DataQuest says Asian chip sales are up, than down, now China is the market.....................................................................................
techweb.com
Asian Chip Market A Big Puzzle
(01/19/98; 9:21 a.m. EST)
By Mark LaPedus , Semiconductor Business News
Forecasts for the Asian semiconductor market in 1998 are now being marked down because of the region's economic meltdown, but mostly they still see the Asia-Pacific region growing by a healthy 20% or more. The picture is changing rapidly, however, and chip makers are getting increasingly pessimistic. They say the days of double-digit growth in this region are gone, at least for now.
There are good reasons for the industry's growing pessimism. Asia's economic mess began last summer when stock markets and currencies began collapsing in a giant, domino effect. Now the disaster may be taking on a life of its own with many analysts predicting the turmoil could last through 1998 -- and maybe even longer.
It's hard to see how the region's chip market can avoid being hit by this ongoing disaster. First to fall were Indonesia and Thailand, both running into a major financial crisis and forced to seek massive bail-out packages from the International Monetary Fund (IMF). Then debt-ridden South Korea, the world's 11th-largest economy, had to swallow its pride in December and accept the tough terms of an IMF-led bail-out package.
Already, South Korea's giant chip makers are beginning to retrench. "While China still has good potential for 1998, the rest of the Asia-Pacific chip markets doesn't look so good," said an official from South Korea's LG Semicon Inc. in Seoul.
The nation's economic problems, coupled with the worldwide DRAM glut, could force Hyundai, LG Semicon, and Samsung to cut back their planned fab expansions. "The currency situation isn't helping us either," said the LG Semicon official. "Currency devaluations in South Korea will make our product exports more competitive, but they also increase our material and equipment costs,'' he said.
Asian IC revenues will be hit by weaker consumer markets in the region. Industry analysts agree that consumer spending for PCs and other chip-intensive products will drop significantly in many of the troubled Southeast Asian nations. In fact, several of the Southeast Asian nations have already sliced their 1998 gross national product growth forecasts by half or more.
Daniel Heyler, senior industry analyst at Dataquest Asia-Pacific Co. in Hong Kong, could see only one bright spot in 1998 for the Asian chip business. "Greater China will remain stable, but there will continue to be problems in Japan, Korea, and Southeast Asia," he said.
At this point, Dataquest seems to be more bullish than bearish. The market researcher originally forecast that Asia-Pacific's IC market would grow 15% to $34 billion in 1997. But later, its analysts changed their minds and said the region would achieve only 8.3% growth to about $32 billion in 1997. Now Dataquest is bullish about 1998, predicting that the region would rebound and hit a growth rate of 20.7% to reach $38.6 billion in semiconductor sales.
For now, however, some chip executives are in the "cautiously optimistic" camp. "Clearly, consumer spending will decrease in [Asia], because of the collapse in the region's currencies and stock markets," said W.J. Sanders III, chairman and CEO of Advanced Micro Devices Inc. "But," he added, "I don't think this will cause an overall disruption in our business."
Asia could gain as much as it might lose as a result of the current economic turmoil. While Asian consumers might cut back their own product buying, the region's manufacturing operations could become more competitive with lower costs based on global exchange rates, said Walter Conrads, international marketing and sales director for Philips in Eindhoven, The Netherlands.
"It very well could be cheaper to produce products in the region based on the devaluation of currencies, shifting more of the world's production to the region," Conrad said. Philips, which jumped from No. 10 to No. 5 in 1996 semiconductor revenues in the Asia-Pacific region, accounted for 4.9% of the $29.7 billion Asian chip market in 1996, according to Dataquest.
But the turmoil is hurting some bottom lines. U.S. companies with large exposure in Asia -- including Cisco, Intel, and Oracle -- have already reported disappointing results from the region. For example, Intel reported that its Asian sales in the third quarter of 1997 slipped to 28% of its worldwide revenues, down from 30% in the same 1996 period.
While acknowledging some concern about Asia's economic crisis, Ronald J. Smith, vice president and general manager for Intel's Computing Enhancement Group, is still a long-term bull on the region. Intel still sees Asia as "one of our best and fastest-growing markets. I still believe there's a huge demand for PCs [in Asia] despite the currency problems in the region."
Kulicke & Soffa Industries Inc. said it will miss its earnings and sales forecasts for first fiscal quarter of 1998 primarily because of the financial crisis in Korea. "Because of uncertainty among our Korean customers, we are seeing the rescheduling of delivery of equipment from the current quarter to later in the fiscal year," said C. Scott Kulicke, chairman and CEO. As a result, its equipment shipments will run lower than expected.
Lattice Semiconductor Corp. has run into another type of problem due to the economic crisis in South Korea. The Hillsboro, Ore., chip maker said that its sole Korean sales representative and distributor, Woo Young Tech Co., had been declared insolvent. This puts at risk the company's entire backlog of orders, amounting to about $3.5 million, from its Korean customers. Lattice is working now with its major Korean customers to arrange for direct product shipment.
Growth for IC-driven products in China and a few other nations will more than offset the downturn in Southeast Asia in 1998, predicted Dataquest's Heyler. The Asia-Pacific IC market will continue to outpace worldwide chip growth, which is expected to run 16.7% in 1998, he predicted.
China, one of the few bright spots in the Asia-Pacific region, surpassed Taiwan for the first time to become the region's largest IC market in 1997, according to Dataquest. "China's IC market grew 16% in 1997," Heyler said, "and is now on pace to equal or surpass those growth rates over the next three to five years."
Fueled by the demand for PCs, TVs, and cell phones, "China's IC market could grow by as much as 20% next year," predicted Nicholas Leung, general manager of sales and marketing for Avnet WKK Components Ltd., the Hong Kong subsidiary of distribution giant Avnet Inc.
Much of China's chip growth is coming from surging PC sales. Its PC market will grow from 2.5 million units in 1997 to 3.3 million units in 1998, according to one forecast. In 1996, the nation became the second-largest PC market in Asia, passing South Korea and lagging only Japan, said International Data Corp.
Another bright spot is India, now Asia-Pacific's fourth-largest PC market running behind only Japan, China, and South Korea, according to IDC. Overall, Asia-Pacific's PC market is going to grow by a compounded annual rate of just over 26% for the next three or so years, the market researcher predicted.
But weak prices in memories could end up hurting the Asia-Pacific chip market in 1998 even more than they will other parts of the world. Taiwan's DRAM makers are furiously ramping up both 16-and 64-megabit parts at a rate that could exacerbate the global memory glut. This growing overcapacity will exist throughout 1998 -- and perhaps even beyond.
Some Taiwanese DRAM makers already are battening down the hatches. Due to price pressures and other problems in its DRAM business, Taiwan's Mosel-Vitelic Inc. revised its 1997 sales forecast downward by 30.3% and its profits by 42%. Its core specialty memory business has been battered and prices for its 4-Mbit DRAM lines have dropped by nearly 60% from $2.30 last March to $0.95 now, according to John Kuo, senior industry analyst at China Securities Investment Trust Corp. in Taipei.
Flash memories are experiencing demand that is still growing, but at a lower rate. Demand for flash will remain strong in Asia, but prices will continue under severe pressure, predicted Miin Wu, president of Taiwan's Macronix International Co., a supplier of non-volatile memories.
Even the highly profitable wafer-foundry business may be heading for trouble in 1998. More competition from new foundry players in South Korea and Taiwan, coupled with falling currencies in the region, could put pricing pressure on finished wafers next year, said James Hines, principal analyst for semiconductor contract manufacturing services at Dataquest.
While problems like this would tend to flatten the Asia-Pacific market, there are others that could really push the region's IC market over the edge in 1998. One possible doomsday scenario would be if the current shining star in Asia -- China -- followed Malaysia, Indonesia, and Korea into economic chaos next year. "It's entirely possible,'' concluded one analyst. "And it would be a disaster for the worldwide electronics industry.'' <Picture: TW> |
