Suppliers remain uncertain on outlook for 2003
By Mike Clendenin
EE Times
September 19, 2002 (5:30 a.m. EST)
TAIPEI, Taiwan — The bulls tangoed with the bears at this year's SEMI Taiwan conference, as a mixed bag of opinions regarding an industry recovery permeated the aisles.
IC unit shipments may be up, but average selling prices (ASPs) are down. Optimists said a recovery is under way, and pointed to higher foot traffic at the Taipei show as anecdotal evidence. Realists said it sure doesn't feel like a recovery. They noted ongoing caution among customers, and remembered that a typhoon kept a lot of people away last year.
"We are seeing an increase in orders and production, but it's definitely a modest recovery," said Elizabeth Schumann, senior director of research at Semiconductor Equipment and Materials International (SEMI). "There's nothing to jump up and down about right now." Figures from Semiconductor International Capacity Statistics (SICAS) show that capacity utilization for the majority of IC makers averaged about 86 percent in the second quarter. "But we've heard that in the third quarter it's starting to slow and drop a little bit," Schumann said. As a result, she expects chip industry growth to top out around 3 percent this year.
Short-term hope is still pegged to a moderate upsurge in 2003 coming from traditional markets like the United States, Europe and Japan. Yet in the long-run, faith remains strong in the buying power of China's emerging middle class.
Currently, China outpaces Japan in its consumption of several electronics products, including TVs, DVD players and mobile phones, and soon Chinese will eclipse Japanese consumers in the number of PCs they buy, according to WestLB Securities Pacific Ltd. Within three years, China will match or beat U.S. consumption in most of those products, said Akira Minamikawa, a senior analyst at WestLB.
Emerging markets
Most chip and equipment makers think that will drive the next period of growth in the industry, much more than advances in technology. "We really need to push and develop the market for the consumption of silicon chips in emerging markets. They represent a 4.5 billion population: India, Russia and China," said David Wang, executive vice president of Applied Materials Inc.
"Technology and manufacturing technology sooner or later will come to the end and the industry growth will really depend on the applications," he said. "So that's why I feel the industry will probably have another 20 years of exciting times. Beyond that, it will become mature."
As the holiday period draws closer, Schumann expects equipment makers will continue to suffer from lackluster demand. Although things are looking better than last year, in July orders started to slip. "That's a typical seasonal pattern that we see, but coupled with the fact that their seems to be low visibility in terms of orders for Q4 and Q1 of next year, it is possible that we will start to see orders flatten out over the next couple of months," she said.
Next year, though, is shaping up to be a classic shortage situation, Minamikawa warned. He believes the industry is in the second trough of a double-dip recession and points to lower inventory levels and higher fab utilization as evidence that this bottom isn't as deep as the last. "During the middle of last year, for example, the mobile phone inventory level was about 120 million units. However, the current inventory is about 60 million. Fab utilization in the semiconductor industry now is about 80 percent, but last year it was about 60 percent," he said.
Design engineers jostling for capacity at sub-0.18 micron will find it especially tough in 2003. At 0.15 and 0.13 micron, "we predict the shortage will be much more severe than the industry predicts," Minamikawa said.
According to SICAS data, leading-edge capacity utilization is close to 90 percent. "On the other hand, when we look at IC designers, about 45 percent of IC designs are for below 0.18-micron technology. However, of the current worldwide semiconductor capacity, only 20 percent is 0.18-micron capacity," he said.
Schumann added that she is also seeing more designs migrate to .18 micron and beyond, but not enough to clear up the uncertainty among chip manufacturers, especially the foundries. For instance, Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp. have spent less than 30 percent of their capital expenditure budgets this year, analysts believe.
"Part of our problem, which has been a problem for the last year and a half, and will probably continue to be a perennial problem with these short process cycles and short life cycles of products, is that the visibility is relatively limited," Schumann said. "So people aren't really going out there and investing a lot because they can't guarantee that they will have a lot of demand."
Assume the worst
Whether it's being pessimistic or realistic, just assume the worst for the time being, said Arthur Zafiropoulo, chairman of SEMI and chief executive officer of Ultratech Stepper Inc. "This industry is in the most difficult transition ever and I've been in it since 1964," he said. "There are no drivers out there. There's no killer application."
"That's why I'm saying the end of next year, at the earliest, for our equipment [recovery]," Zafiropoulo said. "If that happens, that means the chip guys recover in the middle of next year or earlier — and I think there's kind of a weak chance of that happening." |
