Analysts agree semiconductor recovery is underway
By EBN staff
Silicon Strategies
09/22/2003, 2:00 PM ET
SAN JOSE -- It should reassure members of the worldwide semiconductor industry that a set of esteemed analysts from disparate industries, all using differing methodologies, have come to a single conclusion: most signs point to improving conditions for the worldwide electronics market. Speaking at a panel discussion at the Supply Network Conference last week in San Jose, five analysts representing the semiconductor business, Wall Street community, third-party market research, and two industry associations discussed their outlook for electronics and their various approaches to developing forecasts. Using methodologies ranging from analysis of macroeconomic data, to capacity utilization, to a combined supply/demand analysis of market conditions, to industry surveys, all the forecasters agreed that conditions in the electronics market are improving.
Mark Edelstone, managing director and global semiconductor team leader for Morgan Stanley, predicted the semiconductor industry would end 2003 with annual growth of 10% to 15%, and 2004 would bring an increase of 15% to 20%. Edelstone said growth possibly could come in higher than those levels, the first time in a long time that the industry might see an increase higher than the upper end of his forecast range.
When developing his semiconductor forecast, Edelstone said he takes a top-down approach, starting with the economic outlook, then studying end-market demand for electronic goods, then examining chip inventory swings, and finally analyzing the supply/demand balance.
Greg Sheppard, executive vice president at the market research firm iSuppli Corp., El Segundo, Calif., is predicting 9.9% growth for semiconductors in 2003. Sheppard said iSuppli uses a forecast methodology that combines a supply and demand view of the world, developing profiles of both. The two profiles then feed into each other to create a final semiconductor forecast.
Dan P. Tracy, director, industry research and statistics for the industry association Semiconductor Equipment and Materials International (SEMI) produces two forecasts for semiconductor equipment based on different methodologies.
One forecast is based on survey inputs from SEMI members. This forecast can be wildly inaccurate, Tracy noted. For example, the 1999 consensus forecast for growth in semiconductor manufacturing equipment revenue was 18%, but the actual increase for the year was 87%.
Tracy noted a far more accurate forecasting method is to examine bookings in the first quarter of the year, and then compare them to bookings during the same period in the previous year. Based on the difference in-first quarter performances, a forecast can be extrapolated, he said. The present forecast is for 5% growth in semiconductor manufacturing equipment revenue in 2003.
Norbert Ore, chairman of the Business Survey Committee of the Institute for Supply Management (ISM) said he relies heavily on macroeconomic factors to formulate his prominent Purchasing Managers' Index (PMI). The PMI is a composite index tracking new orders, production, supplier inventories and employment in the United States.
A major macroeconomic factor Ore tracks when developing his PMI data is business spending. Ore said business spending continues to lag and excess capacity is lingering, with utilization remaining less than 80%. Utilization will have to rise above 85% before the manufacturing segment could be called strong, he added.
However, Ore said the economy now is looking better than it has in a long time, with the PMI at 54.7% in August. A reading above 50 indicates expansion. ISM produces a high-tech version of the PMI, which was at 58.1 in August, down from 60 in July. Ore noted that the technology sector is outperforming the overall manufacturing sector.
Rebecca Burr, director, market analysis for Xilinx Inc., said she predicts demand by getting all parts of the company involved in the forecasting process. Xilinx conducts a once-a-month meeting of sales, marketing and manufacturing operations personnel to determine factory loading levels.
Like Sheppard, Burr uses a combined top-down and bottom-up methodology to forecast. Customer demand is integrated into the forecast, including real-time inputs from customers.
Burr said the use of measurement is integral to the forecasting process, constantly checking the error percentage of each step in order to improve its accuracy. |
