From electronicnews.com
Semi Gains in Double Digits
SIA upgrades forecast for 1999
By Jerry Ascierto
Redwood City, Calif.--The worldwide semiconductor industry will enjoy double-digit growth in 1999 for the first time since 1995, and should sustain that growth well into 2002, according to a revised forecast by the Semiconductor Industry Association (SIA), presented here last week.
The semiconductor industry this year is expected to grow 12.1 percent, the fastest growth-rate since the euphoric 41.7 percent rise of 1995. The SIA has grown more optimistic since its semiannual report last fall, when it predicted sales would grow by 9.1 percent in 1999. Total sales this year are expected to reach $140.8 billion, up from last year's $125.6 billion.
The SIA is forecasting strong recovery in almost every industry segment, including, notably, the stubborn DRAM market. Despite a 24 percent drop in DRAM revenue this quarter, the trade group expects DRAMs to finish the year 25 percent higher than 1998, continuing in that vein until 2002.
"Even these forecasts are still mentally standing in a trench, looking out over the horizon," noted Wilfred J. Corrigan, LSI Logic chairman and chief executive officer and SIA oversight director for the Forecast. "So there's a certain conservative bias. I think you're going to see a building enthusiasm, and when we come back after six months time, I think you'll get much rosier pictures."
The SIA expects the current momentum to continue until 2002, when the market will peak at $215.7 billion. 2001 will exhibit the highest rate of growth, an estimated 17.6 percent, which actually was revised downward slightly from last year's forecast of 18.2 percent growth in 2001.
Part of the reason for the upturn, Corrigan explained, is the fear of potential Y2K problems. Manufacturers in all industry segments may fuel a rise in demand in the fourth quarter to protect against a worst case scenerio.
But the greatest driver of growth is the rising pervasiveness of the Internet, which has replaced PCs as the industry's prime "raison d'etre."
"As we know, the data superhighway is paved with silicon," commented T.J. Rodgers, CEO of Cypress Semiconductor Corp. "The good news is it looks like we're going to be paving roads with silicon for the next three years."
In addition to the Internet boom, Corrigan explained, the worst of the Asian economic crisis seems to have passed, and the reduction of OEM inventories, or what he called the "Dell model", has slowed.
Corrigan, who presented the forecast at a luncheon here, called the slowdown of the last three year's unduly long and difficult, but disagreed with the view that this downturn was the industry's worst. "This has been a long but, compared to some of the earlier downturns, a gentler, perhaps, recession. Most companies have come through reasonably well." The exception to that assessment would be the DRAM vendors.
Geographically, the America's market will remain the world's largest in the next four years, representing approximately one-third of worldwide chip revenues. The Asia/Pacific (non-Japan) markets are expected to make a comeback, emerging as the second largest chip market worldwide.
Among product sectors, and evidence of the Internet's impact, analog is one of the fastest growing, increasing by 50 percent from the anticipated $20.7 billion of 1999 to $32 billion in 2002. Microprocessors will nearly double by 2002, reaching $45 billion, the report said. Another market expected to double is the MOS Logic sector, which will grow faster than the overall market this year.
While most in the industry seem to agree on this year's figures, some feel that the SIA's long-term DRAM forecast is overly optimistic. "I think you've got consensus forecasting at work here," exclaimed Jim Handy, an analyst with market-research firm Dataquest. "The only way to make everybody happy is to have something that looks like a straight line. But the growth rates don't match anything that's happened historically."
Dataquest anticipates a much more volatile DRAM cycle, with growth at 60 percent to 2001, and a negative 23 percent in 2002, contrasting the SIA's optimistic positive 6 percent. Handy added that as prices are beginning to stabilize in that sector, bit growth, which has been rising steadily for the past few years, will carry the revenues up again.
"To get a 25 percent growth rate for the year really isn't that tough," noted Steve Cullen, principal analyst with Cahners In-Stat Group. "The market had a very strong recovery in the last half of ‘98, which was a good level to start ‘99 from. In other words, if the revenue stayed flat at the (second half) ‘98 rate for all this year, it still would've been a 23 percent growth over ‘98."
Despite all of the good news, Corrigan noted that the halted construction of fabs in the past few years, coupled with the many existing fabs too ill-equipped to make the transition to smaller geometries, may lead to a capacity crunch.
"As we move into this up period, it will be awhile before people invest in capital equipment again. I don't think we'll see the excesses of ‘95 and ‘96." The rate of obsolescence will outpace new fab construction, he said, leading to many fabs ‘dying in place'."
As if to punctuate the good news, the SIA released sales numbers for the month of April. Worldwide sales of semiconductors reached $11.21 billion in April, up 7.3 percent from the April of last year. The global sales report showed slight increases in most markets from April 1998 to April 1999.
Geographically leading the charge, and no surprise in light of the mid-year forecast, is the Asia/Pacific (non-Japan) region, posting the greatest increase of 2.1 percent. Chip sales in Japan increased 0.7 percent, while the Americas experienced only a 0.5 percent increase.
Looking forward, the SIA sees the next downturn as being cushioned by the need for an Internet infrastructure. "Despite the ups and downs of the market, superimposed on the cyclicality, I think we'll see another push for longer term growth driven by the Internet. The Internet infrastructure will overwhelm the next downturn," Corrigan said, adding that the SIA's numbers may seem a little pessimistic in light of that.
In closing, Corrigan noted that the nature of the business will always be cyclical. "Will there be another semiconductor downturn? Of course there will be, I'll guarantee that. So, in the meantime, let's make the most of the present upturn."
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