Fabless Semiconductor Association report.
fsa.org
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Fabless Semiconductor Industry Forecasts Robust Growth
Group Migrating Quickly to Advanced Process Technology
San Jose, Calif. (April 30, 1997) The Fabless Semiconductor Association (FSA), a trade association representing 133 fabless semiconductor companies and their partners, recently announced the fabless segment's growth will again outpace the overall semiconductor industry during 1997. The FSA's 1997 Wafer Demand Survey (1997 Survey) reviews the 1996 environment and forecasts wafer demand for 1997, 1998 and 1999, based on 59 fabless companies. This group of 59 forecasted they will need 39 percent more wafers in 1997 than they did in 1996, growing similarly in 1998 and 1999. The group also predicted it would need access to more advanced process technology, and by 1999, the majority of its manufacturing needs will be derived from 0.35 micron technology and less.
"The 1997 Survey has many expected results and a few surprises," said Dr. Robert Pepper, FSA chairman and president and CEO of Level One Communications [NASDAQ: LEVL]. "Trying to forecast an industry as competitive, cyclical and volatile as the semiconductor industry is an unenviable task. The FSA has spoken to several fabless leaders, as well as foundry partners, and most believe the fabless group will grow faster than the industry as a whole, but is concerned the wafer demand may not be as high as forecasted."
The FSA believes companies may have over forecasted because they did not anticipate the exceptional yields they will get from eight-inch vs. six-inch wafers and the migration to more advanced technologies. Many companies have reported the yields from eight-inch wafers produce two times the number of die as six-inch wafers, whereas original assumptions were between 1.5 times and 1.78 times more die per wafer. If the yields have been underestimated, fabless companies will need fewer wafers than they are currently forecasting.
The 34 public companies the FSA tracks, grew revenues faster than the overall industry for the last two years. However, the 1996 semiconductor recession did not leave this group unscathed. From 1994 to 1995, 34 publicly held fabless companies grew revenues from $3.6 billion to $5.8 billion, representing 60 percent growth, while growing a more modest 10 percent from 1995 to 1996. Eighteen public fabless companies exceeded this 10 percent growth rate in 1996, while five companies doubled revenues for this timeframe. Despite the sequential growth rate decline from 1995 to 1996, this group of public, fabless companies performed better than the overall semiconductor industry, which declined by 6.3 percent, according to Dataquest. Obviously, the precipitous decline in memory pricing skewed the calculation. When memory is eliminated, the overall industry grew by eight percent, while the fabless group without memory grew 13 percent.
Semiconductor analysts are optimistic about the fabless segment going forward, forecasting revenue growth for this segment at 25 percent in 1997, and slightly higher in 1998. The overall semiconductor industry is projected to grow 12 percent in 1997, as a resurgence in semiconductor demand takes hold.
Going forward, analysts believe a fabless company's access to advanced technology at competitive pricing is going to be very important. "Fabless companies will continue to benefit from wafer prices that have fallen considerably over the last six months," stated Krishna Shankar, vice president and semiconductor analyst, Donaldson, Lufkin and Jenrette. "Since December 1996, an average eight-inch, 0.50 micron wafer has declined from $2,300 to $1,500."
Furthermore, fabless companies are targeting the best growth areas. According to Dan Klesken, managing director and senior semiconductor analyst at Robertson, Stephens, the PC market, telecommunications and emerging Internet and global markets will bode well for this group. He emphasizes five primary reasons for optimism about fabless companies: unique designs, quick turnaround, close working relationships with foundries, third party licenses and improvements in EDA tools.
Charles Boucher, vice president and senior semiconductor analyst, UBS Securities, points out the fabless industry has matured a great deal over the last few years. "The fabless industry is no longer a novelty - it is part of the mainstream semiconductor industry and will only increase in presence. Fabless stocks are no longer the exclusive province of small cap investors - certain fabless companies have reached multi-billion dollar market capitalizations and are owned by large cap funds."
Last year'sSurvey, based on questionnaires received in January and February 1996, was 67 percent accurate. Although the FSA will continue to strive for a more accurate forecast, 67 percent is good considering the entire semiconductor industry started 1996 with a very optimistic growth outlook. As a result of the changing environment, the FSA conducted a mid-year forecast, which was 79 percent accurate. The 1996 environment was harsh with demand falling off more precipitously than even the most thoughtful pundits anticipated. There was a serious inventory problem that beleaguered semiconductor customers in 1996, which has only recently been corrected. Furthermore, fabless companies very aggressively redesigned existing products for smaller geometries in 1996 and moved to eight-inch fabs, translating into more revenue per wafer, and therefore, fewer wafers purchased.
The FSA published its 1997 Wafer Demand Survey for FSA members. The document includes tabulated detailed findings from the 1997 Survey, as well as articles from semiconductor partners such as Applied Materials and Compass Design, and leading semiconductor analysts. The publication is available to non-members for $695.00.
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