iSuppli: Can the semiconductor market regain its momentum in 2008?
(lot of talk - but Gottfried's charts are better than a thousand words - anybody who diligently follows Gottfried's chart should not be into a surprise; MHO the overall cycle gets muted because the different segments do not run in synch anymore;
the low booking level experienced in second half of 2007 should bode well for global chip sales and consequently should trigger more capex going forward)
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Press release, March 6; Esther Lam, DIGITIMES [Thursday 6 March 2008]
The semiconductor growth cycle is entering a period when traditionally an acceleration in revenue growth would be expected. However, with the current cycle delivering such weak growth and with economic worries mounting, concerns are rising over whether the semiconductor industry can regain its momentum and manage to expand this year.
iSuppli's current forecast calls for the global semiconductor industry to achieve revenue growth of 7.5% in 2008, up from 4.1% in 2007. But amid signs of weakening pricing and reduced demand for NAND flash, as evidenced by Apple's recent slashing of its expected 2008 order levels (does anybody really believe there are no Apple copy cats out there?? perhaps Apple did drive the NAND cycle but now there are copy cats - Apple trailblazed the way for NAND and other are going to follow) for the memory and Intel's financial warning, iSuppli expects to modestly trim its 2008 semiconductor growth forecast later this month.
With the current growth cycle having hit bottom in February 2006, the semiconductor market normally would be expected to undergo a robust rebound in early 2008, following the industry's normal cyclical pattern. However, the current cycle is generating so little growth that a strong market expansion is not expected this year.
Despite this, factors including tighter inventory controls and a limited economic downturn are expected to keep semiconductor growth positive for the year, noted Dale Ford, senior vice president, market intelligence at iSuppli.
Inventory on the wane
Ford noted that semiconductor cycles tend to lose momentum due to supply/demand balance factors within the electronics value chain, rather than because of overall end-demand issues. An imbalance in supply/demand is most easily seen through an analysis of excess inventory levels.
"In the early stage of the expansion, we see the sales momentum return, we see the growth come back and we see companies eager to capture market share," Ford said. "Thus, we have over production and over capacity. Then, later on, the market must bring things back into balance, which leads to a correction."
However, Ford noted that the inventory situation shows that the industry is currently in a reasonably healthy balance at this point in the semiconductor growth cycle.
"The last major downturn (in 2001) had a perfect storm of over-build of capacity, a collapse in demand and out-of-control inventory levels," Ford said. "The industry has gone through a learning period on how to manage capacity more tightly. We're now getting an earlier warning signal for excess inventories. Once there was a signal that inventories were out of balance, the industry responded quickly to get them back into balance. Once the inventories stabilize, we will see a return to balance between production and demand."
Ford noted that excess semiconductor inventories in the electronics value chain are expected to fall to the US$3.3 billion range in the first quarter. This will be down dramatically from its peak of US$6.1 billion in the first quarter of 2006.
Meanwhile, semiconductor makers plan to manage overall factory utilization in 2008 at levels comparable to 2007, helping to restrain supply growth and to keep pricing from falling too much for many semiconductor part types.
Furthermore, Ford said that most economists predict the US economy will show either slow growth or experience a mild recession in 2008 but will avoid a major recession this year. With global electronics manufacturing growth projected to drop modestly in 2008 compared to 2007, this will limit the negative economic impact on the semiconductor industry.
A shrinking cycle
The lack of a major increase in semiconductor revenue growth momentum reflects a long-term trend in the chip industry toward more restrained expansion.
"It's interesting to go back 20 years and see the shifts in long-term growth rates," Ford said. "Years ago, the global semiconductor market maintained a 27% compound annual growth rate (CAGR), then it slowed to 17%, and now we are in a period of approximately 7% long-term CAGR. These are maturing dynamics. This is a larger and more mature industry-and it's acting like a larger and more mature industry."
Second quarter showdown
Whether the semiconductor market can shake off its woes and achieve growth in 2008 will hinge largely upon the industry's performance in the second quarter, Ford predicted.
The first quarter will be seasonally slow, with revenue declining by 7.5% compared to the fourth quarter of 2007. However, revenue growth will rebound in the second quarter, rising by 4.6% sequentially.
With flat growth of 0.1% in the fourth quarter and an 11.8% increase in the seasonally-strong third quarter, the second quarter performance will be a key indicator of market momentum for the second half of 2008.
"This is where the fate of the year lies," Ford said. "Whether the year turns out well or not, the second quarter is the best indication of what will happen this year." |
