estimate.
Q1 was thus down only 15.7 percent on Q4, sizeably better than our 18.5 percent estimate. This is good news for industry... 'ah but' say the sceptics!
During our January 2009 International Forecast Seminar, we took the view that, from an economic recovery perspective, things would stabilise during the first half of the year, starting to gain traction by the end of 2009, given the dramatic economic stimuli since September 2008. The recovery would then accelerate quite fast in 2010-11, i.e. following a similar pattern as to what happened after the 2000 dot-com crash. There is every reason to believe this will still be the case.
Until recently, the big industry problem was uncertainty but there have been no horrible surprises now for several weeks and things do seem like we are bumping along the bottom. The global economy has stabilised; there have been no new gut-wrenching surprises and the 'unknown unknowns' in the economy have subsided. This means we are now left facing the 'known unknowns', which is clearly something that industry can adjust to and deal with.
Despite its severity, there are also many mitigating circumstances. At the personal level, this recession is quite like no other. For those without a job, or on short-time working, it is clearly bad news as no one is currently hiring. But, those with a job ironically have never been better off, with inflation, mortgage interest rates and repayments (the single biggest expense item on the personal expense budget) at rock bottom levels. This is very unlike the past recessions, which were accompanied by high inflation and cripplingly high interest rates.
Another factor is that no one really knows how much of the current GDP shrinkage (and for that matter the previous five-years above average growth) is (was) smoke and mirrors. With CDIs valued at 1.2x total world GDP in 2007 only to be written down to junk bond status the following year, the absolute GDP and growth rate numbers have been compromised. That makes it hard to judge what they mean from a top down perspective, more so when one considers the total electronics manufacturing industry's contribution to world GDP is barely 3 percent.
Finally, even though cars, mobiles, PCs etc may fall in unit terms by '15-30 percent' this year, that still means '70-85 percent of the market' remains. With inventory levels everywhere in the value chain at all-time lows, we are currently back now building to demand from newly bought components, albeit some 20 percent lower than the 2008 highs.
At the chip level, the market is obviously driven by the economy but it also has its own drivers, especially capacity and ASP trends. Thus, whilst the existence of a link between the chip market and the economy is clear, mathematically the nature of this link is imprecise. Dislocations in growth dynamics are thus relatively frequent.
What then of our January 2009 quarterly growth pattern (Q1 -18 percent, Q2 -2 percent, Q3 +12 percentand Q4 +3 percent)? Clearly Q1, at -15.7 percent, was better than forecast which, if the rest of the growth pattern continues as planned, would rein in the full year market decline slightly from -28 to -25.3 percent, but still within the forecast margin of error. Q1 has thus reinforced, not altered, our January prognostications.
If Q1's stronger momentum however carries through into Q2, Q2 would come in much stronger than our 2 percent decline, say to plus 2 percent instead. This would positively change our forecast dynamics with a further two percentage points improvement on the full year's number, improving our forecast from -28 percent to -23.2 percent. Whilst we are not yet prepared to call for a formal forecast revision, the odds are in its favour and the downside forecast risks dispersed.
Clearly Q1 was the cyclical bottom; from here on out the growth trends will be up. Once the inventory purge is over, excess capacity will soon be absorbed with a corresponding strong recovery in utilisation rates. Given capex is currently at an 18-month all time low, with no near-term correction in prospect until late Q3-Q4 at the earliest, the industry will enter 2010 staring into a new net capacity famine.
We definitely will be revising our 2010 forecast up, from the current +15 percent to the mid-to high twenties.
Industry capacity
The table C1 shows the quarterly semiconductor equipment sales trends for the period Q1-2008 through Q1-2009 inclusive. The total Q1-2009 equipment sales were $3,235 million, down 31.4 percent from Q4-2008, which in turn was down 28.1 percent from Q3-2008. This represents the biggest sequential falls in the history of the chip industry.
Source: Future Horizons
Wafer processing equipment represented 76 percent of the total, just slightly higher than its 75 percent average. Total Q1-2009 investment represented only 7.3 percent of the quarterly semiconductor sales, although it must be remembered that an equipment sale in Q1-2009 will not produce incremental semiconductor sales until three quarters later, namely Q4-2009.
Q1-2009 wafer fab equipment sales were down a staggering 69.4 percent on Q1-2008, the fourth consecutive quarterly high double-digit drop, with further declines in the prospect. Capex levels are now running at levels not seen since the early 1990s when the overall chip market was one-third its current size.
As mentioned earlier, Q1-2009 was down 31.4 percent versus Q4-2008, on top of the three previous quarterly declines of 28.1 (Q4 vs Q3), 16.3 (Q3 vs Q2) and 25.8 (Q2 vs Q1) percent respectively. It should not be forgotten that these cutbacks were not triggered by the current chip market recession; the first two quarterly drops, namely Q2 and Q3-2008, took place against a backdrop of strong IC unit growth, i.e., well before the Q4-2008 chip market collapsed.
The cutbacks were a clear intent to engineer tight capacity, a strategy that would by now have bitten home were it not for the cruel interruption on the Q4-2008 market collapse. We have never before seen such an extensive cut back prior to a collapse; ironically this will help the recovery process, albeit for the wrong reasons. It will also underpin the underlying strategy -- post recession IC capacity is going to be tighter than tight.
We also tracked the total semiconductor equipment sales by month since January 1988, both in absolute value and as a percent of semiconductor sales. One significant feature that can be seen from these trends is that the absolute value of the total semiconductor equipment sales has been significantly lower than the previous 1999-2000 investment peak, despite the fact the total semiconductor market has expanded in size.
During this same time period, the investment trend relative to the size of the total semiconductor market has also been trending well below its long-term 16.75 percent average, despite this being a period of heavy 300mm conversion.
The corresponding data for the Wafer Processing equipment sector, shows an increasing trend as a percent of semiconductor sales. This trend, however, is not a sign of excess investment, rather that the wafer processing portion is gaining overall market share, currently at around 75 percent of the total equipment spend, up from around 60 percent in the late 1980s.
We also tracked the total capex spent as a percent of semiconductor revenues on an annual basis since 1990-2008, and data but for the total semiconductor equipment spend. We also tracked the relative relationship between the wafer processing and total semiconductor spends.
These show that a higher proportion of revenues are being spent on the wafer processing sector, a trend that we believe is likely to continue.
We believe that the current levels of capex expenditure are unprecedentedly low and cannot be wholly accounted for improvements in productivity and factory loading. Even if they are, these gains are one-off improvements; once they have been realised there is no more gain in prospect and expenditure levels will return to 'normal' trends.
We tracked the wafer processing equipment spend versus the corresponding increase in capacity on a quarterly basis since Q1-1999 but with the capacity increase delayed by three quarters.
Once the three-quarter slippage in introduced into the equation, the overlay of the two curves, whilst not perfect, is a very good fit. In short, it takes three quarters for increases in wafer processing spend to translate into new capacity. This is the time it takes to hook up and calibrate the kit and make it volume production ready. Add to this an additional one-quarter delay through wafer fab and assembly process, the net result is a one year delay from wafer processing spend to incrementally more IC shipments out.
Adding in a further one-quarter lead-time for equipment delivery, results in a typically 15 month delay for an existing clean room structure from wafer processing investment decision to increased unit sales, one year longer still if a new building is required.
These long lead-times, however, have a positive side in that one has excellent visibility three quarters out into how much additional capacity is due to come on stream, just by analysing the front-end capex spend numbers. Once the frontend
capex is committed, the addition capacity is inevitable, needed or not, the difference being determined by the capacity utilisation number.
One is thus making an investment decision based on a unit demand forecast 12 months down the road, which would not be so problematic were demand more predictable.
As can be seen, however, from the unit sales charts in the Market Summary section of this report, IC unit demand fluctuates violently from its underlying long-term ten percent per year annual growth rate on a month-by-month basis, quarter-by-quarter basis, not withstanding the inevitable -- and unavoidable -- routing inventory adjustments.
The biggest single problem with semiconductor capex is thus both the long time delay from investment decision and additional IC units out and the non-linearity of the month-by-month unit demand. It is this mismatch that gives rise to the investment uncertainty. Getting the investment timing right, however, is not an exact science; there are bound to be ongoing capacity mismatches within this overall favourable trend.
Entering 2009, the current new capacity investment is trending well below the long-term trend, and is projected to slow even more so in 2009 as the economic recession bites home. This means over-investment is not going to accentuate the current industry downturn, as has so often happened before.
This time it seems investment has been deliberately slowed in order to improve the return on capital employed. The seeds have also been sown for the next market shortage in 2010-11. Foundry wafer prices will rise; dust down the 'makebuy' Excel spreadsheets ... the 'fablite'/IDM debate dynamics has yet to run its course."
This will be followed by the update for June, and I am speaking with Malcolm Penn to find out more!
Executive overview
"At $14.085 billion, March's IC sales were up 28.4 percent versus February, equivalent to plus 2.7 percent on a five-week month adjusted basis. Whilst this still puts the market down 31.2 percent versus March 2008, the momentum that started in January 2009 continues to steadily gain traction.
Overall, the ICs in Q1 were down just 13.4 percent in value, comprising a 19.6 percent fall in units offset by a whopping 7.8 percent gain in ASPs. At the total semiconductor level, sales came in at $17.271 billion, up 27.1 percent on February (1.7 percent on a 5-week month adjusted basis), slightly higher than our $17.019 billion April Report estimate.
Q1 was thus down only 15.7 percent on Q4, sizeably better than our 18.5 percent estimate. This is good news for industry... 'ah but' say the sceptics!
During our January 2009 International Forecast Seminar, we took the view that, from an economic recovery perspective, things would stabilise during the first half of the year, starting to gain traction by the end of 2009, given the dramatic economic stimuli since September 2008. The recovery would then accelerate quite fast in 2010-11, i.e. following a similar pattern as to what happened after the 2000 dot-com crash. There is every reason to believe this will still be the case.
Until recently, the big industry problem was uncertainty but there have been no horrible surprises now for several weeks and things do seem like we are bumping along the bottom. The global economy has stabilised; there have been no new gut-wrenching surprises and the 'unknown unknowns' in the economy have subsided. This means we are now left facing the 'known unknowns', which is clearly something that industry can adjust to and deal with.
Despite its severity, there are also many mitigating circumstances. At the personal level, this recession is quite like no other. For those without a job, or on short-time working, it is clearly bad news as no one is currently hiring. But, those with a job ironically have never been better off, with inflation, mortgage interest rates and repayments (the single biggest expense item on the personal expense budget) at rock bottom levels. This is very unlike the past recessions, which were accompanied by high inflation and cripplingly high interest rates.
Another factor is that no one really knows how much of the current GDP shrinkage (and for that matter the previous five-years above average growth) is (was) smoke and mirrors. With CDIs valued at 1.2x total world GDP in 2007 only to be written down to junk bond status the following year, the absolute GDP and growth rate numbers have been compromised. That makes it hard to judge what they mean from a top down perspective, more so when one considers the total electronics manufacturing industry's contribution to world GDP is barely 3 percent.
Finally, even though cars, mobiles, PCs etc may fall in unit terms by '15-30 percent' this year, that still means '70-85 percent of the market' remains. With inventory levels everywhere in the value chain at all-time lows, we are currently back now building to demand from newly bought components, albeit some 20 percent lower than the 2008 highs.
At the chip level, the market is obviously driven by the economy but it also has its own drivers, especially capacity and ASP trends. Thus, whilst the existence of a link between the chip market and the economy is clear, mathematically the nature of this link is imprecise. Dislocations in growth dynamics are thus relatively frequent.
What then of our January 2009 quarterly growth pattern (Q1 -18 percent, Q2 -2 percent, Q3 +12 percentand Q4 +3 percent)? Clearly Q1, at -15.7 percent, was better than forecast which, if the rest of the growth pattern continues as planned, would rein in the full year market decline slightly from -28 to -25.3 percent, but still within the forecast margin of error. Q1 has thus reinforced, not altered, our January prognostications.
If Q1's stronger momentum however carries through into Q2, Q2 would come in much stronger than our 2 percent decline, say to plus 2 percent instead. This would positively change our forecast dynamics with a further two percentage points improvement on the full year's number, improving our forecast from -28 percent to -23.2 percent. Whilst we are not yet prepared to call for a formal forecast revision, the odds are in its favour and the downside forecast risks dispersed.
Clearly Q1 was the cyclical bottom; from here on out the growth trends will be up. Once the inventory purge is over, excess capacity will soon be absorbed with a corresponding strong recovery in utilisation rates. Given capex is currently at an 18-month all time low, with no near-term correction in prospect until late Q3-Q4 at the earliest, the industry will enter 2010 staring into a new net capacity famine.
We definitely will be revising our 2010 forecast up, from the current +15 percent to the mid-to high twenties.
Industry capacity
The table C1 shows the quarterly semiconductor equipment sales trends for the period Q1-2008 through Q1-2009 inclusive. The total Q1-2009 equipment sales were $3,235 million, down 31.4 percent from Q4-2008, which in turn was down 28.1 percent from Q3-2008. This represents the biggest sequential falls in the history of the chip industry.
Source: Future HorizonsWafer processing equipment represented 76 percent of the total, just slightly higher than its 75 percent average. Total Q1-2009 investment represented only 7.3 percent of the quarterly semiconductor sales, although it must be remembered that an equipment sale in Q1-2009 will not produce incremental semiconductor sales until three quarters later, namely Q4-2009.
Q1-2009 wafer fab equipment sales were down a staggering 69.4 percent on Q1-2008, the fourth consecutive quarterly high double-digit drop, with further declines in the prospect. Capex levels are now running at levels not seen since the early 1990s when the overall chip market was one-third its current size.
As mentioned earlier, Q1-2009 was down 31.4 percent versus Q4-2008, on top of the three previous quarterly declines of 28.1 (Q4 vs Q3), 16.3 (Q3 vs Q2) and 25.8 (Q2 vs Q1) percent respectively. It should not be forgotten that these cutbacks were not triggered by the current chip market recession; the first two quarterly drops, namely Q2 and Q3-2008, took place against a backdrop of strong IC unit growth, i.e., well before the Q4-2008 chip market collapsed.
The cutbacks were a clear intent to engineer tight capacity, a strategy that would by now have bitten home were it not for the cruel interruption on the Q4-2008 market collapse. We have never before seen such an extensive cut back prior to a collapse; ironically this will help the recovery process, albeit for the wrong reasons. It will also underpin the underlying strategy -- post recession IC capacity is going to be tighter than tight.
We also tracked the total semiconductor equipment sales by month since January 1988, both in absolute value and as a percent of semiconductor sales. One significant feature that can be seen from these trends is that the absolute value of the total semiconductor equipment sales has been significantly lower than the previous 1999-2000 investment peak, despite the fact the total semiconductor market has expanded in size.
During this same time period, the investment trend relative to the size of the total semiconductor market has also been trending well below its long-term 16.75 percent average, despite this being a period of heavy 300mm conversion.
The corresponding data for the Wafer Processing equipment sector, shows an increasing trend as a percent of semiconductor sales. This trend, however, is not a sign of excess investment, rather that the wafer processing portion is gaining overall market share, currently at around 75 percent of the total equipment spend, up from around 60 percent in the late 1980s.
We also tracked the total capex spent as a percent of semiconductor revenues on an annual basis since 1990-2008, and data but for the total semiconductor equipment spend. We also tracked the relative relationship between the wafer processing and total semiconductor spends.
These show that a higher proportion of revenues are being spent on the wafer processing sector, a trend that we believe is likely to continue.
We believe that the current levels of capex expenditure are unprecedentedly low and cannot be wholly accounted for improvements in productivity and factory loading. Even if they are, these gains are one-off improvements; once they have been realised there is no more gain in prospect and expenditure levels will return to 'normal' trends.
We tracked the wafer processing equipment spend versus the corresponding increase in capacity on a quarterly basis since Q1-1999 but with the capacity increase delayed by three quarters.
Once the three-quarter slippage in introduced into the equation, the overlay of the two curves, whilst not perfect, is a very good fit. In short, it takes three quarters for increases in wafer processing spend to translate into new capacity. This is the time it takes to hook up and calibrate the kit and make it volume production ready. Add to this an additional one-quarter delay through wafer fab and assembly process, the net result is a one year delay from wafer processing spend to incrementally more IC shipments out.
Adding in a further one-quarter lead-time for equipment delivery, results in a typically 15 month delay for an existing clean room structure from wafer processing investment decision to increased unit sales, one year longer still if a new building is required.
These long lead-times, however, have a positive side in that one has excellent visibility three quarters out into how much additional capacity is due to come on stream, just by analysing the front-end capex spend numbers. Once the frontend
capex is committed, the addition capacity is inevitable, needed or not, the difference being determined by the capacity utilisation number.
One is thus making an investment decision based on a unit demand forecast 12 months down the road, which would not be so problematic were demand more predictable.
As can be seen, however, from the unit sales charts in the Market Summary section of this report, IC unit demand fluctuates violently from its underlying long-term ten percent per year annual growth rate on a month-by-month basis, quarter-by-quarter basis, not withstanding the inevitable -- and unavoidable -- routing inventory adjustments.
The biggest single problem with semiconductor capex is thus both the long time delay from investment decision and additional IC units out and the non-linearity of the month-by-month unit demand. It is this mismatch that gives rise to the investment uncertainty. Getting the investment timing right, however, is not an exact science; there are bound to be ongoing capacity mismatches within this overall favourable trend.
Entering 2009, the current new capacity investment is trending well below the long-term trend, and is projected to slow even more so in 2009 as the economic recession bites home. This means over-investment is not going to accentuate the current industry downturn, as has so often happened before.
This time it seems investment has been deliberately slowed in order to improve the return on capital employed. The seeds have also been sown for the next market shortage in 2010-11. Foundry wafer prices will rise; dust down the 'makebuy' Excel spreadsheets ... the 'fablite'/IDM debate dynamics has yet to run its course."
Wednesday, June 17, 2009
Is Q1 a cycle bottom? Time for 2009 reality check! Semicon update Apr'09
Here are the excerpts from the Global Semiconductor Monthly Report, April 2009, provided by Malcolm Penn, chairman, founder and CEO of Future Horizons. There are a lot of charts associated with this report. Those interested to know more about this report should contact Future Horizons.
This will be followed by updates for May and June, and I am speaking with Malcolm Penn to find out more!
Executive overview
"February's IC sales were up 4.3 percent on January, down 26.5 percent on the same time last year. If March behaves true to historical norms, we can expect to see sales up 26 percent on February, at 14.3 billion (on a calendar month basis), equivalent to plus 0.8 percent, four-week month adjusted.
This would see Q1 sales down around 15 percent on Q4-2008, just slightly ahead of our 18 percent forecast decline. Whilst March's data point is right now still an estimate, the year to date data and trends give strong guidance on what is actually happening. Time therefore to reflect on our 2009 chip market forecast and growth pattern outlook for the year as a whole.
At our January 2009 International Forecast Seminar in London, we forecast growth for the 2009 market at -28 percent. This was the most pessimistic of all the industry watchers!
Source: Future Horizons
The forecast reflected the unprecedented Q4-2008 industry meltdown that started on Sept 16 with the Lehman Brothers collapse. December was an especially a traumatic month, with several firms reporting negative net monthly sales (i.e., cancellations were higher than new orders), with zero guidance visibility on the outlook for Q1-2009.
Our forecast estimated Q4 would decline a 22.5 percent versus Q3, followed by a similar (but slightly slowing) decline of 20 percent in Q1, bottoming out in Q2 (at -2 percent versus Q1) followed by reasonably strong seasonal recover in Q3 and Q4 of plus 12 percent and plus 3 percent respectively.
Once December's results were published in February, we modified this profile slightly to reflect December's actual 24.2 percent decline (versus our 22.5 percent estimate), reducing the first quarter decline slightly (from -20 percent to -18.5 percent) thereby maintaining the overall year-on-year 28 percent decline.
Ironically, despite having the most pessimistic overall year-on-year forecast, we were widely criticised at the time for predicting a 'V-shaped' recession. Yet, to achieve the more favoured 'U-shaped' recovery would have meant a very low single digit quarterly decline in Q1, something we did not believe was realistic or likely. Our most optimistic (rose coloured glasses) scenario pegged Q1 growth at -8 percent, yielding an 18.7 percent annual 2009 decline.
Despite December's worse than forecast results, February's data, both in its absolute value and underlying momentum, added credence to our 'V-shaped' scenario, despite the emergence of a new popularist theory of a W-shaped recovery.
As such, we are sticking to both the shape of the recovery -- V, not U or W -- and profile; there is even some indication that the recovery is happening slightly earlier than we estimated. Now that, if true, would soften the depth of the 2009 decline.
Based on January and February's WSTS data, March now looks like coming in at $17.019 billion, which would see Q1 reach $43.642 billion, down 16.4 percent on Q4-2009, which is 2 percentage points lower than the 18.4 percent we were forecasting. If this is the case, Q1 will mark the recession cyclical bottom.
Industry capacity
The Q4-08 total MOS IC capacity was up just 3.1 percent versus Q4-07, which in turn was up 13.6 percent on Q4-2006. Quarter on quarter growth was -1.7 percent, compared with +1.1 percent for Q3-08, plus 2 for Q2-08 and +1.7 percent for Q1-08. This dramatic slowdown in net new capacity is in direct response to the slowdown in capex that has been gaining momentum since the second half of 2007.
It should be remembered that there is a 'nine-month delay' between a capex spend and saleable units out, so capex in year 'n' drives capacity expansion in year 'n+1'. As such, the capex spend is now growing much slower than the underlying unit demand, and the impact is an eventual increase in the capacity utilisation rates.
Do not be misled by the sharp falloff in Q4-08 utilisation; this was the direct result of the September financial crisis near-term inventory purge driven demand slump and not representative of the underlying trends. We expect this to bounce back quite rapidly once orders readjust during the first half of 2009.
Although due to timing, inventory and seasonality issues, supply and demand will never identically track, utilisation rates have been straddling the 90 percent level since mid-2003. We expect this trend to resume by the end of this year.
With capex spend averaging around US$8 billion per quarter between Q3-06 and Q1-08 spending plunged dramatically in Q2-08 reaching under half this average in Q4-08. Given the current front-end capex book-to-bill trends, this spend will shrink still further at least through 1H-2009. Interestingly, this cutback happened well before the Q4 market meltdown, the impact of a premeditated strategy to dramatically tighten supply and thereby increase wafer and IC average selling prices.
The level of new front-end capital equipment orders has now been sizeably lower than sales for 31 consecutive months, the last four at unprecedentedly low levels, aside from two short-lived incursions into positive territory circa Q4-06 and Q4-08. The 2008 capex spend was down 30.6 percent on 2007's level, with the outlook for 2009 looking to be at least a further 30 percent lower. That would put 2009's capex spend at well under half 2000's peak.
No amount of productivity gains can offset this slowed investment, especially now the one-off 300mm conversion gain has been absorbed. Net new capacity addition is thus condemned to shrink even further during 2009, the effect of which will be masked in the near-term by the current inventory /demand adjustment process.
With near-term demand having shrunk in Q4, this strategy has essentially been blocked but not reversed. Unlike 2001, when recession hit during a period of capex expansion, the bounce back from the current dip will be quite sharp and sudden. It is only a matter of time before capacity gets squeezed and wafer process rise. We expect this trend to bit hard in 2010, possibly even leading to shortages and allocations, just as the economic recovery starts to gain momentum.
The interim period of 'plentiful capacity in 2009', will feed the perceived wisdom of a sense of supply security, those with an inkling of a medium-term plan need to tie down their supply positions whilst the going is good. Today's era of cheap and plentiful wafers, like the discredited 'debt is cheap and free' era, are number and counting down.
Just to make the point deeper we tracked the book-to-bill ratio against future capacity adjusted for the three quarter lead-time delay. It shows both a good trend correlation and the depth of the problem. Once again, it reinforces all of the other anecdotal and hard evidence that net new capacity growth is condemned to slow even further. When the unit demand recovers, the capacity simply will not be there, especially at the leading edge technologies."
This will be followed by updates for May and June, and I am speaking with Malcolm Penn to find out more!
Executive overview
"February's IC sales were up 4.3 percent on January, down 26.5 percent on the same time last year. If March behaves true to historical norms, we can expect to see sales up 26 percent on February, at 14.3 billion (on a calendar month basis), equivalent to plus 0.8 percent, four-week month adjusted.
This would see Q1 sales down around 15 percent on Q4-2008, just slightly ahead of our 18 percent forecast decline. Whilst March's data point is right now still an estimate, the year to date data and trends give strong guidance on what is actually happening. Time therefore to reflect on our 2009 chip market forecast and growth pattern outlook for the year as a whole.
At our January 2009 International Forecast Seminar in London, we forecast growth for the 2009 market at -28 percent. This was the most pessimistic of all the industry watchers!
Source: Future HorizonsThe forecast reflected the unprecedented Q4-2008 industry meltdown that started on Sept 16 with the Lehman Brothers collapse. December was an especially a traumatic month, with several firms reporting negative net monthly sales (i.e., cancellations were higher than new orders), with zero guidance visibility on the outlook for Q1-2009.
Our forecast estimated Q4 would decline a 22.5 percent versus Q3, followed by a similar (but slightly slowing) decline of 20 percent in Q1, bottoming out in Q2 (at -2 percent versus Q1) followed by reasonably strong seasonal recover in Q3 and Q4 of plus 12 percent and plus 3 percent respectively.
Once December's results were published in February, we modified this profile slightly to reflect December's actual 24.2 percent decline (versus our 22.5 percent estimate), reducing the first quarter decline slightly (from -20 percent to -18.5 percent) thereby maintaining the overall year-on-year 28 percent decline.
Ironically, despite having the most pessimistic overall year-on-year forecast, we were widely criticised at the time for predicting a 'V-shaped' recession. Yet, to achieve the more favoured 'U-shaped' recovery would have meant a very low single digit quarterly decline in Q1, something we did not believe was realistic or likely. Our most optimistic (rose coloured glasses) scenario pegged Q1 growth at -8 percent, yielding an 18.7 percent annual 2009 decline.
Despite December's worse than forecast results, February's data, both in its absolute value and underlying momentum, added credence to our 'V-shaped' scenario, despite the emergence of a new popularist theory of a W-shaped recovery.
As such, we are sticking to both the shape of the recovery -- V, not U or W -- and profile; there is even some indication that the recovery is happening slightly earlier than we estimated. Now that, if true, would soften the depth of the 2009 decline.
Based on January and February's WSTS data, March now looks like coming in at $17.019 billion, which would see Q1 reach $43.642 billion, down 16.4 percent on Q4-2009, which is 2 percentage points lower than the 18.4 percent we were forecasting. If this is the case, Q1 will mark the recession cyclical bottom.
Industry capacity
The Q4-08 total MOS IC capacity was up just 3.1 percent versus Q4-07, which in turn was up 13.6 percent on Q4-2006. Quarter on quarter growth was -1.7 percent, compared with +1.1 percent for Q3-08, plus 2 for Q2-08 and +1.7 percent for Q1-08. This dramatic slowdown in net new capacity is in direct response to the slowdown in capex that has been gaining momentum since the second half of 2007.
It should be remembered that there is a 'nine-month delay' between a capex spend and saleable units out, so capex in year 'n' drives capacity expansion in year 'n+1'. As such, the capex spend is now growing much slower than the underlying unit demand, and the impact is an eventual increase in the capacity utilisation rates.
Do not be misled by the sharp falloff in Q4-08 utilisation; this was the direct result of the September financial crisis near-term inventory purge driven demand slump and not representative of the underlying trends. We expect this to bounce back quite rapidly once orders readjust during the first half of 2009.
Although due to timing, inventory and seasonality issues, supply and demand will never identically track, utilisation rates have been straddling the 90 percent level since mid-2003. We expect this trend to resume by the end of this year.
With capex spend averaging around US$8 billion per quarter between Q3-06 and Q1-08 spending plunged dramatically in Q2-08 reaching under half this average in Q4-08. Given the current front-end capex book-to-bill trends, this spend will shrink still further at least through 1H-2009. Interestingly, this cutback happened well before the Q4 market meltdown, the impact of a premeditated strategy to dramatically tighten supply and thereby increase wafer and IC average selling prices.
The level of new front-end capital equipment orders has now been sizeably lower than sales for 31 consecutive months, the last four at unprecedentedly low levels, aside from two short-lived incursions into positive territory circa Q4-06 and Q4-08. The 2008 capex spend was down 30.6 percent on 2007's level, with the outlook for 2009 looking to be at least a further 30 percent lower. That would put 2009's capex spend at well under half 2000's peak.
No amount of productivity gains can offset this slowed investment, especially now the one-off 300mm conversion gain has been absorbed. Net new capacity addition is thus condemned to shrink even further during 2009, the effect of which will be masked in the near-term by the current inventory /demand adjustment process.
With near-term demand having shrunk in Q4, this strategy has essentially been blocked but not reversed. Unlike 2001, when recession hit during a period of capex expansion, the bounce back from the current dip will be quite sharp and sudden. It is only a matter of time before capacity gets squeezed and wafer process rise. We expect this trend to bit hard in 2010, possibly even leading to shortages and allocations, just as the economic recovery starts to gain momentum.
The interim period of 'plentiful capacity in 2009', will feed the perceived wisdom of a sense of supply security, those with an inkling of a medium-term plan need to tie down their supply positions whilst the going is good. Today's era of cheap and plentiful wafers, like the discredited 'debt is cheap and free' era, are number and counting down.
Just to make the point deeper we tracked the book-to-bill ratio against future capacity adjusted for the three quarter lead-time delay. It shows both a good trend correlation and the depth of the problem. Once again, it reinforces all of the other anecdotal and hard evidence that net new capacity growth is condemned to slow even further. When the unit demand recovers, the capacity simply will not be there, especially at the leading edge technologies."
Friday, April 24, 2009
Semicon recovery likely in H2-09 after sharp recession: Future Horizons
This is what I've received and heard a few minutes ago! If it does happen, as stated, there can't be any better news than this for the global semiconductor industry!
According to Malcolm Penn, chairman, founder and CEO of Future Horizons, a recovery is expected in the second half of 2009 after a sharp recession!!
Future Horizons is predicting this recovery in the second half of 2009 in the Annual Semiconductor Report that was released today.
"There have so far been ten chip-market recessions and all but two have resulted in negative industry growth," said Malcolm Penn, Chairman, founder and CEO of Future Horizons. "The year 2009 will mark the industry's 11th recession; a further period on negative growth is inevitable at an estimated minus 28 percent, similar in magnitude to 2001."
He added: "This semiconductor recession is unlike previous recessions and is directly attributable to the worldwide financial problems; it is not a structural problem of the industry itself. This factor will help to mitigate the global recession's impact on the industry. On the other hand, all markets and all regions were impacted quickly and at the same time. This leads us to predict a minus 28 percent negative growth in dollars for the global semiconductor market over 2008."
Future Horizons believes that the industry is in structurally good shape to enter a recession. This should make the 2009 downturn shorter than it might otherwise have been, depending on when the confidence in the global economy stops falling and that is expected to be during 2010.
Today, businesses prefer the 'stop everything/do nothing' approach, resulting in the dramatic fall in Q4 semiconductor demand, but this cannot continue forever. Future Horizons expects a gradual return to 'business as usual' -- whatever the new 'usual' turns out to be -- in Q2 2009, once a degree of confidence returns to the markets.
It is impossible to predict when the recovery will start, but it eventually will and, given the extent and abruptness of the Q4-08 decline, an overshoot is inevitable making the recovery process faster coming, possibly as early as the second half of this year.
I will be in conversation with Malcolm Penn later today, hopefully, and will carry another post on this subject, should that happen. Stay tuned, folks! :)
According to Malcolm Penn, chairman, founder and CEO of Future Horizons, a recovery is expected in the second half of 2009 after a sharp recession!!
Future Horizons is predicting this recovery in the second half of 2009 in the Annual Semiconductor Report that was released today.
"There have so far been ten chip-market recessions and all but two have resulted in negative industry growth," said Malcolm Penn, Chairman, founder and CEO of Future Horizons. "The year 2009 will mark the industry's 11th recession; a further period on negative growth is inevitable at an estimated minus 28 percent, similar in magnitude to 2001."
He added: "This semiconductor recession is unlike previous recessions and is directly attributable to the worldwide financial problems; it is not a structural problem of the industry itself. This factor will help to mitigate the global recession's impact on the industry. On the other hand, all markets and all regions were impacted quickly and at the same time. This leads us to predict a minus 28 percent negative growth in dollars for the global semiconductor market over 2008."
Future Horizons believes that the industry is in structurally good shape to enter a recession. This should make the 2009 downturn shorter than it might otherwise have been, depending on when the confidence in the global economy stops falling and that is expected to be during 2010.
Today, businesses prefer the 'stop everything/do nothing' approach, resulting in the dramatic fall in Q4 semiconductor demand, but this cannot continue forever. Future Horizons expects a gradual return to 'business as usual' -- whatever the new 'usual' turns out to be -- in Q2 2009, once a degree of confidence returns to the markets.
It is impossible to predict when the recovery will start, but it eventually will and, given the extent and abruptness of the Q4-08 decline, an overshoot is inevitable making the recovery process faster coming, possibly as early as the second half of this year.
I will be in conversation with Malcolm Penn later today, hopefully, and will carry another post on this subject, should that happen. Stay tuned, folks! :)
Tuesday, February 10, 2009
Can the Indian semicon industry dream big? (And even buy Qimonda?)
I had ended one of my previous blog posts by saying whether the Indian semiconductor industry was hitting the right notes?
In a continuation to that specific thought, it is necessary to first examine where India stands in the global industry. We are very strong in embedded design and design services -- our traditional strengths. While these will hold good for a long time, these are probably not enough to really help India make a serious mark at the global level.
The Indian semiconductor industry, in its current state, needs a rethinking as far as strategy is concerned. Maybe, it cannot survive on chip design alone. Especially in times of downturn, the global semiconductor industry players would be looking for new markets and even customers, rather than low-cost production centers.
Consider these points: In the current economic environment, is the interest in developing new business relations with India really a top priority for overseas companies? Probably not, at this very point of time!
India is also seen more as a source of resource; and the extra resource is the last thing firms need at the moment, given the recessionary climate. What global firms are looking for are new markets and customers, and these points, along with its infrastructure, have been the areas of Indian weaknesses. Maybe, all of this will change, but definitely not overnight! And it needs some more planning.
That leads me to an interesting comment from a reader of my article on CIOL, who went on to suggest that an Indian investor could consider buying Qimonda!
Now that is some serious thought and vision as far as mid- or long-term planning is concerned. However, will there really be any takers for this? If this really happens, fabs can be built in India for memory production. If these fabs perform well, it just might turn out to be a good investment in the mid-term future of the Indian semiconductor industry. Definitely, it will make the world sit up and take notice. The other players would surely give India a look-in thereafter.
Quite a thought! This suggestion of investing in Qimonda is indeed a vision. Can the Indian semiconductor industry develop the courage to show and work toward making this kind of a vision a reality?
What should India do to develop products?
Speaking with Anil Gupta, managing director, India Operations, ARM, is always a pleasure.
I asked him: Does India have the capability to sustain or even build a product development ecosystem? What needs to be done?
He said: "We need the following for this:
* Entrepreneurs committed to product development and willing to take that risk;
* Investors willing to take risk on product development companies;
* Consumption, and this will happen as the economy improves any way, and
* Deep enough technical/technological knowledge/know-how to put reasonably competent end products together."
According to him, all of these qualities exist in India, and he cited examples of companies such as Sukam, Tejas, etc.
Well, there you have it!
We need enterprising entrepreneurs in India who are committed toward product development and willing to take that risk, especially in semiconductors. We need investors who can believe in things like even buying Qimonda, or some other company. After all, isn't this what everyone's been saying: this is the time to buy!
Dream big, India!
In a continuation to that specific thought, it is necessary to first examine where India stands in the global industry. We are very strong in embedded design and design services -- our traditional strengths. While these will hold good for a long time, these are probably not enough to really help India make a serious mark at the global level.
The Indian semiconductor industry, in its current state, needs a rethinking as far as strategy is concerned. Maybe, it cannot survive on chip design alone. Especially in times of downturn, the global semiconductor industry players would be looking for new markets and even customers, rather than low-cost production centers.
Consider these points: In the current economic environment, is the interest in developing new business relations with India really a top priority for overseas companies? Probably not, at this very point of time!
India is also seen more as a source of resource; and the extra resource is the last thing firms need at the moment, given the recessionary climate. What global firms are looking for are new markets and customers, and these points, along with its infrastructure, have been the areas of Indian weaknesses. Maybe, all of this will change, but definitely not overnight! And it needs some more planning.
That leads me to an interesting comment from a reader of my article on CIOL, who went on to suggest that an Indian investor could consider buying Qimonda!
Now that is some serious thought and vision as far as mid- or long-term planning is concerned. However, will there really be any takers for this? If this really happens, fabs can be built in India for memory production. If these fabs perform well, it just might turn out to be a good investment in the mid-term future of the Indian semiconductor industry. Definitely, it will make the world sit up and take notice. The other players would surely give India a look-in thereafter.
Quite a thought! This suggestion of investing in Qimonda is indeed a vision. Can the Indian semiconductor industry develop the courage to show and work toward making this kind of a vision a reality?
What should India do to develop products?
Speaking with Anil Gupta, managing director, India Operations, ARM, is always a pleasure. I asked him: Does India have the capability to sustain or even build a product development ecosystem? What needs to be done?
He said: "We need the following for this:
* Entrepreneurs committed to product development and willing to take that risk;
* Investors willing to take risk on product development companies;
* Consumption, and this will happen as the economy improves any way, and
* Deep enough technical/technological knowledge/know-how to put reasonably competent end products together."
According to him, all of these qualities exist in India, and he cited examples of companies such as Sukam, Tejas, etc.
Well, there you have it!
We need enterprising entrepreneurs in India who are committed toward product development and willing to take that risk, especially in semiconductors. We need investors who can believe in things like even buying Qimonda, or some other company. After all, isn't this what everyone's been saying: this is the time to buy!
Dream big, India!
Friday, February 6, 2009
Global semiconductor industry could well see revival in 2010?
"Let's start from the very beginning! A very good place to start!!"
Hope you all remember this lovely song sung by Julie Andrews in The Sound of Music!! So, what's the connection?
Right! Last week, I blogged about how the global semiconductor industry is likely to drop by 28 percent in 2009, while the Indian industry should grow by 13.4 percent during the same period, and that, we should not get carried away by these statistics!
A moment to ponder: isn't this drop of 28 percent too high for the global semicon industry? Or, is the situation really that bad? So, let's start from the very beginning, and go straight to the source -- Malcolm Penn!
Revival likely by 2010?
Here's what Malcolm Penn, CEO and founder of Future Horizons, had to say: "Fraid not! It could even be lower, but remember that this is a year on year number. It is based on the following assumptions: Q4-08 down 22.5 percent vs. Q3-08; Q1-09 down 20 percent vs Q4-08; Q2 down 2 percent vs Q1; and Q3 up 12 percent vs Q2, and Q4 up 3 percent vs Q3! And, if this pattern runs true, 2010 will be up 28 percent vs 2009!"
Voila! The global semiconductor industry could well be in for a major revival next year itself! Why, even Bill McClean, president of IC Insights, took a more optimistic look at the state of the industry in light of the current global economic situation at the recently concluded SEMI ISS 2009 conference!!
Continues Penn, "The actual Q4 results (released this Sunday) were down 24.2 percent, slightly worse than our estimate."
How to get the buzz back in semicon?
It has been said that the current situation the global semiconductor industry finds itself in was fueled by greed and short-term business goals. So, who were the culprits? Weren't they warned earlier?
Adds Penn: "It was more complex that that! The woeful state-of-the-world economy was a consequence of debt, greed and irresponsibility; political self interests and short-term business goals, aided and abetted by compliant governments; ineffective regulators; imprudent institutions; incompetent management; irrational self delusion and vested self-interests! No one is blameless for this crisis! Concerns were raised, but the human nature is often irrational, and the 'easy option' always the one of choice."
So true! Perhaps, the 'easy option' factor seems to be affecting the Indian semiconductor industry as well, but more of that later!
The key issue today is: what needs to be done to get the buzz back in the global semiconductor industry? The answer probably lies in the following: in the short-term, it involves rebuilding the industry confidence, and in longer term, it involves a radical return to 'old fashioned' business and political values.
On another note, I was curious to know how the EDA segment is doing? Penn said, "No better, no worse than normal, technology marches on, new designs accelerate in a downturn."
Tricky memory!
Memory is another segment that's been hit hard. In fact, the other day, someone asked me why Qimonda's story was so important!
Another could not understand what Spansion really did, and why it had announced this January 15 that the company was exploring strategic alternatives for a sale or a merger! Doesn't matter! Memory is a very tricky business, and semiconductors is the mother of all such tricky businesses! Perhaps, isn't that why they once said in jest: "Real men have fabs!" Anyhow!
Coming back to memory, when can the industry expect some recovery in NAND? More importantly, will the various government interventions help? Qimonda also recently petitioned for the opening of the insolvency proceedings.
Penn is clear: "NAND will recover when the excess capacity abates, and that will take several more quarters. The government intervention won't help, rather the opposite, and it will exacerbate the excess capacity issue."
Fab spends to move up only by Q1-2010
Earlier, Penn predicted a recovery in 2010 with the resumption of growth in Q3 2009. What will make this happen? He says, "A recovering world GDP growth, plus a return in business confidence."
However, those keen on fabs, do not expect the fab spends to look up any time soon! In fact, Penn estimates fab spends to start moving north not until Q1-2010 at the earliest.
The Chinese impact!
Interestingly, China is set to see negative growth of 5.8 percent during 2009. It will be worth noting how much of this this impact the global semiconductor industry.
Point one, compared to a global semicon fall of 28 percent in 2009, Penn considers a fall in China's semicon fortunes of 5.8 percent to be 'darned sight better!' So, China should still be a high growth market (relatively speaking).
And India?
Like I mentioned earlier, the Indian semiconductor industry is perhaps getting affected by the 'easy option.' Design services continue to do well, hopefully, but when it comes to real semiconductor product companies, those are far and few.
And, I haven't seen any real activity in the recent past that could tell me more such initiatives are in the pipeline. Nor do I think there are many attempts to even incubate such companies. On the contrary, there's a mad rush toward solar!
No harm there! Solar is great for India and the need of the hour. However, India should not forget its semiconductor priorities as well! Indian simply cannot bank on chip design services and solar gains, and then proclaim that it has a very successful semiconductor industry! Real action is still quite far away.
I think, India needs to rethink its semiconductor strategy! It cannot survive on chip design alone.
"When you know the notes to sing, you can sing most anything," concludes the song from The Sound of Music!
So, is the Indian semiconductor industry hitting the right notes? That's going to be my next blog post, friends.
Hope you all remember this lovely song sung by Julie Andrews in The Sound of Music!! So, what's the connection?
Right! Last week, I blogged about how the global semiconductor industry is likely to drop by 28 percent in 2009, while the Indian industry should grow by 13.4 percent during the same period, and that, we should not get carried away by these statistics!
A moment to ponder: isn't this drop of 28 percent too high for the global semicon industry? Or, is the situation really that bad? So, let's start from the very beginning, and go straight to the source -- Malcolm Penn!
Revival likely by 2010?
Here's what Malcolm Penn, CEO and founder of Future Horizons, had to say: "Fraid not! It could even be lower, but remember that this is a year on year number. It is based on the following assumptions: Q4-08 down 22.5 percent vs. Q3-08; Q1-09 down 20 percent vs Q4-08; Q2 down 2 percent vs Q1; and Q3 up 12 percent vs Q2, and Q4 up 3 percent vs Q3! And, if this pattern runs true, 2010 will be up 28 percent vs 2009!"Voila! The global semiconductor industry could well be in for a major revival next year itself! Why, even Bill McClean, president of IC Insights, took a more optimistic look at the state of the industry in light of the current global economic situation at the recently concluded SEMI ISS 2009 conference!!
Continues Penn, "The actual Q4 results (released this Sunday) were down 24.2 percent, slightly worse than our estimate."
How to get the buzz back in semicon?
It has been said that the current situation the global semiconductor industry finds itself in was fueled by greed and short-term business goals. So, who were the culprits? Weren't they warned earlier?
Adds Penn: "It was more complex that that! The woeful state-of-the-world economy was a consequence of debt, greed and irresponsibility; political self interests and short-term business goals, aided and abetted by compliant governments; ineffective regulators; imprudent institutions; incompetent management; irrational self delusion and vested self-interests! No one is blameless for this crisis! Concerns were raised, but the human nature is often irrational, and the 'easy option' always the one of choice."
So true! Perhaps, the 'easy option' factor seems to be affecting the Indian semiconductor industry as well, but more of that later!
The key issue today is: what needs to be done to get the buzz back in the global semiconductor industry? The answer probably lies in the following: in the short-term, it involves rebuilding the industry confidence, and in longer term, it involves a radical return to 'old fashioned' business and political values.
On another note, I was curious to know how the EDA segment is doing? Penn said, "No better, no worse than normal, technology marches on, new designs accelerate in a downturn."
Tricky memory!
Memory is another segment that's been hit hard. In fact, the other day, someone asked me why Qimonda's story was so important!
Another could not understand what Spansion really did, and why it had announced this January 15 that the company was exploring strategic alternatives for a sale or a merger! Doesn't matter! Memory is a very tricky business, and semiconductors is the mother of all such tricky businesses! Perhaps, isn't that why they once said in jest: "Real men have fabs!" Anyhow!
Coming back to memory, when can the industry expect some recovery in NAND? More importantly, will the various government interventions help? Qimonda also recently petitioned for the opening of the insolvency proceedings.
Penn is clear: "NAND will recover when the excess capacity abates, and that will take several more quarters. The government intervention won't help, rather the opposite, and it will exacerbate the excess capacity issue."
Fab spends to move up only by Q1-2010
Earlier, Penn predicted a recovery in 2010 with the resumption of growth in Q3 2009. What will make this happen? He says, "A recovering world GDP growth, plus a return in business confidence."
However, those keen on fabs, do not expect the fab spends to look up any time soon! In fact, Penn estimates fab spends to start moving north not until Q1-2010 at the earliest.
The Chinese impact!
Interestingly, China is set to see negative growth of 5.8 percent during 2009. It will be worth noting how much of this this impact the global semiconductor industry.
Point one, compared to a global semicon fall of 28 percent in 2009, Penn considers a fall in China's semicon fortunes of 5.8 percent to be 'darned sight better!' So, China should still be a high growth market (relatively speaking).
And India?
Like I mentioned earlier, the Indian semiconductor industry is perhaps getting affected by the 'easy option.' Design services continue to do well, hopefully, but when it comes to real semiconductor product companies, those are far and few.
And, I haven't seen any real activity in the recent past that could tell me more such initiatives are in the pipeline. Nor do I think there are many attempts to even incubate such companies. On the contrary, there's a mad rush toward solar!
No harm there! Solar is great for India and the need of the hour. However, India should not forget its semiconductor priorities as well! Indian simply cannot bank on chip design services and solar gains, and then proclaim that it has a very successful semiconductor industry! Real action is still quite far away.
I think, India needs to rethink its semiconductor strategy! It cannot survive on chip design alone.
"When you know the notes to sing, you can sing most anything," concludes the song from The Sound of Music!
So, is the Indian semiconductor industry hitting the right notes? That's going to be my next blog post, friends.
Monday, January 19, 2009
What the semiconductor industry should do in 2009!
What should the global semiconductor companies do to combat the current downturn? Is the lack of exit options in semiconductors really stunting innovation, especially in EDA? Is the Indian semiconductor industry really mature enough to enable product development? Do we have an ecosystem that encourages product development?
These are just some of the questions buzzing in my mind, and within the industry. While there is maybe an answer to the first one, and maybe no ready answer for the second one, I would probably agree with what Dr. H.V. Ananda former managing director of Synplicity said to me in August 2007, that the Indian ecosystem will not enable faster product development cycles!
At least, I haven't seen any good or great Indian company or startup from India in the recent years to accept that we have learned the art of developing products! I am still waiting and sincerely wish that this situation changes very soon!
I recently got into a discussion with Abhi Talwalkar, the President & CEO, LSI Corp., post the 22nd international conference on Very Large Scale Integration (VLSI) design and the 8th international conference on Embedded Systems in New Delhi, India, and quizzed him about LSI's thoughts on these and much more.
Three things to do for semicon firms
First up, what should the global semiconductor industry do in 2009? If there are three key things for semiconductor companies to do in this downturn, what would those be?
According to the LSI president, semiconductor companies should carefully manage their expenses and conserve cash. They should also develop conservative financial plans, which in turn will help them stabilize their balance sheets.
"Companies with strong financial capabilities and strong balance sheet will look to become stronger through this downturn. They should try to accelerate their market share through innovative practices.
"This should also be an opportunity for all companies to get closer to the customers, focus on their strategies and collaborate with them to help them come out stronger through this recession. Agility to innovate and meet with the customer requirements will help companies in developing a clearer focus on R &D and stronger executions," he said.
Does India have a product development ecosystem?
I still don't quite believe that India boasts a product development ecosystem, and am waiting for this to happen! On being asked this question, Talwalkar said that a product development ecosystem is dependent on the maturity of the end markets.
He added: "The Indian market is growing and will continue to grow both in terms of consumer and enterprise demand. This growth in demand will enhance the product development ecosystem as it will rationalize the cost of development. India still needs to fill in a lot of gaps to have a stronger product development ecosystem within semiconductor marketplace."
Continuing in the same vein, why haven't more startups happened in India, especially in semiconductors, especially in the recent years?
Referring to the ecosystem angle, Abhi Talwalkar noted that the success of startups is dependent on the existing ecosystem. "The growth of end markets will continue to encourage local ecosystem, especially in regards to native systems companies in areas of semiconductors. Currently, the system development is in its infancy in India, and with the growth of system MNC in India, it will grow.
The third point I had was: Is the lack of exit options in semiconductors really stunting innovation, especially in EDA? As I said, this is a very tricky one, and well, there has really been no answer to this one, as yet. Maybe, the answers will come in and be clearer as the year goes on!
The global semiconductor industry has had several headlines related to job cuts in the recent months. All of these layoffs have made me wonder whether there is going to be a drop in R&D, globally, due to the recession! If not, then why all of these layoffs? This is a point I've raised earlier!
Talwalkar said: "There will be drop in R&D with reduction in the top lines across the industry. There will be reduction in R&D budgets as companies will look to manage their expenses carefully as well as balance sheets."
Outlook 2009: India and global
Coming down to 2009, what is LSI's outlook for the Indian and global semiconductor industry?
Abhi Talwarkar said: "In the near term, the MNC India design centers will have to play significant roles. Their role is under appreciated and there are opportunities for them to grow further in the current economic scenario. The captive capability will grow as the cost structure and talent availability remains favorable here.
As for the global semiconductor industry, he added that the near term outlook will be challenging given the downturn and the rapid softening of product demand, especially in PCs, handsets, servers, consumer electronics, etc.
"In the long term, there will be positive growth in the semiconductor industry as the newer technologies get adopted in new product categories, -- automotive, healthcare, solar, consumer electronics, telecommunication infrastructure, etc., as well as the continued growth of electronic products, especially in India, China, Eastern European and BRIC countries," he added.
Several analysts have offered contrasting dates for an industry recovery. Even I am asked this question by several friends. My take is: do try and wait out this year, and consolidate, and try to continue to innovate, and prepare for the next industry upturn!
Perhaps, it is quite in line with what Malcolm Penn, chairman and CEO, Future Horizons, said recently, "Now, more than ever, is the time to work smarter not give up; the market will rebound, better start planning for that now!" Hope the industry is listening!
These are just some of the questions buzzing in my mind, and within the industry. While there is maybe an answer to the first one, and maybe no ready answer for the second one, I would probably agree with what Dr. H.V. Ananda former managing director of Synplicity said to me in August 2007, that the Indian ecosystem will not enable faster product development cycles!
At least, I haven't seen any good or great Indian company or startup from India in the recent years to accept that we have learned the art of developing products! I am still waiting and sincerely wish that this situation changes very soon!
I recently got into a discussion with Abhi Talwalkar, the President & CEO, LSI Corp., post the 22nd international conference on Very Large Scale Integration (VLSI) design and the 8th international conference on Embedded Systems in New Delhi, India, and quizzed him about LSI's thoughts on these and much more.Three things to do for semicon firms
First up, what should the global semiconductor industry do in 2009? If there are three key things for semiconductor companies to do in this downturn, what would those be?
According to the LSI president, semiconductor companies should carefully manage their expenses and conserve cash. They should also develop conservative financial plans, which in turn will help them stabilize their balance sheets.
"Companies with strong financial capabilities and strong balance sheet will look to become stronger through this downturn. They should try to accelerate their market share through innovative practices.
"This should also be an opportunity for all companies to get closer to the customers, focus on their strategies and collaborate with them to help them come out stronger through this recession. Agility to innovate and meet with the customer requirements will help companies in developing a clearer focus on R &D and stronger executions," he said.
Does India have a product development ecosystem?
I still don't quite believe that India boasts a product development ecosystem, and am waiting for this to happen! On being asked this question, Talwalkar said that a product development ecosystem is dependent on the maturity of the end markets.
He added: "The Indian market is growing and will continue to grow both in terms of consumer and enterprise demand. This growth in demand will enhance the product development ecosystem as it will rationalize the cost of development. India still needs to fill in a lot of gaps to have a stronger product development ecosystem within semiconductor marketplace."
Continuing in the same vein, why haven't more startups happened in India, especially in semiconductors, especially in the recent years?
Referring to the ecosystem angle, Abhi Talwalkar noted that the success of startups is dependent on the existing ecosystem. "The growth of end markets will continue to encourage local ecosystem, especially in regards to native systems companies in areas of semiconductors. Currently, the system development is in its infancy in India, and with the growth of system MNC in India, it will grow.
The third point I had was: Is the lack of exit options in semiconductors really stunting innovation, especially in EDA? As I said, this is a very tricky one, and well, there has really been no answer to this one, as yet. Maybe, the answers will come in and be clearer as the year goes on!
The global semiconductor industry has had several headlines related to job cuts in the recent months. All of these layoffs have made me wonder whether there is going to be a drop in R&D, globally, due to the recession! If not, then why all of these layoffs? This is a point I've raised earlier!
Talwalkar said: "There will be drop in R&D with reduction in the top lines across the industry. There will be reduction in R&D budgets as companies will look to manage their expenses carefully as well as balance sheets."
Outlook 2009: India and global
Coming down to 2009, what is LSI's outlook for the Indian and global semiconductor industry?
Abhi Talwarkar said: "In the near term, the MNC India design centers will have to play significant roles. Their role is under appreciated and there are opportunities for them to grow further in the current economic scenario. The captive capability will grow as the cost structure and talent availability remains favorable here.
As for the global semiconductor industry, he added that the near term outlook will be challenging given the downturn and the rapid softening of product demand, especially in PCs, handsets, servers, consumer electronics, etc.
"In the long term, there will be positive growth in the semiconductor industry as the newer technologies get adopted in new product categories, -- automotive, healthcare, solar, consumer electronics, telecommunication infrastructure, etc., as well as the continued growth of electronic products, especially in India, China, Eastern European and BRIC countries," he added.
Several analysts have offered contrasting dates for an industry recovery. Even I am asked this question by several friends. My take is: do try and wait out this year, and consolidate, and try to continue to innovate, and prepare for the next industry upturn!
Perhaps, it is quite in line with what Malcolm Penn, chairman and CEO, Future Horizons, said recently, "Now, more than ever, is the time to work smarter not give up; the market will rebound, better start planning for that now!" Hope the industry is listening!
Monday, November 24, 2008
2009 will not be 2001 repeat for global chip industry
The fact that the ongoing economic gloom has brought some doom for the global chip market is well known. H1-2008 held up well, better than most had predicted. However, now, the economic gloom in the global financial system has managed to nick the US, and Europe, and lately, Japan, into recessionary conditions, taking the global chip industry along with it!
Some fear that the recession will be as bad as 2001 and that 2009 could re-enact 2001! However, Future Horizons' Malcolm Penn differs, and I'd agree with him. In 2001, there was this huge dotcom collapse, coupled with the unfortunate happenings of 9/11, and a 'massive inventory burn just as a huge amount of excess capacity was coming on stream.'
What's the situation now? There's no serious overcapacity, and the pre-slowdown utilization rate were in the 90 percent region. Capex was already in retrenchment, well before the slowdown. Nor are there any serious excess inventory in the supply chain.
So, that only leaves the problem of the global financial gloom. Lot of money is being thrown about at the problem, hoping that it would pull the world out of the mess it currently finds itself in.
But, can the industry afford to NOT innovate? This is the time to innovate and find new ways to come out of the hole it finds itself in. The industry must also reconcile to single-digit growths mostly, from now on, I guess.
There has been no new 'killer device of mass use' like the mobile phone. Simply, no one has been able to come up with any new device of such mass appeal! The mobile phone, as we knew it, was only meant for voice. Now, it ports a camera, an MP3 player, Internet browsing, email, etc. It gave birth to PDAs, and probably, now, mobile Internet devices (MIDs).
It amuses me a lot when I find companies talking about providing full Internet experience on the mobile phone. It amuses me even further when I find a lot of people and companies talking about how they expect people to be on the Internet all the time! Surely, there are other things to do in one's life than simply staying hooked to the Internet! Or maybe, they have a crystal ball to gaze in, all the time!
The industry needs to be careful about all the predictions and technologies. Not all will succeed. What they should try their hand at is at being innovative! Or, has innovation completely gone out of the window?
Some fear that the recession will be as bad as 2001 and that 2009 could re-enact 2001! However, Future Horizons' Malcolm Penn differs, and I'd agree with him. In 2001, there was this huge dotcom collapse, coupled with the unfortunate happenings of 9/11, and a 'massive inventory burn just as a huge amount of excess capacity was coming on stream.'
What's the situation now? There's no serious overcapacity, and the pre-slowdown utilization rate were in the 90 percent region. Capex was already in retrenchment, well before the slowdown. Nor are there any serious excess inventory in the supply chain.
So, that only leaves the problem of the global financial gloom. Lot of money is being thrown about at the problem, hoping that it would pull the world out of the mess it currently finds itself in.
But, can the industry afford to NOT innovate? This is the time to innovate and find new ways to come out of the hole it finds itself in. The industry must also reconcile to single-digit growths mostly, from now on, I guess.
There has been no new 'killer device of mass use' like the mobile phone. Simply, no one has been able to come up with any new device of such mass appeal! The mobile phone, as we knew it, was only meant for voice. Now, it ports a camera, an MP3 player, Internet browsing, email, etc. It gave birth to PDAs, and probably, now, mobile Internet devices (MIDs).
It amuses me a lot when I find companies talking about providing full Internet experience on the mobile phone. It amuses me even further when I find a lot of people and companies talking about how they expect people to be on the Internet all the time! Surely, there are other things to do in one's life than simply staying hooked to the Internet! Or maybe, they have a crystal ball to gaze in, all the time!
The industry needs to be careful about all the predictions and technologies. Not all will succeed. What they should try their hand at is at being innovative! Or, has innovation completely gone out of the window?
Sunday, October 26, 2008
Chip forecast at 4-6pc range; financial gloom nicks industry recovery!
Early this year, during the IEF 2008 at Dubai, Future Horizons' CEO, Malcolm Penn, had forecast a 12 percent growth for the global semiconductor industry, and that we were all dealing with an industry in 'deep trauma'!
Soon after, the chip market started showing some signs of recovery and actually started to buzz again. This was in early June. Later, in July, the semiconductor industry numbers started indicating that this may not be a bad year after all! It also came to light that lousy memory numbers were holding back overall market numbers.
With the memory market not showing much signs of recovery, several analysts revised their forecasts in August and September, including Future Horizons. In early September, Penn forecast that the global semiconductor industry would probably grow at 4-8 percent.
However, now, with a global slowdown now in place, Penn says that Future Horizons' January (and July) forecast assumptions, and chip market forecasts, are no longer valid. He adds, "We have not yet had chance to fully crunch the numbers, but at first sight, 2008 now looks set to come in at between 4 and 5 percent, with 2009 in the 4-6 percent range."
This is very unfortunate! Just when it seemed a little while ago that the global semiconductor industry was in some stage of a small recovery, the global financial turmoil has more or less, ended that hope!
Penn cautions: "2009, however, could slip negative, depending on what happens to IC unit growth. At the moment we think this highly unlikely, given the 6.1 percent advanced and developing market GDP growth forecast and the fact there have only been two years of negative IC unit growth in the last 23 years, namely 1985 and 2001, both triggered by a massive inventory build."
Obviously, a slowing world economy is bad news for the chip industry! However, the coupling, he notes, is not as strong as one might be lulled into intuitively believing. There have been seven instances in the last 22 years where the chip market has grown in value during a period of slowing economic growth and two occasions when the market has declined in a period of GDP growth.
"IC units have exhibited three periods when they grew in the face of a GDP decline and five occasions when the units declined despite growth in the world GDP. The economy is, thus, not quite king; inventory, excess capacity and ASPs also play a role," adds Penn in his monthly report.
Underlying good news for chip industry
The underlying good news for the chip industry is that all of the other industry trends are good. Inventories do not seem to be seriously bloated; wafer fab capacity utilization levels are high; capital expenditure is low, and has been now for several quarters; and ASPs are in the midst of a long-term structural recovery phase.
Thus, while 2009 IC unit demand must inevitably slow, this slowing will coincide with an inevitable parallel slowing in new capacity additions, itself the result of a significant 2008 and prior Cap Ex cutbacks. The combined effect ought to be a relatively benign decrease in capacity utilisation rates, helping to cushion the inevitable near-term ASP pressures.
Looking at the near-term ASP trends, ASPs overall have been falling during 2008, but they have been falling much slower than the 2007 rate. This means that ASPs are actually increasing when measured on annualised basis.
Slowdown bound to impact ASPs
According to Penn, the economic (demand) slowdown is bound to negatively impact ASPs. What is more important from a market growth perspective however is not that they are falling but how fast they are compared with the same period last year.
While the ASP recovery trend might wobble next year, the underlying trends still look good, providing the world does not slip into global recession.
The immediate world government policy challenge is to stabilize the global financial markets, while nursing economies through a global downturn and keeping inflation under control. "That is quite a steep challenge (it has never before been called upon to be done); the great danger being, aside from the risk of failing, is a return to vested self-interests and protectionism and the impact that this will have on globalisation and future world growth. There is a real danger this is the precursor of World War 3, with economics as the fire-power," he adds.
Penn advises: "Over a longer horizon, policymakers will be looking to rebuild firm underpinnings for financial intermediation and will be considering how to reduce cyclical tendencies in the global economy and strengthen supply/demand responses in commodity markets.
"The electronics industry would also do well to divorce itself from the financial market's casino driven addiction by starting to plan for its longer-term growth needs not the previous (and now seriously discredited) Wall Street greed/bonus-driven quarterly hysteria."
This has indeed been a topsy-turvy year! Apple's iPhone 3G and now, Google's G1 phone have hit the markets. Intel demonstated its Moorestown platform at the IDF in Taipei, promising great things in 2009! Intel also spoke a lot about mobile Intenet devices (MIDs) and what great things these can do.
However, no one, it seems, is able to point out confidently that the cheer in Christmas spend will be back! Or, how, 2009, will pan out! When will the global semiconductor industry see light at the end of the tunnel?
Soon after, the chip market started showing some signs of recovery and actually started to buzz again. This was in early June. Later, in July, the semiconductor industry numbers started indicating that this may not be a bad year after all! It also came to light that lousy memory numbers were holding back overall market numbers.
With the memory market not showing much signs of recovery, several analysts revised their forecasts in August and September, including Future Horizons. In early September, Penn forecast that the global semiconductor industry would probably grow at 4-8 percent.
However, now, with a global slowdown now in place, Penn says that Future Horizons' January (and July) forecast assumptions, and chip market forecasts, are no longer valid. He adds, "We have not yet had chance to fully crunch the numbers, but at first sight, 2008 now looks set to come in at between 4 and 5 percent, with 2009 in the 4-6 percent range."
This is very unfortunate! Just when it seemed a little while ago that the global semiconductor industry was in some stage of a small recovery, the global financial turmoil has more or less, ended that hope!
Penn cautions: "2009, however, could slip negative, depending on what happens to IC unit growth. At the moment we think this highly unlikely, given the 6.1 percent advanced and developing market GDP growth forecast and the fact there have only been two years of negative IC unit growth in the last 23 years, namely 1985 and 2001, both triggered by a massive inventory build."
Obviously, a slowing world economy is bad news for the chip industry! However, the coupling, he notes, is not as strong as one might be lulled into intuitively believing. There have been seven instances in the last 22 years where the chip market has grown in value during a period of slowing economic growth and two occasions when the market has declined in a period of GDP growth.
"IC units have exhibited three periods when they grew in the face of a GDP decline and five occasions when the units declined despite growth in the world GDP. The economy is, thus, not quite king; inventory, excess capacity and ASPs also play a role," adds Penn in his monthly report.
Underlying good news for chip industry
The underlying good news for the chip industry is that all of the other industry trends are good. Inventories do not seem to be seriously bloated; wafer fab capacity utilization levels are high; capital expenditure is low, and has been now for several quarters; and ASPs are in the midst of a long-term structural recovery phase.
Thus, while 2009 IC unit demand must inevitably slow, this slowing will coincide with an inevitable parallel slowing in new capacity additions, itself the result of a significant 2008 and prior Cap Ex cutbacks. The combined effect ought to be a relatively benign decrease in capacity utilisation rates, helping to cushion the inevitable near-term ASP pressures.
Looking at the near-term ASP trends, ASPs overall have been falling during 2008, but they have been falling much slower than the 2007 rate. This means that ASPs are actually increasing when measured on annualised basis.
Slowdown bound to impact ASPs
According to Penn, the economic (demand) slowdown is bound to negatively impact ASPs. What is more important from a market growth perspective however is not that they are falling but how fast they are compared with the same period last year.
While the ASP recovery trend might wobble next year, the underlying trends still look good, providing the world does not slip into global recession.
The immediate world government policy challenge is to stabilize the global financial markets, while nursing economies through a global downturn and keeping inflation under control. "That is quite a steep challenge (it has never before been called upon to be done); the great danger being, aside from the risk of failing, is a return to vested self-interests and protectionism and the impact that this will have on globalisation and future world growth. There is a real danger this is the precursor of World War 3, with economics as the fire-power," he adds.
Penn advises: "Over a longer horizon, policymakers will be looking to rebuild firm underpinnings for financial intermediation and will be considering how to reduce cyclical tendencies in the global economy and strengthen supply/demand responses in commodity markets.
"The electronics industry would also do well to divorce itself from the financial market's casino driven addiction by starting to plan for its longer-term growth needs not the previous (and now seriously discredited) Wall Street greed/bonus-driven quarterly hysteria."
This has indeed been a topsy-turvy year! Apple's iPhone 3G and now, Google's G1 phone have hit the markets. Intel demonstated its Moorestown platform at the IDF in Taipei, promising great things in 2009! Intel also spoke a lot about mobile Intenet devices (MIDs) and what great things these can do.
However, no one, it seems, is able to point out confidently that the cheer in Christmas spend will be back! Or, how, 2009, will pan out! When will the global semiconductor industry see light at the end of the tunnel?
Thursday, October 9, 2008
Solar, semi rocking in India; global semi recovery in 2010?
Wow! What a start for October! We have had a whole new range of activities going on! Fist, late September, the India Semiconductor Association organized a solar/PV conclave in New Delhi, where plans were laid out for India's roadmap in the solar/PV field. the ISA-NMCC (National Manufacturing Competitiveness Council) report on the Indian solar PV market was also released at the conclave.
According to Poornima Shenoy, president, ISA, the year 2015 could be important for this industry. She said, "Around this time, the product cost of the Indian solar PV industry is likely to match the semi grid parity (peak power) globally, and also to match the grid parity within India."
Next, AMD joined hands with Advanced Technology Investment Co. (ATIC) of Abu Dhabi to create "The Foundry Company", a leading-edge foundry production outfit. It will also join the IBM joint development alliance for silicon-on-insulator (SOI) and bulk silicon through 22nm generation. It will be very interesting to see how AMD now takes on Intel!
Messe Munchen put out a white paper on "How China, India and Eastern Europe are changing the global electronics market." This is not surprising at all! You can download the report by clicking on the link here, and I must say, the report is really engaging!
On the same lines, Gartner came up with its analysis that China is dominating the global semiconductor scene, and that both India and Vietnam are gaining! India's growing might in semicon is well documented! Also, last month, I had mentioned how the lack of a fab or the exit of a top professional from an Indian semicon firm would not hamper India's growing fortunes in this industry!
The trials and tribulations of the global semiconductor industry were already touched upon by Derek Lidow of iSuppli. Analysts such as Malcolm Penn of Future Horizons and those at Gartner have been saying similar things, more or less. Penn advises that this is the time to stop chasing fashion and get back to basics. He adds, "The good news being the industry basics are mercifully as good as they get back."
Gartner only expects a recovery for semiconductors sometime in 2010! According to Gartner, a collapse in memory spending, combined with a weak economy, is driving a major contraction in semiconductor capital equipment spending in 2008. The slowdown is likely to continue into 2009 before the industry recovers in 2010.
SEMI now has a presence in India. Sathya Prasad, formerly of Cadence, has been appointed as president of SEMI India with immediate effect. This is a further indication of India's growing leadership in the semicon space. I will be getting into a discussion with Sathya Prasad sometime later.
Of course, we have the usual stuff like companies selling off or retiring 200mm fabs. Examples are NXP, Hynix, Renesas, etc. Also, DRAM prices continue to be weak and suppliers could likely face a credit crunch.
Interesting mix of happenings, isn't it! While India rocks in solar and semicon, we are still speculating on a recovery for the global semiconductor industry. About time India took the lead in making that happen!
Finally, I was busy with Durga Puja, and hence, didn't blog in a while. Will try my best and make up for my absence. I would like to take this opportunity to wish SHUBHO BIJOYA to all of my Bengali and non-Bengali friends.
According to Poornima Shenoy, president, ISA, the year 2015 could be important for this industry. She said, "Around this time, the product cost of the Indian solar PV industry is likely to match the semi grid parity (peak power) globally, and also to match the grid parity within India."
Next, AMD joined hands with Advanced Technology Investment Co. (ATIC) of Abu Dhabi to create "The Foundry Company", a leading-edge foundry production outfit. It will also join the IBM joint development alliance for silicon-on-insulator (SOI) and bulk silicon through 22nm generation. It will be very interesting to see how AMD now takes on Intel!
Messe Munchen put out a white paper on "How China, India and Eastern Europe are changing the global electronics market." This is not surprising at all! You can download the report by clicking on the link here, and I must say, the report is really engaging!
On the same lines, Gartner came up with its analysis that China is dominating the global semiconductor scene, and that both India and Vietnam are gaining! India's growing might in semicon is well documented! Also, last month, I had mentioned how the lack of a fab or the exit of a top professional from an Indian semicon firm would not hamper India's growing fortunes in this industry!
The trials and tribulations of the global semiconductor industry were already touched upon by Derek Lidow of iSuppli. Analysts such as Malcolm Penn of Future Horizons and those at Gartner have been saying similar things, more or less. Penn advises that this is the time to stop chasing fashion and get back to basics. He adds, "The good news being the industry basics are mercifully as good as they get back."
Gartner only expects a recovery for semiconductors sometime in 2010! According to Gartner, a collapse in memory spending, combined with a weak economy, is driving a major contraction in semiconductor capital equipment spending in 2008. The slowdown is likely to continue into 2009 before the industry recovers in 2010.
SEMI now has a presence in India. Sathya Prasad, formerly of Cadence, has been appointed as president of SEMI India with immediate effect. This is a further indication of India's growing leadership in the semicon space. I will be getting into a discussion with Sathya Prasad sometime later.
Of course, we have the usual stuff like companies selling off or retiring 200mm fabs. Examples are NXP, Hynix, Renesas, etc. Also, DRAM prices continue to be weak and suppliers could likely face a credit crunch.
Interesting mix of happenings, isn't it! While India rocks in solar and semicon, we are still speculating on a recovery for the global semiconductor industry. About time India took the lead in making that happen!
Finally, I was busy with Durga Puja, and hence, didn't blog in a while. Will try my best and make up for my absence. I would like to take this opportunity to wish SHUBHO BIJOYA to all of my Bengali and non-Bengali friends.
Wednesday, September 3, 2008
Semicon to grow 4-8pc in 2008; ASPs trending up
It has really been a tumultuous year for semiconductors, which has held up very well, despite the memory market turmoils, so far.
Just a day ago, Future Horizons reported on the June sales for semiconductors. According to Malcolm Penn, chairman and CEO, June's WSTS results brought both good and bad news! The good news being that the recovery momentum strengthened, with Q2 sales up 3 percent on Q1.
He says, "This was significantly better than even we dared to predict in last month's Report, despite the fact we raised eyebrows and disbelief by suggesting a 2.3 percent quarter on quarter growth."
The bad news was the Jan-May YTD WSTS numbers for standard logic (and thus, the total ICs and total SC) were revised downwards by a sizeable US$1.4 billion, a restatement that will knock 2 percentage points off the 2008 year on year growth number!
What were the reasons for the recovery momentum to have strengthened, with Q2 sales up 3 percent on Q1? Penn adds: "The first half year sales were much stronger than everyone (except us) believed. It has depresses, only by memories."
Also, the Jan-May YTD WSTS numbers for standard logic (and total ICs and total SC) were revised downward by a sizeable US$1.4 billion. Why did this happen? It is interesting to note that one company mis-reported its sales for Jan-May and corrected this reporting error in June.
Penn adds: "This often happens, but not before at this magnitude. Individual company details are secret, so we do not know who the culprit was or how the 'error' happened."
Forecast revised to 4-8 percent
Future Horizons further says in its report that the downward revision in standard logic numbers would knock 2 percentage points off the 2008 year on year growth number. On quizzing, Penn agrees: "Yes, our 'revised' forecast range is 4-8 percent. We are currently still erring on the high side of this range. More important though is the market momentum."
Memory has been a constant problem this year. iSuppli has mentioned in an earlier report that NAND recovery will be likely in H2-2009.
DRAMeXchange, in another report today, indicates a new record low for DDR 1Gb. Even Penn agrees that recovery is definitely not in sight. When do we actually get to see some recovery? He adds: "There is still over capacity, however, Q3 is typically the strongest demand quarter."
Still on memory, does Future Horizons forsee Hynix bouncing back? Penn says: "They did; in 2000-02, they were on the verge of bankruptcy. Now, they are fitter and financially strong."
ASPs were trending up earlier, and the status quo is maintained. "ASPs are still trending up, slowly, but surely. We will be commenting more on this in September's report," he adds.
Fab spends trending down
Just a few days ago, a SEMI analyst highlighted the chief reasons for decline in fab spends. Christian Gregor Dieseldorff, Senior Manager of Fab Information and Analysis at SEMI, said: "Given the weaker economic conditions globally, coupled with higher energy and commodity prices and the financial crisis, the overall outlook for semiconductor growth in 2008 is for low-single digit growth in both revenues and units. As such, device makers have responded by cutting back their capital spending and pushing out fab projects or putting them on hold."
On the status with fab spends, Penn agrees, "Those are still trending down, and will continue to do so for at least the next three quarters."
Solar not much help
There have been lot of investments happening in solar/PV. One may imagine that all of this would be helping the global semiconductor industry. So, is the spend in solar/PV really helping the industry? Penn disagrees, saying this only helps the equipment guys.
One last query, and this is regarding the smaller IDMs, 'fab-lite' IDMs, and fabless semiconductor companies. Are they growing at below average? Penn concludes: "They are mostly not. The fabless firms outgrew the market 2x in the first half of 2008."
Perhaps, here also lies a message for India!! One hopes that India does not get too carried away by all those investments in solar/PV, and focuses more on the semicon side. Semicon in India, does need concrete planning, after all!
Just a day ago, Future Horizons reported on the June sales for semiconductors. According to Malcolm Penn, chairman and CEO, June's WSTS results brought both good and bad news! The good news being that the recovery momentum strengthened, with Q2 sales up 3 percent on Q1.He says, "This was significantly better than even we dared to predict in last month's Report, despite the fact we raised eyebrows and disbelief by suggesting a 2.3 percent quarter on quarter growth."
The bad news was the Jan-May YTD WSTS numbers for standard logic (and thus, the total ICs and total SC) were revised downwards by a sizeable US$1.4 billion, a restatement that will knock 2 percentage points off the 2008 year on year growth number!
What were the reasons for the recovery momentum to have strengthened, with Q2 sales up 3 percent on Q1? Penn adds: "The first half year sales were much stronger than everyone (except us) believed. It has depresses, only by memories."
Also, the Jan-May YTD WSTS numbers for standard logic (and total ICs and total SC) were revised downward by a sizeable US$1.4 billion. Why did this happen? It is interesting to note that one company mis-reported its sales for Jan-May and corrected this reporting error in June.
Penn adds: "This often happens, but not before at this magnitude. Individual company details are secret, so we do not know who the culprit was or how the 'error' happened."
Forecast revised to 4-8 percent
Future Horizons further says in its report that the downward revision in standard logic numbers would knock 2 percentage points off the 2008 year on year growth number. On quizzing, Penn agrees: "Yes, our 'revised' forecast range is 4-8 percent. We are currently still erring on the high side of this range. More important though is the market momentum."
Memory has been a constant problem this year. iSuppli has mentioned in an earlier report that NAND recovery will be likely in H2-2009.
DRAMeXchange, in another report today, indicates a new record low for DDR 1Gb. Even Penn agrees that recovery is definitely not in sight. When do we actually get to see some recovery? He adds: "There is still over capacity, however, Q3 is typically the strongest demand quarter."
Still on memory, does Future Horizons forsee Hynix bouncing back? Penn says: "They did; in 2000-02, they were on the verge of bankruptcy. Now, they are fitter and financially strong."
ASPs were trending up earlier, and the status quo is maintained. "ASPs are still trending up, slowly, but surely. We will be commenting more on this in September's report," he adds.
Fab spends trending down
Just a few days ago, a SEMI analyst highlighted the chief reasons for decline in fab spends. Christian Gregor Dieseldorff, Senior Manager of Fab Information and Analysis at SEMI, said: "Given the weaker economic conditions globally, coupled with higher energy and commodity prices and the financial crisis, the overall outlook for semiconductor growth in 2008 is for low-single digit growth in both revenues and units. As such, device makers have responded by cutting back their capital spending and pushing out fab projects or putting them on hold."
On the status with fab spends, Penn agrees, "Those are still trending down, and will continue to do so for at least the next three quarters."
Solar not much help
There have been lot of investments happening in solar/PV. One may imagine that all of this would be helping the global semiconductor industry. So, is the spend in solar/PV really helping the industry? Penn disagrees, saying this only helps the equipment guys.
One last query, and this is regarding the smaller IDMs, 'fab-lite' IDMs, and fabless semiconductor companies. Are they growing at below average? Penn concludes: "They are mostly not. The fabless firms outgrew the market 2x in the first half of 2008."
Perhaps, here also lies a message for India!! One hopes that India does not get too carried away by all those investments in solar/PV, and focuses more on the semicon side. Semicon in India, does need concrete planning, after all!
Friday, July 25, 2008
Semicon to grow 10pc during 2008: Future Horizons
Hold on to your horses, folks. The year 2008 may not be so bad after all for the global semiconductor industry, according to Malcolm Penn, CEO, Future Horizons.
While presenting the mid-term semiconductor industry outlook in London this week, he said that the overall semiconductor outlook for 2008 was somewhere between 7-10 perfect. This includes 5-8 percent unit growth plus 2 percent ASP growth.
In his presentation, he ruled out any changes in forecast, saying that the industry could grow at about 10 percent this year, though 12 percent growth was still possible.
Will unit sales will hold up then? This is one of the great unknown answers! Unit visibility is bad, very bad, he adds. The inventory excesses/adjustments can always catch you out, but the underlying 10 percent pa annual unit growth will continue.
When put together with increasing ASPs, will it start to deliver strong overall chip market growth? Penn assumes that this may happen either second half of this year at best, or second half of next year at worst.
How has the memory market been doing among all of this? Well, it has really been lousy, and it is this that is holding back the overall market numbers!
There have been concerns over the lack of investment in the overall semiconductor manufacturing capacity. This trend will likely continue. Penn says: "Yes, this was the whole theme for the capacity section. It's been going on for a year and will continue that way for most of this year. That earliest correction will come in Q4-08, i.e., capacity in Q4-09."
In the midst of all of this, it seems that the Asian giants such as China and India, as well as the other emerging markets have been compensating adequately for the recessionary tendencies elsewhere.
Finally, are the Intels, Samsungs and the foundries of this world spending the required billions of dollars to bring on production at the leading-edge? Penn says: "Intel yes, but Samsung is slowing, but the foundries, no! The reason? To put up their prices; the industry is fed up with four successive years of decreasing revenues per wafer start, despite all of the billions spent on new investment."
So what's Future Horizon's overall outlook for 2008? One, no change to IFS2008-09 analysis. If anything, the fundamentals are stronger! Also, the global economic outlook has strengthened. However, fab capacity expansion rate has slowed. The inventory is as controlled as it gets. PC and mobile phone markets remain robust.
However, there is weakening consumer demand in the US and the UK/Eurozone. The memory markets are continuing to be plagued with price wars. As a result, the YoY maths has been slightly impacted (down). The balance still leans to the upside, depending on the ASPs.
Danger signs to watch?
Multiple, he says! Capacity: It’s hard to see how this can spoil 2008-09, provided unit growth holds up (need to watch capex). Next, demand -- the current IC unit demand is sustainable provided the economy holds up (need to watch inventory). On the economy itself, the current outlook continues good, but risks still on the downside (if it does tank, run for the life boats).
And finally, ASPs, which are always the industry’s first line of defence (ASPs can still derail Q3/Q4, but they are improving, memories aside).
Chip industry in perspective
Technology marches on, new markets open, old ones expand, enhancing our lives. The fall out at the macro level affects the entire world economy. Next, the electronic market was traditionally Japan, North America and Western Europe. It now encompasses the whole Asian Rim, China, Eastern Europe and India. There has been a middle class market growth from 500 million to 3 billion people.
Large chip markets have become larger, niches have become commodities, and new niches have arisen. Far from maturing, the industry is still in its volatile high growth phase, says Penn, with at least a further 20 years of strong growth in prospect.
Third digital wave leaders will be different from today. The shakeout has started. The underlying growth drivers for chips continues good. The market’s not maturing nor slowing, and neither have the industry dynamics / psyche (globally competitive / intensely competitive).
As Penn says, he who dares may not necessarily win, but the feint-hearted will definitely lose! Aptly sums up the state of the global semiconductor industry.
While presenting the mid-term semiconductor industry outlook in London this week, he said that the overall semiconductor outlook for 2008 was somewhere between 7-10 perfect. This includes 5-8 percent unit growth plus 2 percent ASP growth.
In his presentation, he ruled out any changes in forecast, saying that the industry could grow at about 10 percent this year, though 12 percent growth was still possible.Will unit sales will hold up then? This is one of the great unknown answers! Unit visibility is bad, very bad, he adds. The inventory excesses/adjustments can always catch you out, but the underlying 10 percent pa annual unit growth will continue.
When put together with increasing ASPs, will it start to deliver strong overall chip market growth? Penn assumes that this may happen either second half of this year at best, or second half of next year at worst.
How has the memory market been doing among all of this? Well, it has really been lousy, and it is this that is holding back the overall market numbers!
There have been concerns over the lack of investment in the overall semiconductor manufacturing capacity. This trend will likely continue. Penn says: "Yes, this was the whole theme for the capacity section. It's been going on for a year and will continue that way for most of this year. That earliest correction will come in Q4-08, i.e., capacity in Q4-09."
In the midst of all of this, it seems that the Asian giants such as China and India, as well as the other emerging markets have been compensating adequately for the recessionary tendencies elsewhere.
Finally, are the Intels, Samsungs and the foundries of this world spending the required billions of dollars to bring on production at the leading-edge? Penn says: "Intel yes, but Samsung is slowing, but the foundries, no! The reason? To put up their prices; the industry is fed up with four successive years of decreasing revenues per wafer start, despite all of the billions spent on new investment."
So what's Future Horizon's overall outlook for 2008? One, no change to IFS2008-09 analysis. If anything, the fundamentals are stronger! Also, the global economic outlook has strengthened. However, fab capacity expansion rate has slowed. The inventory is as controlled as it gets. PC and mobile phone markets remain robust.
However, there is weakening consumer demand in the US and the UK/Eurozone. The memory markets are continuing to be plagued with price wars. As a result, the YoY maths has been slightly impacted (down). The balance still leans to the upside, depending on the ASPs.
Danger signs to watch?
Multiple, he says! Capacity: It’s hard to see how this can spoil 2008-09, provided unit growth holds up (need to watch capex). Next, demand -- the current IC unit demand is sustainable provided the economy holds up (need to watch inventory). On the economy itself, the current outlook continues good, but risks still on the downside (if it does tank, run for the life boats).
And finally, ASPs, which are always the industry’s first line of defence (ASPs can still derail Q3/Q4, but they are improving, memories aside).
Chip industry in perspective
Technology marches on, new markets open, old ones expand, enhancing our lives. The fall out at the macro level affects the entire world economy. Next, the electronic market was traditionally Japan, North America and Western Europe. It now encompasses the whole Asian Rim, China, Eastern Europe and India. There has been a middle class market growth from 500 million to 3 billion people.
Large chip markets have become larger, niches have become commodities, and new niches have arisen. Far from maturing, the industry is still in its volatile high growth phase, says Penn, with at least a further 20 years of strong growth in prospect.
Third digital wave leaders will be different from today. The shakeout has started. The underlying growth drivers for chips continues good. The market’s not maturing nor slowing, and neither have the industry dynamics / psyche (globally competitive / intensely competitive).
As Penn says, he who dares may not necessarily win, but the feint-hearted will definitely lose! Aptly sums up the state of the global semiconductor industry.
Sunday, July 6, 2008
Can Apple lead rebound in NAND fortunes?
There is an interesting piece of news on Digitimes, Taiwan, which says that Samsung has recently told its downstream customers that it will start reducing supply of NAND flash chips from July as Apple, Samsung's key customer, has placed a large batch of orders.
Will this move do anything to the NAND flash market? In the earlier blog, I had highlighted what Future Horizon's Malcolm Penn had mentioned -- that the impact of the Apple iPhone has been minimal so far on the chip market. "It's just one item in a very large and complex mix of products. The overall iPhone volume is miniscule," he says. I would probably go with that statement.
Even Semico, in its recent report, has said that the NAND market has not experienced the 'Apple effect' as has been seen in previous years, so far in 2008, despite the upcoming 3G iPhone (with up to 16GB of storage) and the SSD option for the MacBook Air.
With a majority of the analyst community yet to give the green signal about an industry revival of sorts, everything depends largely on how the new iPhone will do! However, even if it does do well, it just may not be enough!
The consumer confidence is still quite low, and rising oil prices are not really helping. Will these factors have any effect on the consumer electronics segment in the long run? Too early to say though, and do bear in mind that one product or one brand can find it a tough ask to turn around, rather, lead the memory market, and the consumer electronics industry to huge growths.
All of us in the semiconductor/chip industry keep hoping that a strong rebound does happen, and that the industry remains on course of a strong growth in 2008. However, it is not right to pin faith on one product or one brand to lead a revival.
We are probably either to hung up about numbers or about technologies. Especially, whenever a new product or technology comes around, we start banking on that product or technology to revive the industry's fortunes. Great technologies do not essentially lead to market revivals. We have seen that happen umpteen number of times.
Perhaps, it'd be wiser to let the industry have a 'free fall' or 'free growth', if you may, for some time, and let corrections happen over time, rather than bank on something or the other to carry the industry's fortunes forward.
Will this move do anything to the NAND flash market? In the earlier blog, I had highlighted what Future Horizon's Malcolm Penn had mentioned -- that the impact of the Apple iPhone has been minimal so far on the chip market. "It's just one item in a very large and complex mix of products. The overall iPhone volume is miniscule," he says. I would probably go with that statement.
Even Semico, in its recent report, has said that the NAND market has not experienced the 'Apple effect' as has been seen in previous years, so far in 2008, despite the upcoming 3G iPhone (with up to 16GB of storage) and the SSD option for the MacBook Air.
With a majority of the analyst community yet to give the green signal about an industry revival of sorts, everything depends largely on how the new iPhone will do! However, even if it does do well, it just may not be enough!
The consumer confidence is still quite low, and rising oil prices are not really helping. Will these factors have any effect on the consumer electronics segment in the long run? Too early to say though, and do bear in mind that one product or one brand can find it a tough ask to turn around, rather, lead the memory market, and the consumer electronics industry to huge growths.
All of us in the semiconductor/chip industry keep hoping that a strong rebound does happen, and that the industry remains on course of a strong growth in 2008. However, it is not right to pin faith on one product or one brand to lead a revival.
We are probably either to hung up about numbers or about technologies. Especially, whenever a new product or technology comes around, we start banking on that product or technology to revive the industry's fortunes. Great technologies do not essentially lead to market revivals. We have seen that happen umpteen number of times.
Perhaps, it'd be wiser to let the industry have a 'free fall' or 'free growth', if you may, for some time, and let corrections happen over time, rather than bank on something or the other to carry the industry's fortunes forward.
Thursday, July 3, 2008
iPhone's impact minimal on chip market
Future Horizons recently released its Global Semiconductor Monthly Report June 2008.
The first question on everyone's minds is: Are there finally any signs of the global semiconductor/chip industry turning around. Malcolm Penn, CEO, Future Horizons says that most of the evidence is still anecdotal. The real, clear proof will show itself in Q3-08.
There are a set of market fundamentals that are in remarkably strong form. The global economy still strong, and even showing signs of 'not getting worse' in the US. However, there is also tight fab capacity. No matter, the unit demand has been holding firm and ASPs are holding no longer in free fall.
Even the memory market has been holding up much better for now. Penn says that memory ASPs have been 'flat' for six months now. So, there has been some upward movement in ASPs. According to Penn, memories have been flat, and are no longer falling. The logic has been increasing, but micro is still falling, and the overall total ICs is trending up.
The impact of Apple's iPhone 3G has been minimal so far on the chip market. Penn says: "It's just one item in a very large and complex mix of products. The overall i-phone volume is miniscule," adds Penn.
With several advancements and announcements happening in the solar/PV segment, it may seem that the solar/PV market is taking over from where the chip market slipped. Penn says that although it certainly is a growth market for the equipment suppliers, but with still very small numbers, it cannot make up for the semicon equipment/capex slowdown.
Future Horizons had earlier forecasted 12 percent growth for the global semiconductor in 2008. With some other analysts revising forecasts, let us examine whether Future Horizons consider a revision as well.
Penn says: "If I were doing the forecast now, I'd have probably settled on 10 percent rather than 12 percent, but this is fine-tuning the maths, and not the analysis. We will not be changing our forecast at the July seminar.
"Our overall message is clear. The growth this year will NOT be 4-5 percent. I really do not care, if 10 percent rather than 12 percent is the final real number. We are not in the business of 'guessing the right number', rather, just getting the trends and analysis right."
Penny yet to drop
Finally, there is a need to take into account the falling cap ex, tight capacity, focus on profits, continuing strong market demand, second half seasonal effects, etc. The forecast tea leaves all seem to be pointing in the same positive direction. Has the worm finally turned for the industry? Future Horizons thinks so! It also believes that the penny has yet to drop and that the impact on the market will be dramatic.
Penn explains that low capex means less new capacity (12 months later). And less new capacity means tighter supply. Tighter supply means price increases and rationing.
In parallel, falling ASPs means less profits. Less profits means an unwillingness to invest. Low ASPs means a reluctance to supply. Eventually, either someone exits the business or they increase the price.
"Positive unit growth (it is, IC units are up 9.2 percent YTD on 2007) and a positive ASP growth (so far 2008 YTD the trend is still negative 3.9, but this will reduce in 2H at least to zero, my guess is slightly positive. It is already only half last year's decline) means strong value growth hence our belief growth will end up in the '10 percent' range," he adds.
The first question on everyone's minds is: Are there finally any signs of the global semiconductor/chip industry turning around. Malcolm Penn, CEO, Future Horizons says that most of the evidence is still anecdotal. The real, clear proof will show itself in Q3-08.
There are a set of market fundamentals that are in remarkably strong form. The global economy still strong, and even showing signs of 'not getting worse' in the US. However, there is also tight fab capacity. No matter, the unit demand has been holding firm and ASPs are holding no longer in free fall.
Even the memory market has been holding up much better for now. Penn says that memory ASPs have been 'flat' for six months now. So, there has been some upward movement in ASPs. According to Penn, memories have been flat, and are no longer falling. The logic has been increasing, but micro is still falling, and the overall total ICs is trending up.
The impact of Apple's iPhone 3G has been minimal so far on the chip market. Penn says: "It's just one item in a very large and complex mix of products. The overall i-phone volume is miniscule," adds Penn.
With several advancements and announcements happening in the solar/PV segment, it may seem that the solar/PV market is taking over from where the chip market slipped. Penn says that although it certainly is a growth market for the equipment suppliers, but with still very small numbers, it cannot make up for the semicon equipment/capex slowdown.
Future Horizons had earlier forecasted 12 percent growth for the global semiconductor in 2008. With some other analysts revising forecasts, let us examine whether Future Horizons consider a revision as well.
Penn says: "If I were doing the forecast now, I'd have probably settled on 10 percent rather than 12 percent, but this is fine-tuning the maths, and not the analysis. We will not be changing our forecast at the July seminar.
"Our overall message is clear. The growth this year will NOT be 4-5 percent. I really do not care, if 10 percent rather than 12 percent is the final real number. We are not in the business of 'guessing the right number', rather, just getting the trends and analysis right."
Penny yet to drop
Finally, there is a need to take into account the falling cap ex, tight capacity, focus on profits, continuing strong market demand, second half seasonal effects, etc. The forecast tea leaves all seem to be pointing in the same positive direction. Has the worm finally turned for the industry? Future Horizons thinks so! It also believes that the penny has yet to drop and that the impact on the market will be dramatic.
Penn explains that low capex means less new capacity (12 months later). And less new capacity means tighter supply. Tighter supply means price increases and rationing.
In parallel, falling ASPs means less profits. Less profits means an unwillingness to invest. Low ASPs means a reluctance to supply. Eventually, either someone exits the business or they increase the price.
"Positive unit growth (it is, IC units are up 9.2 percent YTD on 2007) and a positive ASP growth (so far 2008 YTD the trend is still negative 3.9, but this will reduce in 2H at least to zero, my guess is slightly positive. It is already only half last year's decline) means strong value growth hence our belief growth will end up in the '10 percent' range," he adds.
Wednesday, July 2, 2008
Semicon is no longer business as usual!
The Global Semiconductor Monthly Report June 2008 from Future Horizons, states: Let the market beware; it is no longer business as usual!
I would completely agree! For instance, the industry has since long moved to fabless, and now, fabless firms are ranking among the very best. Or, even from 130nm to 22nm process nodes, or from 180mm fabs to 450mm fabs!! Fair enough?
Coming back to the industry trends, Malcom Penn, CEO, Future Horizons, says that compared with March, the IC units were up and ASPs were down in April, even after adjusting for March being a five-week month. The net result was a 7.7 percent revenue decline! Does this spell more bad news for the beleaguered chip market?
Certainly, this seems to be the industry consensus view. Always the contrarian, Future Horizons' views are different. Here's how! April's results came in exactly as expected. Also, the unit rise and fall was simply the result of the engrained 'making the quarterly number' mentality!
Digging beneath the layers reveals a set of market fundamentals that are in remarkably strong form. The penny may not yet have dropped to the table, but, even for the chip industry ever full of surprises, let the market beware; it is no longer business as usual.
Penn says: To paraphrase the late Sir Winston Churchill's comments on Russia, "The chip industry too is a riddle wrapped up in an enigma". It marches to its own complex interwoven pattern of rules, each relatively simple when viewed in isolation, but contriving to interact in a volatile and unique way. Right now, the industry is at its most confused [state] for a decade, battered by a barrage of uncertainties and contradictions. Shell-shocked and confused, confidence is off the agenda … just when what is needed most is cool heads and determination."
Be it falling cap ex, tight capacity, focus on profits, continuing strong market demand, second half seasonal effects, according to him, the forecast tea leaves all seem to be pointing in the same positive direction. Has the worm finally turned then for the industry? He thinks so! Future Horizons also thinks that the "penny has yet to drop and that the impact on the market will be seismic and dramatic".
Earlier, the Semiconductor Industry Association (SIA) reported that worldwide sales of semiconductors of $21.8 billion in May were 7.5 percent higher than the $20.3 billion reported for May 2007, reflecting continued strong sales of consumer electronic products. May sales were 2.8 percent higher than the $21.2 billion reported for April 2008.
Do bear in mind that May is historically a strong month for semiconductor sales, as per SIA.
NAND strong minus Apple effect
DRAMeXchange has indicated in its monthly review on the DRAM segment that the NAND Flash prices are likely to gradually stabilize after mid-July pushing by lower price, new demand from 3G iPhone, smart phones and low-cost PCs.
Elsewhere, as reported by Semiconductor International, according to Semico, NAND unit shipments are likely to cross over 3.5 billion units in 2008 as against 2.5 billion units in 2007, leading to a year-over-year growth of 35 percent.
However, reflecting the memory segment's ASP (average selling price) crunch, NAND revenues will grow 13 percent in 2008, down compared to 25 percent in 2007." Semico has said that the NAND industry will record a growth year in 2008, without experiencing what it has called the 'Apple effect'.
Heartening solar initiatives
The one heartening thing to note has been the various solar related initiatives that have taken place over the past month (actually, for over the year!). In fact, iSuppli has probably been spot on while analyzing that investments in solar and semiconductors could be on par by 2010!
SVTC Technologies, an independent semiconductor process-development foundry, announced that its SVTC Solar business unit has launched the Silicon Valley Photovoltaic Development Center in San Jose. Canadian Solar and LDK Solar signing a new agreement for an additional 800MW of solar wafers, besides LDK updating on its polysilicon plant in China.
National Semiconductors also entered the PV market with its SolarMagic technology that maximizes solar energy production. Evergreen Solar, a maker of solar power panels with its proprietary, low-cost String Ribbon wafer technology, signed two new long-term sales contracts. Tokyo Ohka Kogyo Co. Ltd and IBM are also collaborating to establish new, low-cost methods for developing the next generation of solar energy products.
Not be left behind, Intel too is spinning off key assets of a start-up business effort inside Intel's New Business Initiatives group to form an independent firm called SpectraWatt.
In India, solar has been making rapid strides, especially at the Fab City in Hyderabad. There is a possibility of something similar happening in Karnataka state as well.
Indeed, semiconductors are no longer business as usual! Right?
I would completely agree! For instance, the industry has since long moved to fabless, and now, fabless firms are ranking among the very best. Or, even from 130nm to 22nm process nodes, or from 180mm fabs to 450mm fabs!! Fair enough?
Coming back to the industry trends, Malcom Penn, CEO, Future Horizons, says that compared with March, the IC units were up and ASPs were down in April, even after adjusting for March being a five-week month. The net result was a 7.7 percent revenue decline! Does this spell more bad news for the beleaguered chip market?
Certainly, this seems to be the industry consensus view. Always the contrarian, Future Horizons' views are different. Here's how! April's results came in exactly as expected. Also, the unit rise and fall was simply the result of the engrained 'making the quarterly number' mentality!
Digging beneath the layers reveals a set of market fundamentals that are in remarkably strong form. The penny may not yet have dropped to the table, but, even for the chip industry ever full of surprises, let the market beware; it is no longer business as usual.
Penn says: To paraphrase the late Sir Winston Churchill's comments on Russia, "The chip industry too is a riddle wrapped up in an enigma". It marches to its own complex interwoven pattern of rules, each relatively simple when viewed in isolation, but contriving to interact in a volatile and unique way. Right now, the industry is at its most confused [state] for a decade, battered by a barrage of uncertainties and contradictions. Shell-shocked and confused, confidence is off the agenda … just when what is needed most is cool heads and determination."
Be it falling cap ex, tight capacity, focus on profits, continuing strong market demand, second half seasonal effects, according to him, the forecast tea leaves all seem to be pointing in the same positive direction. Has the worm finally turned then for the industry? He thinks so! Future Horizons also thinks that the "penny has yet to drop and that the impact on the market will be seismic and dramatic".
Earlier, the Semiconductor Industry Association (SIA) reported that worldwide sales of semiconductors of $21.8 billion in May were 7.5 percent higher than the $20.3 billion reported for May 2007, reflecting continued strong sales of consumer electronic products. May sales were 2.8 percent higher than the $21.2 billion reported for April 2008.
Do bear in mind that May is historically a strong month for semiconductor sales, as per SIA.
NAND strong minus Apple effect
DRAMeXchange has indicated in its monthly review on the DRAM segment that the NAND Flash prices are likely to gradually stabilize after mid-July pushing by lower price, new demand from 3G iPhone, smart phones and low-cost PCs.
Elsewhere, as reported by Semiconductor International, according to Semico, NAND unit shipments are likely to cross over 3.5 billion units in 2008 as against 2.5 billion units in 2007, leading to a year-over-year growth of 35 percent.
However, reflecting the memory segment's ASP (average selling price) crunch, NAND revenues will grow 13 percent in 2008, down compared to 25 percent in 2007." Semico has said that the NAND industry will record a growth year in 2008, without experiencing what it has called the 'Apple effect'.
Heartening solar initiatives
The one heartening thing to note has been the various solar related initiatives that have taken place over the past month (actually, for over the year!). In fact, iSuppli has probably been spot on while analyzing that investments in solar and semiconductors could be on par by 2010!
SVTC Technologies, an independent semiconductor process-development foundry, announced that its SVTC Solar business unit has launched the Silicon Valley Photovoltaic Development Center in San Jose. Canadian Solar and LDK Solar signing a new agreement for an additional 800MW of solar wafers, besides LDK updating on its polysilicon plant in China.
National Semiconductors also entered the PV market with its SolarMagic technology that maximizes solar energy production. Evergreen Solar, a maker of solar power panels with its proprietary, low-cost String Ribbon wafer technology, signed two new long-term sales contracts. Tokyo Ohka Kogyo Co. Ltd and IBM are also collaborating to establish new, low-cost methods for developing the next generation of solar energy products.
Not be left behind, Intel too is spinning off key assets of a start-up business effort inside Intel's New Business Initiatives group to form an independent firm called SpectraWatt.
In India, solar has been making rapid strides, especially at the Fab City in Hyderabad. There is a possibility of something similar happening in Karnataka state as well.
Indeed, semiconductors are no longer business as usual! Right?
Friday, May 30, 2008
Chip market is beginning to hum again!
Future Horizons has released the May WSTS results today on the global semiconductor industry, which indicate that the chip market is slowly starting to buzz again.
Malcolm Penn, chairman and CEO, Future Horizons, points out that as shown in May's WSTS results, March's sale figures romped home with a vengeance – reversing February's lacklustre performance – with IC sales up 10.8 percent on February and 8.2 percent on the same time last year.
More importantly, the ASPs were up 13.3 percent on February and 2.1 percent on March 2007.
While the increase on February 2008 is merely part of the normal month 3 versus month 2 quarterly patterns, the increase over the same period last year is much more statistically -– and structurally -– significant.
"Finally, the chip market is starting to hum. Now is NOT the time to cut back on the 2008 forecast," he adds.
Now then, why is the chip market exactly humming? What's actually happened? Well, nothing specific! It is merely an overall step-by-step general improvement in everything, helped along by the normal seasonal improvement in business in the second half of the year.
So many forecasters and firms have their own forecasts. What happens now if some of these forecasts are cut or revised? Will that affect the market overall market? The answer is simple -- a forecast is simply just that -- a forecast -- not fact! Penn says, "The market will judge whether the other forecasters' analyses of the market were right, as it wll indeed judge whether we are right too!"
Earlier, I had blogged about Future Horizons forecasting 12 percent growth in 2008 for the global semiconductor industry. Keep an eye on that one!
Further, have the ASPs stabilized, as those are indeed a dodgy lot? Penn feels, "We believe yes, although, there will still be the normal month-on-month variations and wobbles."
I shall continue this story in my next blog... so keep reading folks! My very warm regards and thanks to all of you who do stop by to read and comment.
Malcolm Penn, chairman and CEO, Future Horizons, points out that as shown in May's WSTS results, March's sale figures romped home with a vengeance – reversing February's lacklustre performance – with IC sales up 10.8 percent on February and 8.2 percent on the same time last year. More importantly, the ASPs were up 13.3 percent on February and 2.1 percent on March 2007.
While the increase on February 2008 is merely part of the normal month 3 versus month 2 quarterly patterns, the increase over the same period last year is much more statistically -– and structurally -– significant.
"Finally, the chip market is starting to hum. Now is NOT the time to cut back on the 2008 forecast," he adds.
Now then, why is the chip market exactly humming? What's actually happened? Well, nothing specific! It is merely an overall step-by-step general improvement in everything, helped along by the normal seasonal improvement in business in the second half of the year.
So many forecasters and firms have their own forecasts. What happens now if some of these forecasts are cut or revised? Will that affect the market overall market? The answer is simple -- a forecast is simply just that -- a forecast -- not fact! Penn says, "The market will judge whether the other forecasters' analyses of the market were right, as it wll indeed judge whether we are right too!"
Earlier, I had blogged about Future Horizons forecasting 12 percent growth in 2008 for the global semiconductor industry. Keep an eye on that one!
Further, have the ASPs stabilized, as those are indeed a dodgy lot? Penn feels, "We believe yes, although, there will still be the normal month-on-month variations and wobbles."
I shall continue this story in my next blog... so keep reading folks! My very warm regards and thanks to all of you who do stop by to read and comment.
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