Foundries play semiconductor survivor in 2010

EL SEGUNDO, USA: Although the global semiconductor foundry market is set to make a welcome return to growth in 2010 after a terrible 2009, the recent downturn is likely to thin the ranks of the top-tier pure-play suppliers down to just three major players in the future, according to iSuppli Corp.Source: iSuppli, Oct. 2009

Global pure-play foundry revenue is set to rise to $21.6 billion in 2010, up an impressive 21 percent from $17.8 billion in 2009. This follows a disastrous 10.9 percent plunge in 2009. The foundry market in 2010 will outperform the overall semiconductor industry, which will expand by 13.8 percent.

“The year 2009 is likely to be one that pure-play foundries would love to forget and will make them long for 2010,” said Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli. “However, next year is likely to bring a new set of challenges, as the rising cost of competition winnows down the number of players in the market.

The expense of developing and implementing next-generation processes for a variety of technologies is rising rapidly. The only way to be a leader and outperform the market is to stay at the cutting edge of semiconductor process development. Only companies with sufficient size can support these costs.”

In the past, some foundries have found success by focusing on low-cost manufacturing, trailing behind the process migrations of the most advanced players, Jelinek noted. However, this so-called “fast-follower” strategy no longer is a route to success amid slowing market success. In fact, the fast-follower strategy now serves only as a route to the fringes of the semiconductor manufacturing business.

Acquired taste
The landscape of the foundry industry is being permanently reshaped by a wave of acquisitions and mergers.

Among these acquisitions is the pending merger between Hua Hong NEC and Grace Semiconductor. This will significantly reshape China’s foundry industry. In another example, Tower Semiconductor Ltd. in 2008 purchased Jazz Semiconductor Inc. However, these moves only presage what is expected to be a spate of mergers and acquisitions in 2009.

The proposed acquisition of HeJian Technologies by Taiwan’s United Microelectronics Corp. (UMC) will further consolidate the Chinese foundry market. It likely also will put UMC back into the No.-2 position among global pure-plays, a position it lost to GlobalFoundries Inc. this year.

GlobalFoundries made a deal for Chartered Semiconductor just a few weeks ago to gain that company’s core competencies along with its five 200mm fabs and one 300mm facility. The move also catapulted the pure-play into the No.-2 position among foundries. Looking ahead, Semiconductor Manufacturing International Corp. (SMIC) very well may acquire Cension Semiconductor Manufacturing International and Wuhan Xinxin Semiconductor Manufacturing Corp., two companies it is managing.

Small foundries Silterra, Altis and Landshunt all are struggling, and thus have become the subject of speculation regarding a merger with another manufacturer. When this consolidation process concludes, it’s likely that only three top-tier players will be left.

Silver linings
Indeed, the year 2009 is one that the foundry market won’t look back upon at fondly. However, that isn’t to say that some positives are not emerging during the course of the year.

Specifically, technology continues to develop and to gain more clients for the pure-play foundry suppliers as Integrated Design Manufacturers (IDMs) expand their proven asset-light programs.

Innovation continues to advance in both end-product design and manufacturing technology. As consumers return to stores, this innovation likely will result in new and different products on the shelves, helping to sustain some semblance of recovery, even if it is delayed into 2010.

iSuppli fast facts on SIA August semiconductor sales figures

EL SEGUNDO, USA: To support media coverage of the Semiconductor Industry Association’s (SIA’s) release of its August chip sales statistics, the market research firm iSuppli Corp., El Segundo, Calif. is issuing the following fast facts:

* The SIA reports global semiconductor sales grew in August compared to a month earlier. Sales also rose in July compared to June. This reveals a pattern of solid sequential growth for the first two months of the third quarter.

* iSuppli estimates worldwide chip sales for the entire third quarter expanded by 10.6 percent compared to the second quarter.

* Solid market conditions in August and throughout the third quarter were partly spurred by efforts among semiconductor suppliers to build inventory levels back to equilibrium. In the second quarter, global Days of Inventory (DOI) at semiconductor suppliers fell short of optimal levels by 6.1 percent. As a result of the inventory rebuild, global chip revenue in the third quarter is estimated to have risen by 3 percent more than actual demand would dictate, creating an artificial bump in sales for the industry.

* However, the semiconductor market remained weak on the year-over-year growth measure. Third-quarter revenue is estimated to have declined by 16 percent compared to the same period in 2008.

* iSuppli now predicts global chip sales will decline by 16.5 percent in 2009, compared to the previous publicly announced forecast of a 23 percent drop. In a forecast delivered to clients in early August, iSuppli had improved its 2009 growth forecast to a 17.6 percent decline.

* Revenue from sales of semiconductors to the consumer electronics industry is estimated to have surged by 28 percent in the third quarter compared to the second. This was the biggest increase of the largest-sized application markets for chips.

* Chip sales to the smaller automotive sector grew by an even more impressive 30.2 percent, boosted by the Cash for Clunkers program in the United States and stimulus efforts in China.

Dell’s Latitude-On gives TI a PC entree -- but doesn’t displace Wintel!

EL SEGUNDO, USA: Dell Inc.’s new Latitude-On concept marks the first use of Texas Instruments Inc.’s ARM-based OMAP applications processor in a notebook PC. But does it really represent a challenge to the PC hegemony now enjoyed by the X86 microprocessor and the Windows operating system?

With Latitude-On intended only to perform a specific and limited function in notebook PCs, iSuppli Corp. does not believe it represents a threat to Wintel’s dominance.

Dell describes Latitude-On as a “system on a system” wherein a regular Dell laptop using an Intel Corp. X86 and Microsoft Windows adds a separate subsystem that is based on Texas Instruments’ OMAP3430 chip.

The OMAP system allows users to boot into a slimmed-down Linux operating environment with access to a web browser. When turning on a notebook using the Latitude-On mode, the PC delivers nearly instantaneous web access, bypassing the lengthy boot-up time required for Windows.

Latitude-On aims to provide access to web-based e-mail, contacts, calendars and other Internet content and services without the lengthy boot cycle associated with traditional laptops. Basic document viewing functionality also is supported for Microsoft Office and Adobe PDF files.

Via one of its technical blogs, Dell announced the availability of Latitude-ON on its new Latitude Z series of business laptops.

In addition to TI OMAP processor, Latitude-On also includes Wi-Fi and mobile broadband connections. The Latitude-On module can also be retro-fitted to specific Latitude models.

“While at first glance Latitude-On appears to represent an encroachment of the ARM microprocessor and Linux operating system into the Wintel-dominated PC world, the reality is quite different,” said Matthew Wilkins, principal analyst, compute platforms, for iSuppli.

“Yes, Dell is making use of a TI OMAP processor-based system in these laptops, but it is only being employed for a very narrow purpose: providing a very lightweight conduit to certain types of information. It does not in any way displace the key functions of the Intel- and Microsoft-based laptop platform.”

ARM microprocessor-based chips presently do not command any significant volume in the PC market.

The main barrier for ARM’s acceptance is that there is no version of Microsoft Windows that has been compiled to run natively on the microprocessor architecture. Microprocessors based on the ARM instruction set use a fundamentally different set of operating procedures than those of the x86 processors from AMD and Intel. Therefore, an ARM-based microprocessor cannot run applications and operating systems designed for X86 chips.

Despite rumors that a port of Windows to the ARM has been or is being investigated, it seems unlikely that there will be an ARM-centric Windows PC in the near- or mid-term.

However, an ARM-centric Linux PC certainly is possible and could be an intriguing option for users looking for alternatives to Wintel in personal computing.

A boost for Texas Instruments?
TI’s OMAP processors typically are used in cell phones and various types of Mobile Internet Devices (MIDs). The processor employed by Dell for Latitude-On, the OMAP3430, is targeted primarily at smart phones.

Texas Instruments’ OMAP line dominates the market currently for standalone applications processors, with a share of 24 percent of global revenue in the second quarter of 2009. In comparison, No.-2 applications processor supplier Samsung Electronics Co. Ltd. accounted for 15.9 percent of the market during the same period.

However, Texas Instruments’ OMAP line has been under increasing competitive pressure from Samsung in the smart-phone market, primarily fueled by Samsung’s partnership with Apple Inc. for the applications processor in the iPhone. If Dell’s Latitude-One gains acceptance in the market, it could represent a significant boost for the OMAP line.

“As the market for handsets continues to mature, semiconductor suppliers traditionally targeting that segment are looking to expand their presence in other applications to help promote growth,” said Francis Sideco, principal analyst, wireless communications, for iSuppli.

Blurring the lines
The Latitude-On system endows notebook PCs with features similar to those of smart phones like the iPhone and members of the BlackBerry line, which also provide access to email and document viewing in an “instant on” manner.

“Dell’s solution certainly represents an attempt by the PC market to fight back against the kind of access that smart phones provide,” Wilkins observed. “Dell clearly has sought and received sufficient customer feedback to implement such a rapid-on and limited-environment system. However, before drawing any conclusion on the success of this approach, iSuppli will wait and see how the system performs with customers. It also will be interesting to see what the reaction will be from Intel and Microsoft.”

Top EMS/ODM vendors gain stability

EL SEGUNDO, USA: Following alarming revenue plunges in late 2008 and early 2009, the global electronics contract manufacturing business showed signs of stabilization in the second quarter, with the top players experiencing a collective return to growth, according to iSuppli Corp.

Based on a review of second-quarter sales data, the Top-10 Electronics Manufacturing Service (EMS) providers achieved revenue growth of 1.6 percent compared to the first quarter. While this may not appear to be much of an increase, it represents a dramatic swing from the 25 percent sequential revenue contraction in the first quarter.

The Top-10 Original Design Manufacturers (ODMs) performed much better, with second-quarter revenue rising by 12 percent compared to the first quarter. This contrasts with a 14 percent sequential decline in the first quarter.

Fig. 1 presents quarterly sequential revenue changes for the Top-10 EMS providers.Source: iSuppli, USA

“The year 2009 could not have started any worse for contract manufacturers,” said Adam Pick, director and principal analyst for EMS/ODM at iSuppli. “However, during the second quarter, senior managers at EMS and ODM companies hinted that performance was stabilizing as demand firmed, cost structures adjusted and inventory decreased.

“iSuppli’s research confirms that the market did regain its footing in the second quarter. Despite these positive signs, it’s still too early to celebrate an electronics manufacturing recovery. Several factors continue to cloud the outlook for EMS/ODM.”

One major factor is the global recession, which remains severe. Although revenue is rising on a sequential basis, the effects of the economic downturn can still be seen when making a year-over-year comparison. Second-quarter revenue for the Top-10 EMS providers was down 15 percent from 2008, and sales remain significantly lower than the normal seasonal pattern.

Fig. 2 presents the quarterly year-over-year growth outlook for the top-10 global EMS providers.Source: iSuppli, USA

As Fig. 2 presents, quarterly revenue for the Top-10 EMS providers compared to a year earlier has performed dismally since the fourth quarter of 2008.

Furthermore, certain OEMs are adopting strategic and recessionary manufacturing strategies, hindering growth for contract manufacturers.

As evidenced by the moves of Nokia and NCR, some OEMs are taking back manufacturing operations from their outsourcing providers. For example, iSuppli estimates that Nokia has reclaimed as much as $5 billion worth of spending from its EMS/ODM partners during this recession.

Other OEMs are acquiring assets from EMS providers to ensure continuity of supply. OEM Ericsson has taken this action with contract manufacturer Elcoteq.

Another market inhibitor is overcapacity, which continues to plague contract manufacturers by pressuring margins. Finally, ongoing shortages for devices, including optical disk drives and display panels, are negatively impacting the electronics supply chain in Taiwan and China.

To adjust to these market realities, managers at EMS/ODM firms are taking appropriate actions to right-size their cost structures and to collaborate with OEMs and suppliers to establish realistic expectations for the future.

Wall Street also has corrected its expectations for the contract manufacturing market, with the industry’s second-quarter results conforming with or slightly exceeding financial analysts’ expectations.

However, four of the Top-10 EMS providers failed to improve revenues on a sequential basis during the second quarter. Furthermore, when Foxconn’s sales are excluded, revenues of the Top-10 EMS providers actually contracted in the second quarter on a sequential basis.

Finally, when examining forward-looking guidance against historical datasets, it is apparent that a true bottoming out of the market remains elusive for some EMS providers.

Despite the various adjustments that EMS providers have had to make, a resurgence of notebook and netbook orders to the ODMs has inspired bullish sentiment among a number of companies, including Quanta, Compal, Wistron and Inventec.

Even with component shortages and lackluster guidance from Hewlett-Packard, Lenovo and Dell, certain ODMs have suggested that second-half shipments will greatly outpace first-half production given macroeconomic trends and the introduction into the market of products with new features.

Visibility improves for global semiconductor market

EL SEGUNDO, USA: Strong second-quarter sequential growth along with improving supply chain visibility and semiconductor demand trends has prompted iSuppli Corp. to upgrade its forecast of 2009 chip sales.

iSuppli now predicts global chip sales will decline by 16.5 percent in 2009, compared to the publicly announced forecast previously of a 23 percent drop. In a forecast delivered to clients in early August, iSuppli had improved its 2009 growth forecast to a 17.6 percent decline.

The figure presents iSuppli’s current forecast of global semiconductor revenue.

iSuppli: Global Annual Semiconductor Revenue Forecast (Millions of US$)Source: iSuppli, Sept. 2009

“Lack of visibility from the end market and through the electronics supply chain was a major problem for semiconductor suppliers in the first quarter,” said Dale Ford, senior vice president, market intelligence services for iSuppli. “However, due to a stabilizing economic environment in the second quarter and improving supply chain visibility, semiconductor shipments rebounded as inventories were replenished and modest forward-looking purchases were made.”

Third-quarter semiconductor sales are benefitting from improved market outlooks by major OEMs in key markets such as PCs and mobile handsets.

The global economy in the second quarter was boosted by worldwide economic stimulus efforts. Although the American Recovery and Reinvestment Act (ARRA) really didn’t go into effect during the period, China’s stimulus efforts spurred a massive increase in consumer purchasing in the country, benefitting worldwide economic conditions.

Uncharted territory
While the outlook for the global semiconductor market may have gained some clarity, the industry appears to have entered uncharted territory when it comes to tracking sales trends.

“In the history of the semiconductor industry, the market has never had a cycle like this one,” Ford said. “Semiconductor sales have always been subject to a cyclical growth pattern that sees a move from a low point, through one or more supply-chain balancing periods and then to an eventual peak in revenue. However, the most recent cycle, starting in February 2006, was robbed of its peak. Just as the industry had achieved a balanced supply chain and was starting to move toward a peak, the global economic crisis drove the industry down.”

For the semiconductor industry, this means a both a long and painful downturn. While revenue began growing on a sequential basis in the second quarter of 2009, sales will not begin to increase on a year-to-year basis until May 2010. This means the industry will endure 20 months without year-over-year revenue growth, compared to the 17-month downturn that the industry experienced during the 2001-2002 decline.

While 2010 will bring a return to growth in the semiconductor industry with a 13.8 percent rise compared to 2009, the market won’t return to its 2007, pre-downturn level until 2012. Global semiconductor revenue will rise to $282.7 billion in 2012, compared to $273.4 billion in 2007.

Equipped for downturn
iSuppli forecasts that global revenue from shipments of electronic equipment will decline by 9 percent in 2009 to $1.39 trillion, down from $1.53 trillion in 2008. Growth will rebound by 5.2 percent in 2010 to reach $1.47 trillion.

Semiconductor inventories fall below optimal levels

EL SEGUNDO, USA: After swelling to major excess levels in 2008, global semiconductor inventories in the second quarter of 2009 dwindled to lean, but appropriate, levels, according to iSuppli Corp.

iSuppli believes that in the third quarter, semiconductor suppliers have moved to build inventory to achieve supply and demand equilibrium. As a result, global chip revenue in the third quarter likely will rise by 3 percent more than actual demand would dictate, creating an artificial bump in sales for the industry.

In the second quarter, Days of Inventory (DOI) at semiconductor suppliers fell short of optimal levels by 6.1 percent This represents a vast improvement over the fourth quarter of 2008, when DOI exceeded equilibrium by 14.8 percent.

“Having seen their inventories swell to excess in 2008, semiconductor suppliers acted quickly to reduce inventory,” said Carlo Ciriello, financial analyst for iSuppli. “However the pendulum swung too far in the opposite direction in the second quarter, leaving inventories at lean levels.”

Despite the below-target semiconductor inventories in the second quarter, there is no imminent danger of chip shortages at this time. With global semiconductor factory utilization at extremely low levels, suppliers can easily boost their manufacturing to meet demand.

In fact, the inventory correction has come as a boon to semiconductor stocks. The Semiconductor HOLDRS Trust index of 18 US chip companies’ stock prices rose by 55 percent during the six-month period from March to September, in concert with the drop in inventories.

While the ongoing inventory adjustment may be good news for the supply chain, the semiconductor industry is likely to suffer a harsh return to reality after inventory replenishment concludes.

“The inventory restocking effort will run its course by the end of the third quarter, leaving sales to be driven only by actual end-market demand,” Ciriello said. “This will bring an end to the artificial boost in sales and sentiment generated by the inventory rebuilding effort.”

The figure presents iSuppli’s estimate of the percentage of semiconductor DOI relative to seasonally adjusted, historical DOI targets.Source: iSuppli, USA

Optimal DOI is calculated by iSuppli based on semiconductor demand, and is adjusted for factors including seasonality, revenue fluctuations and margins.

MEMS microphones shipments to rise to 1 billion in 2013

EL SEGUNDO, USA: Despite a slowdown in 2009, global shipments of Microelectromechanical System (MEMS) microphones are set to more than triple from 2008 to 2013 due to their strong acceptance in mobile handsets and other applications, according to iSuppli Corp.

Worldwide MEMS microphone shipments are set to reach 1.1 billion units in 2013, up from 328.5 million in 2008. This strong growth will come despite a deceleration in shipment growth and a decline in global revenue in 2009, the first such contraction in the history of the market.

The figure presents iSuppli’s forecast of global MEMS microphone shipments.Source: iSuppli, Sept. 2009

MEMS microphones are tiny microphones that employ a pressure-sensitive diaphragm etched on a semiconductor using microelectromechanical technology. They are commonly employed in cell phones, headsets, notebook PCs, video cameras and cars.

“MEMS microphones are truly one of the success stories in the MEMS market,” said Jérémie Bouchaud, director and principal analyst, MEMS, for iSuppli. “Market shipments are set to exceed 1 billion in 2013, largely because these MEMS are becoming less expensive as the volume increases. Silicon microphones also outperform conventional microphones in terms of size, scalability, and sound quality. The simplification of applications like noise cancellation and beam forming for directional microphones using MEMS will further boost their acceptance.”

Demand for digital technology microphones also will boost sales of MEMS devices for laptops and increasingly for cell phones.

Microphone check
Despite the rosy outlook for MEMS microphones, the year 2009 will be a poor one for the market.

“After five consecutive years of double-digit growth, global MEMS microphone shipments will rise by only 7.5 percent in 2009,” Bouchaud observed. “With the weak rise in unit shipments and decline in pricing, global revenue will drop to $132.4 million in 2009, down 2.4 percent from $135.7 million in 2008.”

The MEMS microphone market largely can attribute its 2009 sales woes to one company: Motorola.

“Motorola was the first company to widely adopt MEMS microphones, making extensive use of them in its best-selling ultra-thin RAZR handsets,” Bouchaud said. “The company accounted for about 30 percent of global shipments of MEMS microphones for mobile handsets in 2008.

However, the company has suffered a major downturn, having fallen to the world’s No.-4 position in the global handset market in 2008, down from No.-2 in 2006. Motorola is continuing to lose handset share in 2009. This has seriously impacted MEMS microphone sales.”

Beyond Motorola, another factor impacting the MEMS microphone market in 2009 is the weakness in the worldwide mobile handset market. Global cell phone shipments are set to decline significantly in 2009.

Furthermore, MEMS microphones continue to face competition from older electret condenser microphones.

“Electret condenser devices are still significantly cheaper than MEMS and are now available as Surface Mount Devices (SMDs), and thus will remain in the market for many years,” Bouchaud said.

MEMS microphone makers’ machinations
Because of the strong promise of MEMS microphones, new suppliers are entering the market and changing the competitive landscape. Two large companies -- EPCOS and Bosch -- bought entry tickets into the MEMS microphone market during the last six months by engaging in acquisitions.

While Knowles still largely dominates the market with more than 80 percent of units, two companies are emerging as volume manufacturers next to Knowles: Infineon and MemsTech. Overall, nine companies now are shipping MEMS microphones to customers.

“This is a good news for a market that has been suffering from a lack of second sources for volume production.” Bouchaud said.

Intel's MPU domination reaches four-year high in Q2

EL SEGUNDO, USA: Capitalizing on a mild recovery in PC demand, Intel Corp. in the second quarter managed to expand its lead in the global microprocessor market to levels not seen in nearly four years, according to iSuppli Corp.

Intel in the second quarter of 2009 accounted for 80.6 percent of global microprocessor revenue, up 1.4 points from 79.1 percent during the same period in 2008, and a 1.5 point rise from the first quarter of 2009. This gave the company the largest share of global microprocessor revenue since it claimed 82.4 percent of revenue in the third quarter of 2005.

“Intel benefitted as the global PC market took a first small step toward recovery in the second quarter, with global shipments rising by 1 percent from the first quarter,” said Matthew Wilkins, principal analyst of compute platforms research for iSuppli.

“However, with PC shipments still down compared to a year earlier, Intel actually suffered a decline in microprocessor revenue compared to a year earlier, as did chief rival Advanced Micro Devices Inc. (AMD).”

Intel in the second quarter enjoyed strong demand for its new-generation products across all segments, including desktops, notebooks and servers. However, in the overall PC market, only the notebook segment produced growth compared to the second quarter of 2008, at 13 percent. Both the desktop PC and entry-level server segments declined on a year-over basis.

In contrast, AMD lost 0.4 percentage points of market share compared to a year earlier, and declined by 1.4 points of share on a sequential basis from the first quarter of 2009.

“AMD didn’t benefit from the small sequential rise in PC sales because its average microprocessor pricing was lower than that from the first quarter of 2009,” Wilkins said.

Gyroscopes spin up in video games and cell phones

EL SEGUNDO, USA: When Nintendo Co. wanted to enhance the sensitivity of its motion-sensitive video-game controllers, it turned to 3-axis gyroscope technology in the form of its Wii Motionplus add-on.

Soon, a flood of other companies in the consumer electronics and cell phone markets also will turn to Microelectromechanical System (MEMS) gyroscopes due to technological developments that have made these parts more attractive for such applications, iSuppli Corp. predicts. This will cause gyroscope revenue in these areas to more than double by 2013.

The global market for gyroscopes used in consumer electronics and cell phones will expand to $347.2 million in 2013, up from $152.9 million in 2008, as presented in the figure.

iSuppli: Global Forecast of MEMS Gyroscopes for Use in Consumer Electronics and Wireless Applications (Revenue in Millions of US Dollars)Source: iSuppli, USA

“Gyroscopes have always been too big, too power hungry and too expensive for mobile and consumer applications,” said Richard Dixon, senior analyst for MEMS at iSuppli.

“However, recent progress on silicon and quartz gyroscopes has changed the game—literally. MEMS gyroscopes will penetrate gaming applications in much larger numbers later this year and in 2010. These sensors will also begin to make inroads into the mobile-phone market earlier than first anticipated—again beginning at the end 2009 or early in 2010—for image stabilization and user interfaces.”

Gyroscope suppliers gear up
A major driver behind the expansion of the gyroscope market is the flourishing number of offerings of multi-axis parts. Previously, there were just two major suppliers of 2-axis gyroscopes: Panasonic Corp. and InvenSense Inc.

However, this list grew in June when STMicroelectronics bolstered its portfolio by offering no less than 10 dual-axis gyroscopes. Tri-axis gyroscopes, a must for gaming, also are emerging.

While InvenSense already offers a two-package 3-axis gyroscope solution today, STMicroelectronics intends to introduce a monolithic solution in 2010.

iSuppli anticipates that revenue from shipments of multi-axis gyroscopes for consumer and wireless applications will overtake those single-axis devices by the end of the year and will account for 80 percent of the consumer gyroscope market by 2013.

“This represents a great opportunity for companies offering multi-axis gyroscopes and even parts combined with 3-axis accelerometers in low-cost inertial measurement units,” Dixon said. “On the other hand, this will put pressure on those companies that only have a single-axis technology on their shelves.”

Elpida’s DRAM sales soar in Q2; DRAM market up 34pc

EL SEGUNDO, USA: Japan’s Elpida Memory Inc. was the star of the global DRAM market in the second quarter, with a robust increase in its pricing causing its revenue to surge by 50 percent from the first quarter, according to iSuppli Corp.

Elpida posted the strongest performance among the Top-5 DRAM suppliers in the second quarter, with revenue rising to $745 million, up from $497 million in the first quarter. Company performance was boosted by a robust 32 percent rise in its DRAM ASP in the second quarter compared to the first.

“Elpida accomplished its strong increases in revenue and pricing by expanding its specialty DRAM sales to mobile and consumer applications,” said Nam Hyung Kim, director and chief analyst for memory ICs and storage at iSuppli. “These specialty DRAMs command higher prices than commodity parts, allowing Elpida to outperform its competitors.”

The table presents iSuppli’s top-10 DRAM supplier ranking the second quarter.

iSuppli: Top-10 DRAM Supplier Ranking the Second Quarter (Ranking by Revenue in Millions of US Dollars)Source: iSuppli, Aug. 2009

The news comes amid a strong performance for the overall DRAM market, with revenue reaching $4.5 billion in the second quarter, up 34 percent from $3.4 billion in the first quarter. This contrasts with a 19 percent decline in the first quarter compared to the fourth quarter of 2008.

“Due to a shortage in DDR3 parts and to buyers’ inventory re-stocking efforts, the per megabyte price for DRAM jumped by 18 percent in the second quarter, an unusual increase for a market that customarily sees its prices decline during each quarter,” Kim added.

This 18 percent rise was much higher than iSuppli’s previous forecast of a 2.6 percent increase.

Megabyte equivalent unit shipments of DRAM also grew by 14 percent, surpassing iSuppli’s estimate of 6.2 percent and resulting in a dramatic improvement in overall market conditions.

The other big winner during the second quarter was Taiwan’s Winbond Electronics Corp., whose revenue doubled, rising to $87.6 million, up from $44 million in the first quarter.

Tier-1 results mixed
Among the other Tier-1 suppliers, results were mixed. The Top two South Korean companies -- Samsung Electronics Co. Ltd. and Hynix Semiconductor Inc. -- captured 55.9 percent of the global market, with DRAM sales for each company increasing sequentially by more than 30 percent during the second quarter.

Micron Technology Inc. of the United States saw its share of DRAM revenue dip to 13.9 percent in the second quarter, down from 14.3 percent in the first quarter, owing to the very strong sales growth of the other Tier-1 DRAM suppliers. However, Micron’s second-quarter revenue declined by only 15.2 compared to the same period in 2008, the lowest level of decrease among the Top-10 DRAM suppliers in the second quarter.

Taiwan’s Nanya Technology Corp. also performed relatively well on the year-over-year comparison, with only a 15.4 percent decline in revenue.

“The relatively limited declines of Micron and Nanya, which recently entered a partnership, showed that the companies are seriously striving to increase their scale to become more competitive in the market,” Kim said.

DDR3 shortage continues until the end of the year
iSuppli believes that the recent shortage of DDR3 DRAM will persist through the end of this year.

Limited capital investments will continue to delay the migration to the 5x nanometer process until the first quarter of 2010. Until that time, DDR3 supply will continue to be tight in the market.

The DDR3 shortage recently has been making PC OEMs panic. A few OEMs are considering reducing their DDR3 adoption by returning back to DDR2 as most of Intel’s current chipsets still support dual modes (i.e. DDR2 and DDR3). The momentum of the price increases will definitely decelerate.

However, tight supply will persist and PC OEMs' profit margins are expected to be challenged in the second half of 2010, Kim said.

Consolidation likely in solar cell manufacturing to control oversupply, and, lessons for India!

Thanks to Jon Cassell and Debra Jaramilla, I was able to get in a conversation with Stefan de Haan, senior analyst, iSuppli Corp., regarding the global solar PV industry. Recently, iSuppli had provided guidance on how "Half of all solar panels made this year won’t be installed in 2009!"


Correcting solar cell manufacturing oversupply
Previously committed capacity expansions have caused solar cell manufacturing oversupply. Why and how can this be corrected?

According to Stefan de Hann, the cell suppliers are already reacting, i.e., cutting back on production and delaying expansion plans. Nevertheless, a consolidation will take place, since prices won't recover. Production cost is the key to be among the survivors. However, 2009 will see the peak of the cell/module oversupply. From 2010 on, the situation will ease slowly.

If that were the case, weren't the companies doing enough to check all of this during the downturn of Q4-08?

de Haan added that at the end of last year (record year 2008!), everybody still expected continuous strong demand. "It took most companies longer to realize that their enormous growth expectations were not realistic. We were the first to predict the current scenario already in summer 2008, but the nearly all the companies I talked to at the PVSEC in September 2008 didn't share this view at all."

So, therefore, they probably weren't checking their market carefully enough, after all!

Failure of a-Si thin film solar cell makers?
Is all of this setting the stage for the failure of multiple cell manufacturers, particularly those pursuing a-Si thin film solar cells?

According to the iSuppli analyst, those suppliers relying on standard a-Si thin film lines [AMAT/Oerlikon] will definitely face problems for several quarters. "Collapsing polysilicon prices incease the pressure on these manufacturers. There will be not only excess crystalline cell production, but also excess a-Si production," he added.

There is also a huge amount of solar cell manufacturing capacity in crystalline silicon solar cell, rather than thin film. When will this start changing and why?

de Haan advised that both crystalline and thin film production (and installation) will continue to grow for the next years. Due to lower production costs, thin film will increase its market share gradually. In iSuppli's current projection, it sees a thin film market share of 35-40 percent in 2013, up from 15 percent in 2008.

Lessons for India?
With consolidation likely to happen in the global solar cell manufacturing industry to control or combat oversupply, where would it all leave the the talk of building new capacity in India? As we know, back home in India, various companies are betting big on this sector.

In this regard, what are the lessons to learn for the Indian solar PV industry? Bear in mind that India is a "wild card" as far as solar demand is concerned.

According to de Haan, Companies hope for huge investments in the coming years and want to be prepared. However, in the current oversupply situation, the comparatively new Indian cell and module manufacturers will suffer from dropping prices.

He advised: "For them it is important to stay flexible with regard to polysilicon and wafer purchase. These prices won't recover either, no need for long-term commitments. Most importantly, they need to develop their domestic market. If I was an Indian module manufacturer, I would integrate downstream and enter the installation business."

Sales of NAND Flash memory for smart cell phones to boom

EL SEGUNDO, USA: Global sales of NAND-type flash memory for use in smart cell phones are expected to rise by nearly sixfold from 2008 to 2013, as shipments of the high-end cell phones boom in the coming years, according to iSuppli Corp.

Global revenue from sales of NAND flash for mobile phones is set to rise to $932.5 million in 2013, up from $166.5 million in 2008. This will represent a CAGR of 41.1 percent, compared to the 12.2 percent increase during the same period for the overall NAND flash market.

The figure presents iSuppli’s forecast of NAND flash for use in smartphones.Source: iSuppli, Aug. 2009

“Soaring sales of smart phones, combined with the increasing density of NAND flash in each handset, is causing sales of the memory in this area to boom,” said Michael Yang, senior analyst for mobile and emerging memories at iSuppli.

“NAND flash makers can thank Apple Inc. for starting this trend, with its iPhone models injecting new life into the memory market. However, with the introduction of the a new generation of ‘iPhone killers’, multiple smart-phone makers now are helping to drive NAND demand.”

The market for smartphones is expanding at a much faster rate than that of the overall wireless handset segment. Smartphones will account for 26.4 percent of total cell phone unit shipments in 2013, up from 13.1 percent in 2008, according to iSuppli.

The iPhone is a major factor driving the growth.

“Apple announced it sold 5.2 million iPhone 3G and 3GS models during its fiscal third quarter, which ended in June,” Yang said. “Furthermore, Apple plans to introduce the iPhone in China, possibly early next year. This will open up the market for the iPhone to a new potential audience of 1.3 billion people.”

The arrival of competitive products like the Palm Pre, the BlackBerry Storm and the Google operating-system-equipped T-Mobile G1 will further drive the expansion of the smart-phone market.

NAND usage rises
Along with spurring the growth of the smart-phone market, Apple has taken a leadership position in enhancing the functionality of these products by adding additional NAND flash memory to its iPhone line.

“The more NAND in a smart phone, the more useful it becomes, able to store more songs and video clips, to hold more map data and download more programs from an applications store,” Yang said.

The initial iPhone base model, introduced in January 2007, integrated 4Gbytes of NAND. The latest version of the iPhone, the 3GS unveiled in June, upped the low-end model’s NAND density to 16Gbytes. The high-end 3GS integrates 32Gbytes of NAND.

The new iPhone killers, including the Pre, the Storm and the G1, all include 8Gbytes of NAND. However, some models are increasing their NAND density to higher levels. For example Nokia’s N97 embeds 32Gbytes of NAND flash.

iSuppli predicts NAND densities in smart phones will continue to increase. Due to this and the rising sales of smart phones, the average NAND density in all mobile phones will expand in the coming years.

The average amount of NAND flash in all mobile phones shipped worldwide will rise to 5.8Gbytes per handset in 2013, up from less than 1Gbyte in 2008.

Overall chip and electronic component prices to rise in Q3; decline to resume in Q4

EL SEGUNDO, USA: The average global pricing for commodity electronic components is likely to rise by 2.3 percent in the third quarter compared to the second quarter due to shortages and resulting price hikes for memory chips, according to iSuppli Corp.

Following declines of 8.4 percent in the fourth quarter of 2008, 9.2 percent in the first quarter 2009 and 5 percent in the second quarter of 2009, overall prices are expected to undergo a short-term rise in the third quarter.

Most components actually are expected to experience price declines in the third quarter, but the average is being skewed by DRAM. Furthermore, prices will revert to declines in the fourth quarter, with a moderate 0.2 percent decrease.

“Overall component pricing is being heavily impacted by price hikes for DRAM, spurred by a shortage of DDR3 parts,” said Eric Pratt, vice president, pricing and competitive analysis, at iSuppli. “Overall DRAM pricing is expected to rise by 10.2 percent in the third quarter.”

With DRAM accounting for 9.1 percent of global semiconductor revenue in 2008, the price increase in this area is having an inordinate impact on overall component costs.

Other areas seeing price increases include analog integrated circuits (ICs), discretes and filters.

The figure presents the results of iSuppli’s Procurement Pricing Index (PPI), which encompasses an overall average of global commodity component pricing.

iSuppli Procurement Pricing Index (PPI) Average Sequential Pricing Trends for Commodity Electronic Components (Percentage Change in Pricing in US Dollars)Source: iSuppli, August 2009

Pricing will decrease moderately during the third quarter for most major memory segments. NAND-type flash will experience a 0.3 percent decline. NOR pricing will decrease by 1.1 percent. EEPROMs pricing will remain flat.

Declines also are expected for standard logic ICs, crystals, oscillators, connectors, resistors and magnetics. An overall decline is expected for capacitors.

Despite these decreases, the overall rise in the PPI indicates pricing conditions are changing for commodity components.

“iSuppli previously expected price decreases would be of a greater magnitude in the third quarter as commodity component suppliers cut tags to capitalize on rising demand,” Pratt said.

“However, semiconductor suppliers have scaled back their capacity significantly during the downturn. This means supplies are somewhat tighter than expected, preventing prices from declining as much as expected.”

Q2 results reveal healthy inventory positions for major chip suppliers

EL SEGUNDO, USA: Most major global semiconductor suppliers that have reported second-quarter results are currently holding lean levels of chip inventory, putting them in a strong competitive position as demand begins to recover, according to iSuppli Corp.

Of 15 companies that have reported second-quarter results, 11 indicated that their Days of Inventory (DOI) during the period were at a lower level compared to their average level for the past three years. Eight of the companies reported inventories lower than the average by double-digit percentages.

“The latest results from semiconductor suppliers validate iSuppli’s assertion that inventories have been reduced to appropriate levels, down from previously excessive positions,” said Carlo Ciriello, financial analyst for iSuppli.

“Inventory levels are lean—but appropriate—given current revenue levels. With fab utilization so low, semiconductor suppliers can ramp up production to build inventories to meet increased demand, should it be necessary.”

With inventories having been excessive in recent times, companies with DOI of 10 percent or more less than their trailing three-year average are in optimal competitive positions, having adjusted for the new supply and demand equation brought by the dramatically smaller end markets.

With annual chip demand expected to peak in the third quarter to be followed by a decline sequentially in the fourth quarter, the present quarter represents the best—and possibly last chance—for managers to cut inventories in order to meet new equilibrium levels.

The figure presents second-quarter DOI for 15 semiconductor suppliers that have reported results for the period compared to their respective trailing three-year DOI averages.

iSuppli: Average Days of Inventory Compared to Three-Year Average for Semiconductor Suppliers Reporting Second-Quarter ResultsSource: iSuppli

No second-half snap-back for inventories
The world’s leading chip supplier, Intel Corp., in the second quarter held DOI 19 percent below its three-year average.

Other companies running notably lean inventories included Texas Instruments Inc. at negative 10 percent, Qualcomm Inc. at minus 25 percent, Advanced Micro Devices Inc. (AMD) at minus 25 percent, Micron Technology Inc. at negative 23 percent, NXP at minus 19 percent and Xilinx Inc. at negative 19 percent.

Significantly, companies reporting second-quarter results indicated that there is no major inventory build in the offing.

Intel described its current levels as being “in very good shape,” while Qualcomm has said the inventory contraction “has now stabilized.” AMD said it is “pleased with our current inventory position.”

“Many semiconductor suppliers are anxious about expected demand levels in the fourth quarter, following the conclusion of the peak third-quarter buying season,” Ciriello said. “Because of this concern, they are being cautious about rebuilding inventories beyond what future demand can justify.”

Display driver depression follow flat panel succession!

Recently, Randy Lawson, Senior Analyst, Digital TV and Display Electronics, iSuppli Corp., discussed the application market for large and small LCD panel display driver semiconductors, including consumer, monitor monitor/notebook PC displays, consumer plasma displays and cell phone and portable displays.

The LCD driver semiconductor market took a disastrous turn in the second half of 2008 as the economic downturn kicked into high gear and the entire electronics supply chain suffered unprecedented declines. Now, as the industry enters H2-09 and forecasts prognosticating better times, vendors of these display driver ICs are looking at when they will see the market recover.

Revenues history of display driver market
Going by the revenues history, the display driver market peaked in 2005 in terms of revenues. The year 2008 saw revenues for display driver ICs dip ~$1 billion from 2007 levels.

The economic crisis resulting in large production cutbacks in all panel types was the main cause. Also, the driver IC unit shipments fell ~30 percent in 2H-08, compared to 2007 levels.

There have been various factors limiting revenues -- ASP pressure due to panel price, competition, technology shift, particularly, advancements in multichannel and gate-in-panel technologies.

In the last half of 2008 panel production went dramatically low. Some Taiwanese panel fabs were at 50 percent capacity or lower, said Lawson. This market, in terms of iSuppli, has peaked in terms of revenue outlook. It is a very large market in terms of units.

Tracking 2009 recovery
iSuppli has been tracking the monthly shipments of large panel driver ICs in 2009, a main area to watch for recovery signs. Q4-08 was devastating with over 30 percent drop in shipments. However, the large panel driver IC shipments improved from January onward. Also, the panel fab utilization rates increased. The low inventories of IC increased the orders.

However, according to iSuppli, the Q3 outlook is likely to be flat to Q2-09 due to higher quarterly baseline.

Dec. 08 vs. Nov. 08 was down 40 percent in terms of unit shipments. From Jan. 09 onward, shipments started going back up. It really went up in February and March as well. Going into April, things are slowing down a little bit, but it is positive for now. Lawson said that Q3 will likely be pretty flat. The industry is still down on a YoY basis, a point to be noted.

Driver IC units forecast
According to iSuppli, the large LCD saw ~13 percent CAGR and small LCD ~2 percent CAGR. The overall driver IC unit growth rate is likely to be ~10 percent CAGR from 2008-12. Growth will be due primarily to the large panel applications as mobile displays unit growth limit potential for small panel driver ICs, advised Lawson.

"We still have a pretty robust outlook for driver ICs from 2008-2012. LCD TV growth is remaining. Monitors and notebook PCs continue to show relatively strong growth in the long term trend," he said.

Large panels are where the driver ICs will find its biggest opportunity. Small panels will be down this year due to much lower unit shipments. This is due to the quite lower volume shipments of mobile handsets, which make up approximately two-thirds of all categories of drivers in the small categories.

Display driver market forecast -- revenue outlook
In this area, the revenues are likely to be more dictated by large panels. The small panel driver revenues are falling due to the ASP erosion exceeding units growth.

As for the large LCD driver IC revenue swings during the forecast period, 2008 and 2009 will contract due to the overall poor economy hurting customer demand. However, 2010 and 2011 should see strong growth return based on very attractive prices for panels and emerging markets taking more share of LCD TV market and growing.

On the whole, the total revenues are likely to contract >13 percent from 2008 to 2012. The year 2009 will be dramatically down by 20 percent over 2008. "Revenue growth is not there for small LCD drivers. The unit growth strong enough in small drivers to counteract the ASP erosion," said Lawson.

Also, some of the market for small panels is LTPS, which typically has a smaller driver IC and cheaper driver IC anyway, as some of the functionality of the LTPS panels can be integrated into the panel, making for a cheaper driver IC.

Revenue rebound likely in 2010
Definitely, turbulent revenues lie ahead! As mentioned, 2009 driver IC revenues will show significant decline in 2009 over 2008. Panel production levels are still below a year ago levels.

A rebound is likely in 2010, but it won't take the industry back to where it was! Keep in mind that the rebound that happens will be due to a rebound in consumer demand as well as the strength of the China market.

Driver IC unit growth has been slowing in the large panel category. This is due to the adoption of multichannel, high-column drivers as well as the gate-in-panel technology effect. Some maturing in LCD monitor and TV applications in Western markets is also causing slower end system unit growth.

As for small panels, the application growth rate is limited. As mentioned, the cell phone unit growth has been declining. Also, the LTPS share has been growing (driver ICs are smaller and less complex).

There have been continual ASP declines. Also, small panels are transitioning from 130nm to 110nm and 90nm, while large panels transitioning from 0.35um to 0.18um/0.16um. Also, there is a transition from 8-inch to 12-inch wafers.

Market share rankings
In this area, there haven't that many changes. Himax has moved up a bit. iSuppli has added several other companies, such as Lusam, Raydium, Sitronix, Orise, etc., into its tracker.

Q1-09 display driver IC market shares
Q1-09 revenue levels dipped well below Q4-08 revenue levels due to production cutbacks and weak demand in large panel category. The revenue levels were down ~50 percent YoY for Q1-09 as the LCD panel market struggled to find stability in the middle of a disastrous Q4-08 and severe cutbacks in panel production, and thus, IC orders.

The Q4-08 revenues were $1,310mn and Q1-09 revenues were $1,017 revenues -- about 30 percent down. Just for the sake of statistics, Q1-08 was $1,936mn.

Large LCD driver market outlook
Here, revenues are likely to grow ~10 percent over the next four years, primarily a rebound from the dismal H2-08 and 2009 levels. LCD TVs will remain a growth engine, overtaking monitor driver IC volumes from Q3-09 forward.

Lawson said: "There are still large markets such as China, and regions that are still in transition to flat panels. More consumers are buying more TVs per household, and decreasing the time between buying TVs."

However, the monitor driver market has stayed mainly flat, and multichannel use and gate-in-panel are causing diminished unit growth as well.

LCD TV driver type forecast
There is clearly a trend toward multichannel, which is likely to grow for cost, space and reliability savings. It lowers the ICs per panel ratio, and lowers IC unit growth rate as well.

Growth is also expected in 10-bit as well as in TV space for improved image quality. The 10-bit growth may be trimmed due to short term focus on 120/240Hz performance, advised Lawson.

Most of this will be driven by the larger panel category. One trend is toward LED backlighting, which is increasing the contrast ratio.

Small/medium markets scenario
A majority of this market is driven by mobile handsets, which account for two thirds of the market. Almost all of the small display drivers are single chip except for clamshell phones.

Some other major applications of small display drivers include digital cameras/camcorders, automotive, digital photo frames, handheld games/PDAs, PNDs, PMPs, as well as some other applications.

Small display driver forecast
Here, active matrix remains the only growth area left. "Gains will be offset by steep CSTN/MSTN declines," said Lawson. "The ASP erosion is also an issue." There is a transition from 130nm/110nm to 90nm, as well as a move to 300mm and LTPS growth.

All of these present further revenue downward pressure as ASP decline exceed the end market growth. Also, the growth in active matrix is not yet enough to offset the revenue decline in cheap drivers used in CSTN/MSTN.

OLED driver ICs
OLED driver ICs are likely to see revenue growth to ~$150mn by 2012. The OLED volumes are still dominated by mobile communication sub-displays, said Lawson.

The AMOLED move to main displays is likely to be next largest market. It is also getting boost from a market shift from pure-music MP3 players to PMPs.

However, competition from TFT-LCD in the near term is likely to slow the OLED panel volume growth. Also, growth in TVs could be a huge market catalyst, but that is not likely to happen until at least beyond 2011.

Lawson added: "The top line is relatively small as OLEDs are still in a mode of competing against amorphous silicon, LTPS, TFT LCDs, etc.. Until OLEDs can resolve some of the manufacturing issues to get to larger sizes, this will remain one of the smaller markets in the whole driver IC category."

Driver IC process node migration -- 2009-10
A majority are currently built on 0.35micron. As mentioned, a process node transition has been occurring in the driver IC market.

Small/portable display driver designs are leading transition to smallest geometry nodes (90nm from 2010 onward).

Technology trends
As for the technology trends for driver ICs, these include TCON (timing controller) functional integration. Frame rate conversion/MEMC, DisplayPort and other new interfaces becoming more prevalent as well.

In packaging, there is a transition to higher pin count/more channels to save cost (large panel). There is an increased use of COG (chip-on-glass) gate-in-panel technology in monitors/notebooks. These are targeted at smaller screens.

There is also a bit-depth move to 10bit. Here, LCD TV performance is spurred by the DeepColor standard and premium TVs. Another interesting feature is the addition of integrated memory for mobile handset displays.

As for interfaces, handset interfaces will see more of serial high speed to reduce cost, EMI, and interconnectors. Here, there will be a role to play for MIPI (GSM market) and MDDI (CDMA market).

MIPI will probably become the predominant industry standard, but it has yet to take off. MDDI, a Qualcomm standard, has already been deployed in millions of displays.

Next, large panel ICs will move beyond RSDS, LVDS, etc., such as Cascade type, Vx1, PPDS, AiPi, and others. Also, DisplayPort is potentially applicable for panels.

Summary
In summary, the panel driver IC market unit growth is solid, but its revenue presents a different story. The unit volumes growth looks healthy due to primarily large panel applications.

The year 2009 will see improvement from the Q1-09 trough, but it will still not show revenue growth from 2008 level. The ASP erosion is likely to lessen in 2009 due to shortages, but the long term trend remains downward in face of process migration and panel price declines.

Expect more diversification/collaboration from DDI firms, noted Lawson. As the DDI market matures, large companies will be seeking new growth markets, synergy to cut costs and improve efficiencies.

Recent examples include Novatek and Cheertek, Himax Media Solutions and Renesas SP Drivers (Renesas, Powerchip, Sharp combined efforts).

Next, the small LCD and OLED driver markets are dominated by mobile phones. Here, MSTN and CSTN volumes will shrink to less than 15 percent by 2012. Also, TFT, LTPS and OLED will remain the growth areas for small/portable displays.

Finally, the large LCD driver market will see growth in gate-in-panel in LCD monitors, and especially in notebook panels. There will be multichannel, fewer driver ICs per panel, higher reliability, and lower component count. Transition to multichannel is key, as TV transition will impact volumes significantly.

iSuppli upgrades DRAM market rating to positive

EL SEGUNDO: Amid a shortage of DDR3 memory and a resulting rise in pricing, iSuppli Corp. has upgraded its rating of near-term conditions for DRAM suppliers to positive.

iSuppli had maintained its negative rating since September 2008 until it upgraded the condition to neutral two weeks ago.

“The improvement in circumstances is a welcome relief to a DRAM market that has been stuck in a state of oversupply for nearly three years,” said Nam Hyung Kim, chief analyst for iSuppli.

“The oversupply has been a disaster for the global DRAM industry, with revenue dropping to $23.6 billion in 2008, down from $34 billion in 2006,” Kim said. During this period, the profitability of DRAM suppliers evaporated completely, and the combined operating loss for the entire DRAM industry amounted to $15 billion during the last three years.

Kim added: “With rising demand and limited supply for DDR3, the global DRAM industry is set for a sustainable recovery that will extend into the fourth quarter and pave the way for a robust annual increase in 2010.”

DRAM revenue plunged by 19.5 percent in the first quarter compared to the fourth quarter of 2008. However, with the rise in DRAM pricing, revenue increased by 37.5 percent in the second quarter compared to the first. Revenue is set to continue to rise on a sequential basis by more than 20 percent each in the third and fourth quarters.

The figure presents iSuppli’s worldwide quarterly revenue growth forecast for DRAM.Source: iSuppli, July 2009

Kim this month visited Asia where DRAM suppliers confirmed the DDR3 shortage. The suppliers reported PC OEMs are making a rapid shift from DDR2 DRAM, which has been the industry standard for nearly three years, to DDR3 because of its high performance and low power usage.

However, suppliers have not yet ramped up production of DDR3 enough to meet this new demand. DDR3 captured only 8.4 percent of total bit shipment in the first quarter of this year and is expected to reach 15 percent of total bit shipment in the second quarter, based on iSuppli’s preliminary data.

iSuppli predicts the DDR3 shortage will persist during the third quarter because suppliers won’t be able to meet current demand. While the limited investment of DRAM suppliers is slowing their 50nm migration—a process necessary to ramp up DDR3 production quickly—the DDR3 shortage will cause supplies of DDR2 to tighten as Tier-One suppliers continue to convert production from DDR2 to DDR3.

Nevertheless, if DDR2 prices rise, suppliers in Taiwan are likely to increase their utilization rates, limiting price increases. Thus, depending on Taiwanese suppliers, a recovery in DDR2 prices could be limited, widening the price gap between DDR2 and DDR3.

The price crossover between DDR2 and DDR3 is expected to arrive near the end of the year or in early 2010 when DDR3 volume rises to be equal with DDR2’s.

While the DDR3 shortage and the improvement in market conditions are positive developments for suppliers, they represent bad news for PC OEMs and other DRAM buyers.

“Prices are rising in the third quarter, a time when DRAM buyers typically begin to make purchases for the holiday season,” Kim noted. “Adding to the current tight supply for notebook LCD panels, the increase in DRAM prices will result in lower profitability for the PC makers in the second half of the year.”

Chip fab obsolescence compounds foundry misery

EL SEGUNDO, USA: As if the massive downturn in global revenue weren’t enough, the global semiconductor pure-play foundry industry also is undergoing a period of wrenching changes, according to iSuppli Corp.

For 2009, the global pure-play foundry business is expected to underperform the total semiconductor industry. The current forecast is for the pure-play foundry industry to experience a 25.2 percent contraction in global revenue in 2009, while the total semiconductor industry will experience a 23 percent decline.

“Overall, 2009 will go down in the history books as one of the most difficult years ever experienced by the global semiconductor and foundry industries,” said Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli.

“Unlike previous industry downturns, where supply and demand have driven upturns and downturns, the debacle in 2009 can be mainly attributed to external economic influences on the semiconductor industry that will take years from which to recover.”

Foundry reshuffle
Beyond the weak economic industry and economic conditions, the pure-play foundry industry is going through a fundamental reconfiguration that is affecting every aspect of the business.

This reshuffle has its origins in the trend of semiconductor manufacturing specialization and aggregation of demand. With the high cost of transitioning to more advanced semiconductor production technologies, more semiconductor suppliers have chosen to support technology development platforms through the use of third-party foundry manufacturing to develop differentiation through unique chip designs.

Chip suppliers also are reducing their product portfolios in order to become more responsive to changing market conditions. The economics of a company maintaining multiple manufacturing facilities to produce a broad base of products are clearly not practical when competing with highly focused manufacturers.

Gaining maturity
This change in business realities is forcing semiconductor manufacturers to retire older facilities at a faster rate.

“Historically, when semiconductor suppliers transitioned to new technologies, they maintained their mature factories for cost-effective manufacturing of older technology,” Jelinek said. “Today, as competitors transition mature technology to newer manufacturing platforms, cost pressures are making older manufacturing facilities uncompetitive to operate.”

In North America, the lifecycle for mature manufacturing facilities has reached its twilight. In Europe and Japan, companies are struggling with the social economic impact of shuttering facilities that are no longer competitive. All of this is being accelerated by favorable economic policies toward manufacturing in Asian countries.

As these policies continue to gain favor, companies will continue to transition manufacturing to these more cost-effective locations.

With capacity increases and outsourcing of semiconductor manufacturing concentrated on a smaller group of companies in low-cost production regions, the foundry industry is unlikely to mount a major recovery anytime soon.

One-two punch knocks wireless semicon market back to 2003

EL SEGUNDO, USA: The combination of the global recession and excess inventory has set back the wireless semiconductor market to levels not seen since 2003, according to iSuppli Corp.

Global revenue for wireless semiconductors, the majority of which are used in mobile handsets, is set to decline to $39.4 billion in 2009, down a stunning 26.7 percent from $53.8 billion in 2008. This is the lowest level of annual revenue for the wireless semiconductor industry since it generated $34.7 billion in 2003.

“While all major application markets for the semiconductor industry will contract this year, the wireless area arguably will post the worst performance,” said Francis Sideco, senior analyst for wireless communications at iSuppli. “Wireless semiconductors were hit in the first half by the one-two punch of soft end-market demand and an inventory correction.”

The figure presents iSuppli’s forecast of global annual wireless semiconductor revenue. This figure consists of revenue from sales of all semiconductors used for wireless applications, including mobile handsets, wireless infrastructure equipment, WLANs and connectivity products.Source: iSuppli, July 2009

While 2009 will be a poor year by any measure, conditions are improving markedly in the second half.

“As the wireless semiconductor market enters the second half of 2009, iSuppli expects a return to normal seasonality and growth, which will continue into 2010 and beyond,” Sideco said. “With that return comes opportunities to not only survive but also to thrive for those companies properly positioned to take advantage of new product trends, driving the next round of growth.”

MIDs deliver max opportunity
One new product trend is the accelerating momentum behind Mobile Internet Devices (MIDs) and mobile consumer electronics. These devices and their requirements have created a veritable arms race in the mobile wireless semiconductor market.

At the heart of this race is the fact that just as MIDs fill the space between notebooks and smart phones, their requirements will also dictate that performance be optimized for processing capability and power consumption.

However, although these two parameters were traded off by chipset and system design in traditional devices, chipset solutions targeting this space can no longer afford to do the same sort of exchange and remain competitive.

Two main microprocessor architectures are being used today and will continue to be employed by MID-class devices: X86 and ARM. X86-based architectures from companies such as Intel and AMD traditionally have been used in compute platforms such as desktops and notebooks.

In contrast, ARM-based architectures such as those solutions from Texas Instruments, Qualcomm, ST-Ericsson and Infineon typically have been used in mobile phones.

Consequently—or at least historically—X86 microprocessors are optimized for processing capabilities while ARM-based devices have been tailored for low power consumption—in line with the requirements of their respective target markets.

ARM vs. X86
“The difference in historically optimized capabilities between the two architectures represents the crux of one of the most competitive races ever to be contested by semiconductor chipset manufacturers,” Sideco said.

“The issue simply is that MID-class devices are unique in that in most cases, they require the processing capabilities of compute platforms and the power consumption performance of mobile devices. This begs the question: Is it easier for a processing-optimized architecture to now solve the power consumption problem or for a power-optimized architecture to solve the processing problem?”

iSuppli believes that companies with a focus on optimizing the balance between these two parameters for specific target devices can achieve an advantage by more quickly addressing the requirements of MID-class devices.

Next-gen rising
Another such trend that iSuppli has identified as a key inflection point is the upcoming wave of upgrades for next-generation technologies and networks, such as HSPA+ and LTE, as well as the corresponding backhaul and upgrades of core networks that are required to fully take advantage of the advances in these radio access technologies.

While these upgrades are not forecasted to really occur until 2010-2011, product cycles require that in order to meet this window, semiconductor suppliers should now be aligning their R&D efforts to best catch this upcoming wave.

iSuppli fast facts on AMD’s Q2 earnings

EL SEGUNDO, USA: To support journalists’ coverage of Advanced Micro Devices Inc.’s second-quarter results, iSuppli Corp. is providing the following facts:

· Financial analysts expect AMD to report second-quarter revenue that is lower compared to the same period in 2008. This would follow the pattern of AMD’s main competitor Intel, which last week reported that second-quarter sales were down 15.3 percent compared to the same period in 2008, amounting to a $1.4 billion drop.

The decline is largely due to a fall in PC shipments—the major factor driving sales of the computer-oriented microprocessors sold by AMD and rival Intel.

· Based on a preliminary forecast made prior to the end of the second quarter, iSuppli estimates global PC unit shipments in the second quarter decreased by 5.2 percent compared to the same period in 2008.

Shipments in the second quarter of 2009 declined to 66.5 million units, down from 70.2 million in the second quarter of 2008. iSuppli will update this estimate when companies report actual second-quarter results. Fig. 1 presents annual and sequential growth rates for global PC shipments.

iSuppli Fig. 1: Preliminary Worldwide PC Quarterly Growth Forecast 2008-2010 (Percentage Change in Revenue Measured in US Dollars)Source: iSuppli, July 2009

· Based on a preliminary estimate from iSuppli made before the end of the second quarter, global revenue for all types of microprocessors -- including but not limited to the X86 chips sold by AMD and Intel -- declined to $6.9 billion in the second quarter, down 20.8 percent from $8.7 billion during the same period in 2008.

iSuppli will update this estimate when companies report actual second-quarter results.

· AMD is likely to forecast a stronger second half. Following a weak first half, PC shipments are expected to recover in the final six months of the year, according to iSuppli.

· In the third and fourth quarters, PC shipments are expected to rise sequentially by 11 and 8.9 percent, respectively. On a year-over-year basis, PC shipments are expected to rise by 11 percent in the third quarter and by 8.9 percent in the fourth, as presented in Fig. 1.

· iSuppli predicts global microprocessor revenue will rise on a sequential basis to $7.2 billion in the third quarter, up 4.8 percent from $6.9 billion in the second, based on iSuppli’s preliminary estimate.

In the fourth quarter, global microprocessor revenue will rise by 2.5 percent to reach $7.4 billion. Fig. 2 attached presents iSuppli’s preliminary quarterly microprocessor revenue forecast.

iSuppli Fig. 2: Preliminary Worldwide Quarterly Microprocessor Revenue Forecast (Millions of US Dollars)**Comprises all types of microprocessors, including x86, RISC and other types of general-purpose devices. This market share information is not simply limited to x86 microprocessors used in PCs.
Source: iSuppli, July 2009

· Intel Corp.’s year-long streak of sequential market-share gains in the global microprocessor business ended in the first quarter of 2009, as chief rival AMD staged a comeback, according to iSuppli Corp.

· Intel in the first quarter suffered a 2.5 point decrease in global microprocessor market share, with its portion of global revenue declining to 79.1 percent, down from 81.6 percent in the fourth quarter of 2008.

Meanwhile, AMD gained at a nearly equivalent rate, with its share in the first quarter rising by 2.3 points to 12.8 percent, up from 10.5 percent in the fourth quarter.

Semiconductor inventory correction concludes, revenue growth begins

EL SEGUNDO, USA: Following four consecutive quarters of reductions, global inventories of chips have declined to appropriate levels, clearing the way for stockpile rebuilding and higher sales in the second half of the year, according to iSuppli Corp.

After declining by 2.2 percent and 6.6 percent in the third and fourth quarters of 2008, inventories at global semiconductor manufacturers plunged by 15.1 percent in the first quarter, followed by a moderate 1.5 percent in the second quarter.

At the end of the second quarter, iSuppli preliminarily estimates that inventories fell to $24.9 billion, down from the recent peak of $32.6 billion in the second quarter of 2008.

“Falling demand in the first half of 2009 prompted a swift inventory correction among chip suppliers,” said Carlo Ciriello, financial analyst for iSuppli Corp. “Companies dialed down utilization levels and cleared swaths of inventory by reducing Average Selling Prices (ASPs) in anticipation of continued depressed demand. Furthermore, semiconductor suppliers cut costs in an effort at right-sizing to better reflect the economics of smaller end markets.”

The figure presents iSuppli’s estimate of global quarterly semiconductor inventory held at chip suppliers in terms of US dollars.

iSuppli Figure: Global Semiconductor Inventory Held by Chip Manufacturers (in Millions of US Dollars)Source: iSuppli, July 2009

The chain gang
The semiconductor inventory reduction effort was not limited to chip suppliers, with other segments of the electronics supply chain following suit.

These segments include storage product makers, mobile handset OEMs, Electronics Manufacturing Services (EMS) providers and distributors.

Inventory and chip revenue to rise in second half
iSuppli forecasts that second-half inventories will increase modestly in unison with sequential revenue increases for the global semiconductor industry.

After an 18.8 percent decline in the first quarter of 2009 and a 7.1 sequential increase in the second quarter, global semiconductor revenue will rise in the second half, in line with financial guidance from Intel Corp. and other chipmakers. Global semiconductor revenue will increase by a vigorous 10.4 percent in the third quarter and by 4.9 percent in the fourth, iSuppli predicts.

Semiconductor inventories will rise by 5.5 percent in the third quarter and by 1 percent in the fourth to end the year at $26.5 billion, still an appropriate level for the demand, iSuppli predicts.

Caution ahead
“Despite the more optimistic outlook, corporations remain apprehensive about the second half, consistently noting fragile demand,” Ciriello said. “Market values have declined, and the tradeoff between raising prices and maintaining market share has commanded more management attention than usual.”

No one is stepping to the plate to aggressively build inventories in anticipation of a future demand snap-back. Expectations of sequential revenue increases in the third and fourth quarter, as well as anticipatory inventory builds ahead of the holiday season, will improve utilization rates and boost gross margins in the near term.

“However, anticipating longer-term end-demand has proven difficult,” Ciriello said. “Thus, a self-inflicted oversupply situation with too much inventory build would be akin to applying frost to blossoming green shoots.”