Are Chipmakers Finally on the Road to Recovery?
Thu Aug 8, 1:40 PM ET
Lisa Gill, www.NewsFactor.com
Reduced consumer demand and shrunken IT budgets have turned the first half of 2002 into a slow-growth -- and in some cases no-growth -- period for semiconductor manufacturers.
The Semiconductor Industry Association (SIA) has released July numbers for global chip sales. The numbers showed that, compared to July 2001, sales in the Americas had dropped this year by 10.9 percent. From June to July of this year, semiconductor sales dropped 2.4 percent in the Americas.
However, global sales actually increased 5.8 percent, the SIA said. And the association's forecast for 2002 predicted a global sales recovery trend, with 3.1 percent growth overall by the end of this year and 23.2 percent growth for 2003.
While "growth" might be the buzzword, companies such as Intel ( Nasdaq: INTC - news), AMD, National Semiconductor ( NYSE: NSM - news), TSMC and Nvidia ( Nasdaq: NVDA - news) have all reported lowered revised forecasts for the remainder of the year, largely because they are all suffering from reduced demand in both consumer and commercial segments.
Citing a weakened global economy, Morgan Stanley sliced its 2003 revenue growth forecast for the entire semiconductor industry. The firm brought its original revenue growth cap of 25 percent down to 20 percent.
Moderate Increase
While it appears to be a doom-and-gloom situation on the surface, analysts believe the following six months will push toward the positive. Specifically, they point to PC OEMs and chipmakers gearing up for third-quarter back-to-school sales and fourth-quarter holiday shopping.
Fortunately, say analysts, inventory overstock from the last quarter of 2001 has been depleted. "In the second half, the outlook we see from the statements made from PC semiconductor manufacturers indicates they are looking at a moderate up-tick in demand," Shane Rau, senior semiconductor analyst for research company IDC, told NewsFactor
Yet, most analysts are not inclined to use the word "recovery" to characterize the nature of what has transpired over the past six months -- or what will take place before the holidays. Many prefer the term "stabilized."
"If consumers do come back and buy, then at least for the second half of the year we'll show a lot more strength than we did in the first half," Giga Information Group research fellow Rob Enderle told NewsFactor. But even if demand returns, it is unlikely to be termed a recovery, Enderle said. "It will be nowhere near traditional highs."
Source Unclear
"We have some concerns. We have heard PC OEMs are not buying -- in a big way -- chips for the back-to-school PC buying season," said Rau. "Intel gave that indication, AMD gave that indication."
Rau said he looks for PC chip manufacturers to be concerned about making the fourth quarter successful. He predicts manufacturers will cut prices to spur sales and accelerate product releases.
Enderle pointed out that while semiconductor manufacturers are not overstocked, OEMs like Hewlett-Packard ( NYSE: HPQ - news) still have nearly six weeks of stock available, where the normal amount is a two-week supply. Such a situation could mean that chip shipments would lag behind integration efforts, causing delays in PC shipments.
Key Areas
At least one chip area is highlighted as being consistently troublesome this year: dynamic random access memory (DRAM) -- the memory chips used in most PCs and in many consumer electronic devices.
Rau said that DRAM pricing had dramatically increased during the first quarter of this year, but that the market corrected for it in March. Since then, DRAM has suffered from a great deal of revenue fluctuation.
Russ Craig, director of semiconductor research for Aberdeen Group, told NewsFactor that the DRAM market was the sector that suffered most from oversupply this year. To have a broad-based recovery, segments like DRAM -- a staple of the PC industry -- would need to be in better shape.
The one area that most analysts agree should gain notable market share is the wireless sector, where chips used to connect PCs to wireless networks -- or to build wireless routers -- are often seen as the next major commodity.
"802.11b is doing very well, both in consumer and commercial," said Aberdeen's Craig." And when the 802.11 a/b combo chips become available, that's going to take it to another level."
Beyond the Year
Analysts remain uncertain about when a recovery might happen, but point to several factors that could inhibit a full recovery in 2003. For Enderle, delayed recovery could be the result of lacking a "driver" -- a technology or product release that would spur PC sales, and, as a result, drive chip sales.
Enderle said that new products -- like a new platform by Intel called P5, which will come out in late 2003, as well as several Microsoft ( Nasdaq: MSFT - news) platforms to be released in 2004 -- will miss the push for next year.
"Other than existing equipment that will be getting old from the 2000 refresh, we don't have anything else," he said. "More and more companies are indicating that they are going to keep their old stuff longer in order to make the next technology wave."
Craig said that the economy would need to improve overall before the chip industry would see major changes. "Unless there is a surprise spike in the fourth quarter, it will be the middle of 2003 before things get going across the board." |
