Friday, November 21, 2008
The extent of the financial crisis is still unknown, of course, and most agree that it will get worse before it gets better, but at Small Times and Solid State Technology magazine we have been gathering reports from leading market forecasters and analysts and can share what they’re telling us. I think MEMS and nanotech will weather the storm well, but it looks like some rough sailing ahead for my semiconductor friends. The good news is that market fundamentals are quite different than they were in 2001. “Staring a global economic recession in the face, will 2009 be a re-run of 2001? We think no,” said Malcolm Penn, CEO of Future Horizons, Kent UK. Penn said that downturns in the semiconductor industry over the last 60 years were always caused by excess capacity, triggered either by demand or supply side issues e.g., by over investment (making capacity overshoot demand) or a demand slowdown (whether through an inventory burn or recession) making short-term capacity exceed near-term demand. “The 2001 slowdown was unique in that it was triggered by both demand and supply-side issues, namely; the collapse of dot-com inflated demand euphoria, a 9-11 driven economic slowdown, a resultant massive inventory burn, just as a huge amount of excess capacity was coming on stream,” Penn said. “Entering 2009, we have no serious overcapacity in place (pre-slowdown utilization rates were in the 90% region), a cap ex cut back that started 12-18 months before the slowdown hit, and IC ASPs in the middle of a cyclical upward trend. In addition, IC units had been running at or below the 10%/yr long-term trend line, with no serious excess inventory in the supply chain. For once, the industry is in structurally good shape to enter a recession. This will make the 2009 downturn statistically shorter than it would otherwise have been,” Penn added. Bill McClean, President of IC Insights, Scottsdale, Arizona, believes the effect of a global recession on the worldwide semiconductor market in 2009 depends greatly on the magnitude and duration of the recession. “A severe U.S. recession and steep global recession (i.e., worldwide GDP growth of <2.0%) would probably cause the worldwide semiconductor market to show a 10% decline,” McClean said. He further states that worldwide semiconductor industry capital spending is forecast to decline 15% in 2009 after falling 24% in 2008. “Even with these cutbacks in spending, IC ASPs are expected to fall another 6% in 2009, the same as the decline forecast for 2008. However, as a direct result of these steep capital spending declines, and a capital spending as a percent of sales ratio that is likely to reach an all-time low (15%) in 2009, IC ASPs are forecast to rebound (very strongly for DRAM and NAND flash memory) and spur double-digit semiconductor industry market growth in 2010, 2011, and 2012.” Aida Jebens, Sr. Economist, VLSI Research, Santa Clara, California, said that despite all the negative sentiments about the economy, she does not believe electronics sales will be in negative territory next year for several reasons: “With the exception of 2000-2001, there has never been a case in history when an economic slowdown or recession resulted in a drop in electronics sales. The 2000-2001 period is different because it was driven by the Y2K tech boom and was made worse by the terrorist attacks. We do not have the same situation today. We simply have a very nervous sentiment because of the economy. Electronics tend to do well in a slow economy. At the consumer level, people tend to cocoon in their homes when times are tough. Instead of going away on vacation, or going out for entertainment, they tend to buy electronics. At the business level, sure there will be a pullback in spending on high-end servers, but even in recessions, businesses tend to buy computers and peripherals, and networking hardware to improve efficiency and boost productivity,” Jebens said. VLSI expects both consumer and business spending to stagnate in 2009, resulting in a very slight 3.5% growth in electronics. At this rate, worldwide electronics shipments should amount to $1.7B. Klaus Rinnen, Managing VP, Gartner, Washougal, Washington, said that Gartner now expects 2008 semiconductor growth to be ~2%, and predicts that, in 2009, the market will experience anything between a decline of 2% and growth of 1%. “In addition, we currently expect a capital spending decline of ~17% in 2009, and capital equipment to drop roughly 18%. In excess condition for all of 2008, we believe inventories will rise in 4Q, overshadowing demand and reducing production needs for 1H 2009. This will lead to a reduction in factory utilization,” Rinnen said. “Continued weakness in memory sectors combined with reduced production due to increased inventory levels are causing many manufacturers to drop spending projections. Memory financials continue to worsen, causing suppliers with cash flow problems to delay or eliminate capacity expansions. Some vendors are even postponing investments for needed technology improvements because of profitability problems.”Next week will, of course, will provide us all with an interesting barometer in the form of consumer spending in the U.S. on the day after Thanksgiving, the so-called “Black Friday.” Traditionally, it is one of the busiest shopping days of the year, putting merchants into the “black.” I'm hoping everyone is out buying the latest electronic gizmos!