Equipment Industry Will ‘Pay the Price’
At the SEMI Industry Strategy Symposium, analysts and industry executives pondered the current economic recession and its likely impact on the chip industry. Dan Hutcheson of VLSI Research Inc. said memory overcapacity will improve due to lowered capex, with the result that "the equipment industry will pay the price." New wireless systems are a bright spot, said Jim Clifford, general manager of operations at Qualcomm.
David Lammers, News Editor -- Semiconductor International, 1/13/2009 8:10:00 AM
The semiconductor industry faces what now appears to be the worst recession in the postwar period, speakers said yesterday at the SEMI Industry Strategy Symposium (ISS) now being held at Half Moon Bay, Calif.
Nariman Behravesh, chief economist at Global Insight (New York), said the current downturn is likely to be the longest in the past six decades, with the largest peak-to-trough drop in real gross domestic product (GDP). “The steep back-to-back declines in Q4 and Q1 growth are likely to be near records, and the huge November and December payroll losses portray an economy in freefall,” Behravesh said, adding that any mid-2009 turnaround depends on “massive fiscal stimulus being put in place quickly.” Timid policy responses appear likely in Europe and Japan, which could prolong the slump, while China has announced a big stimulus package that could add 2 percentage points to growth in 2009, he said.
U.S. GDP suffered a steep drop in Q4, with massive layoffs adding to the U.S. unemployment rate. (Source: Global Insight)
The cratering economy is likely to rebound somewhat next year, with bright spots for high technology including infrastructure spending on healthcare computerization and wireless networks. But overall, the current downturn will be “worse than 2001,” he said.
Bob Johnson, a semiconductor manufacturing analyst at Gartner Inc. (Stamford, Conn.), contradicted arguments that the chip industry has become an inherently profit-free sector. During the relatively strong 2003-2006 period, total industry net income was $132.7B on $902.5B in revenues, with logic IDMs making $63.5B in net profits, of which Intel accounted for $26.9B. Memory manufacturers had $15.2B in net profits, analog/mixed-signal vendors $12.3B, fabless IC companies $21.3B, and foundry and semiconductor assembly and test services (SATS) companies $20.4B. Good profits are possible, he concluded.
However, the industry had net losses last year and will again this year, to be followed by several years of likely low (<4%) profitability, Johnson said. Memory manufacturers face “mergers, acquisitions, partnerships and fire sales.” With data showing that memory vendors earn the highest profits from chips made with leading-edge (i.e., 55 nm) technology, Johnson said memory companies should “invest in leading-edge technology, not capacity, and increase megabit output through technology advances.”
Memory megafabs
Dan Hutcheson, CEO of VLSI Research Inc. (Santa Clara, Calif.), said nearly 60% of overall capacity is now at 90 nm and below, with ~55% of leading-edge capacity going to DRAM and flash production. With too many memory vendors adding too much capacity, the result has been a memory “train wreck,” Hutcheson said.
VLSI Research estimates the NAND flash market was $11.9B in 2008, which Hutcheson said is “hardly enough to support two $6B megafabs. The R&D picture is even uglier. It costs about $1B to develop a process node. At a nodal clock rate of two years, the market can afford just one competitor.”
In DRAM, the picture is only marginally different. The DRAM market was ~$25B in 2008, which Hutcheson said provides room for two megafab suppliers. Now, the DRAM market is shared by nine competitors, most of which have revenues of <$400M. The memory industry, Hutcheson said, “must consolidate.”
With lower capital investments by memory vendors this year and next, memory prices may continue to rebound, but “the semiconductor equipment industry will pay the price,” Hutcheson said. Equipment revenues will be ~$30B this year, rebounding to ~$42B next year and ~$52B in 2011. “The next few years will be very difficult,” Hutcheson said, recommending that equipment companies “must learn to be profitable with little to no growth.”
Netbooks and pocket computers, which deliver the Internet to mobile users, are a growth market. (Source: Qualcomm)
One area of growth is in high-end wireless devices, including pocket computers with 4-6 in. screens and slightly larger netbook systems with 7-12 in. displays, said Jim Clifford, senior vice president and general manager of operations at Qualcomm CDMA Technologies (San Diego).
Smart phones and other wireless handsets continue to ship in high volumes, with ~1.4B units sold annually, and ~210 million full-sized laptops shipped last year. Between high-end cellphones and full-featured laptops lies a fertile market opportunity, defined by pocket computers and netbooks, which Clifford said “put the power of a laptop in your pocket.” |
