IC growth slowing, analysts say
Richard Goering
(12/06/2005 5:30 PM EST)
SAN JOSE, Calif. — If you're looking for an exciting industry, said analysts at Gartner Dataquest's semiconductor industry briefing here Tuesday (Dec. 6), you won't find it here. Analysts painted a picture of an IC industry with slowing growth, increasing consolidation, and much less volatility than in the past.
"The semiconductor industry's long-term growth rate has slowed down and will continue to slow down," said Richard Gordon, managing vice president of Gartner's semiconductor and design research group. "We don't see that reversing until 2010 and possibly beyond that."
Whereas the semiconductor industry was marked by a 15 to 20 percent compound annual growth rate (CAGR) in the 1990's, and 10-15% annual growth during the past ten years, the total CAGR from 2004 to 2010 is now expected to be 6.5 percent, Gordon said.
What's more, the traditional boom-and-bust volatility of the semiconductor market is nowhere in sight. Coming from 23.4 percent growth in 2004, growth is expected to be 6.9 percent in 2005, 7.6 percent in 2006, 5.1 percent in 2007, 13.8 percent in 2008, 1.3 percent in 2009, and 4.8 percent in 2010.
Gordon said that inventory levels are now within the "ideal" range, after reaching into the "caution zone" in terms of oversupply last year. Manufacturing capacity utilization has also improved to be "in balance with revenue," he said. That's because the semiconductor companies took effective action to rein in output and drive down capacity this year, Gordon said.
According to Gartner forecasts, some segments are growing faster than the overall IC market. These include ASSPs, with an expected 9.4 percent growth in 2005; ASICs, with 9.3 percent growth; and logic, with 17.7 percent growth. On the other hand, analog is expected to decline 2.7%, and memory to be up a scant 3.1 percent.
Gordon showed a slide containing preliminary estimates for 2005 semiconductor market share. The top ten companies, in order, are: Intel, Samsung, Texas Instruments, Toshiba, ST Microelectronics, Renesas, Infineon, NEC, Hynix and AMD. The latter two companies joined the top ten list in 2005, replacing Philips and Freescale, which dropped to numbers 11 and 12 respectively.
"If we're correct in our forecast, something has significantly changed in the industry," Gordon said. And it has to do with consumers. "The industry has transitioned to dependence on consumer spending for electronic equipment," he said.
Gordon noted that the two top semiconductor applications in 2004 were PCs and cell phones, and those will remain the top two in 2010, with about 35 percent combined market share throughout this period. No other single application comes close. "One reason we're expecting slower growth," said Gordon, "is that we don't see any new applications complementing PCs and cell phones."
PCs are expected to have an 8.9 percent CAGR through 2010, with the fastest growth in desktop PCs. Cell phones are expected to have a 9.7 percent CAGR through 2010, with 3G handsets racking up a 25 percent CAGR.
The consumer market is a difficult one, Gordon noted, "because consumers are very fickle." They are also very price-sensitive. The slower revenue growth rate is not because units are down, but because costs are under constant pressure, he noted.
As more and more functionality becomes integrated onto chips, there will be a "massive consolidation of the industry," Gordon said. That point was given even more emphasis by Klaus Rinnen, managing vice president of semiconductor and design research at Gartner.
Rinnen said that there are today 44 manufacturers building new fabs, and there's an 80 percent probability that this number will drop to less than 25 by 2014. There is also an 80 percent probability that 40 percent of today's semiconductor vendors will no longer be shipping silicon in 2014, he said.
Rinnen said that semiconductor industry capital spending will take a slight dip in 2005 and 2006, "but this time around, the correction is very mild," he said. "The overshoot was far less than in the past, so there will be far less cutbacks to maintain a healthy environment."
While the industry continues to more closely match capacity levels, there's an inherent risk, Rinnen noted. "The maturity of the industry is encouraging, but what we're trading off is our fast response capability," he said. "There's a potential of spot shortages next year and a risk of insufficient capacity if demand jumps."
Rinnen discounted China as a major manufacturing force in the foreseeable future. By 2010, he said, China's capacity will account for less than 9 percent of worldwide wafer fab capacity. While 19 fabs are currently planned, funding is not secure for most of them, and Gartner believes only a fraction will actually be built, he said.
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