Semiconductor industry up in 2007, but by how much?

(Electronic News - Jan 8, 2007)

Semiconductor unit shipments will be up this year, average selling prices will be down less than last year, and capital equipment sales will be up slightly. How much, however, depends upon who you listen to and when you actually do the listening. Top analysts at four different firms offered their predictions at the 2007 Industry Strategy Symposium, and while they generally agreed on the tenor of the market—not as strong as 2006, but still in positive territory—their numbers were anything but consistent. Their numbers weren’t even consistent with previous predictions their own firms had made. Bill McClean, president of IC Insights, is calling for a 7 percent increase in total semiconductor sales, bringing the worldwide shipments to $267.7 billion. Semiconductor capital equipment spending, meanwhile, will rise 5 percent this year, he said. Given the fact that GDP numbers are down slightly everywhere, McClean said that’s still positive. In the U.S., for example, GDP is forecast to grow 2.6 percent this year vs. 3.3 percent in 2006. In China, the number will be 9.3 percent this year vs. 10.5 percent last year. The real winner will be 2008, he noted, driven by a presidential election in the United States, Olympics in China, strong uptake of Microsoft’s Vista operating system and the mandated switch in the United States from analog to digital television signals. Jim Feldhan, president of Semico Research, was slightly more bearish. He predicted this year will turn out to be a market correction year with capital equipment utilization rates to increase by the end of the year. Feldhan said semiconductor revenue will increase 7 percent this year, compared with 9.8 percent in 2006, weighed down by memory mix problems, slower end market demand—particularly for cell phones—and inventory clearance. He also said there will be falling capacity utilization in the first half of the year. Risto Puhakka, President of VLSI Research, predicted that the overall electronics market will increase 5.7 percent this year vs. 6.4 percent the previous year, with the IC market growing 4.6 percent vs. 8.5 percent in 2006. But he said equipment sales will rise only 3.2 percent vs. 22.8 percent in 2006, and critical subsystems will actually decline by 4.4 percent vs. a 24.8 percent hike in 2006 due to inventory problems. “Orders are cooling,” Puhakka said. “This is a seasonal slowdown, and things will pick up later in 2007. One factor is inventory levels are elevated, but not too bad.” Interestingly, he said inventory is being held by the chip makers, not the electronics suppliers. In the 2001 crash, inventory was being held by both. In contrast, Klaus Rinnen, managing VP of Gartner Dataquest, said the semiconductor industry will see 2007 as a shallow correction. He said the year will be marked by a slower sales environment and excess inventory, which will create relatively flat sales. “Long term, the question is what is happening in memory,” he said. “All of this is predicated on delicate supply and demand.” Rinnen forecasts semiconductor revenue will be up 9.2 percent, which is less than the 10.4 percent growth in 2006. Capital spending is forecast to grow 1 percent vs. 18.8 percent last year, and equipment spending will be down 0.7 percent versus an increase of 24.9 percent in 2006. Gartner expects consumer applications to remain hot this year, but cell phone growth is expected to slow. It also expects DRAM revenue to increase 15.1 percent, while NAND revenue will be in single-digit range. Asked why they had to revise their forecasts, the analysts gave the following reasons: Feldhan: Competition proved more aggressive than expected in the semiconductor market. McClean: The last five years proved more robust than expected. Risto: Classical 1990s methods of top-down forecasting no longer work Rinnen: In equipment, steep price declines had a deeper impact than anticipated, and memory proved softer in 2006 than expected. In addition, cycle times have dropped so inventory is being managed more responsibly.