Thanks to Jon Cassell and Debra Jaramilla, I was able to get in a conversation with Stefan de Haan, senior analyst, iSuppli Corp., regarding the global solar PV industry. Recently, iSuppli had provided guidance on how “Half of all solar panels made this year won’t be installed in 2009!”
Correcting solar cell manufacturing oversupply
Previously committed capacity expansions have caused solar cell manufacturing oversupply. Why and how can this be corrected?
According to Stefan de Hann, the cell suppliers are already reacting, i.e., cutting back on production and delaying expansion plans. Nevertheless, a consolidation will take place, since prices won’t recover. Production cost is the key to be among the survivors. However, 2009 will see the peak of the cell/module oversupply. From 2010 on, the situation will ease slowly.
If that were the case, weren’t the companies doing enough to check all of this during the downturn of Q4-08?
de Haan added that at the end of last year (record year 2008!), everybody still expected continuous strong demand. “It took most companies longer to realize that their enormous growth expectations were not realistic. We were the first to predict the current scenario already in summer 2008, but the nearly all the companies I talked to at the PVSEC in September 2008 didn’t share this view at all.”
So, therefore, they probably weren’t checking their market carefully enough, after all!
Failure of a-Si thin film solar cell makers?
Is all of this setting the stage for the failure of multiple cell manufacturers, particularly those pursuing a-Si thin film solar cells?
According to the iSuppli analyst, those suppliers relying on standard a-Si thin film lines [AMAT/Oerlikon] will definitely face problems for several quarters. “Collapsing polysilicon prices incease the pressure on these manufacturers. There will be not only excess crystalline cell production, but also excess a-Si production,” he added.
There is also a huge amount of solar cell manufacturing capacity in crystalline silicon solar cell, rather than thin film. When will this start changing and why?
de Haan advised that both crystalline and thin film production (and installation) will continue to grow for the next years. Due to lower production costs, thin film will increase its market share gradually. In iSuppli’s current projection, it sees a thin film market share of 35-40 percent in 2013, up from 15 percent in 2008.
Lessons for India?
With consolidation likely to happen in the global solar cell manufacturing industry to control or combat oversupply, where would it all leave the the talk of building new capacity in India? As we know, back home in India, various companies are betting big on this sector.
In this regard, what are the lessons to learn for the Indian solar PV industry? Bear in mind that India is a “wild card” as far as solar demand is concerned.
According to de Haan, Companies hope for huge investments in the coming years and want to be prepared. However, in the current oversupply situation, the comparatively new Indian cell and module manufacturers will suffer from dropping prices.
He advised: “For them it is important to stay flexible with regard to polysilicon and wafer purchase. These prices won’t recover either, no need for long-term commitments. Most importantly, they need to develop their domestic market. If I was an Indian module manufacturer, I would integrate downstream and enter the installation business.”
Recently, Randy Lawson, Senior Analyst, Digital TV and Display Electronics, iSuppli Corp., discussed the application market for large and small LCD panel display driver semiconductors, including consumer, monitor monitor/notebook PC displays, consumer plasma displays and cell phone and portable displays.
The LCD driver semiconductor market took a disastrous turn in the second half of 2008 as the economic downturn kicked into high gear and the entire electronics supply chain suffered unprecedented declines. Now, as the industry enters H2-09 and forecasts prognosticating better times, vendors of these display driver ICs are looking at when they will see the market recover.
Revenues history of display driver market
Going by the revenues history, the display driver market peaked in 2005 in terms of revenues. The year 2008 saw revenues for display driver ICs dip ~$1 billion from 2007 levels.
The economic crisis resulting in large production cutbacks in all panel types was the main cause. Also, the driver IC unit shipments fell ~30 percent in 2H-08, compared to 2007 levels.
There have been various factors limiting revenues — ASP pressure due to panel price, competition, technology shift, particularly, advancements in multichannel and gate-in-panel technologies.
In the last half of 2008 panel production went dramatically low. Some Taiwanese panel fabs were at 50 percent capacity or lower, said Lawson. This market, in terms of iSuppli, has peaked in terms of revenue outlook. It is a very large market in terms of units.
Tracking 2009 recovery
iSuppli has been tracking the monthly shipments of large panel driver ICs in 2009, a main area to watch for recovery signs. Q4-08 was devastating with over 30 percent drop in shipments. However, the large panel driver IC shipments improved from January onward. Also, the panel fab utilization rates increased. The low inventories of IC increased the orders.
However, according to iSuppli, the Q3 outlook is likely to be flat to Q2-09 due to higher quarterly baseline.
Dec. 08 vs. Nov. 08 was down 40 percent in terms of unit shipments. From Jan. 09 onward, shipments started going back up. It really went up in February and March as well. Going into April, things are slowing down a little bit, but it is positive for now. Lawson said that Q3 will likely be pretty flat. The industry is still down on a YoY basis, a point to be noted.
Driver IC units forecast
According to iSuppli, the large LCD saw ~13 percent CAGR and small LCD ~2 percent CAGR. The overall driver IC unit growth rate is likely to be ~10 percent CAGR from 2008-12. Growth will be due primarily to the large panel applications as mobile displays unit growth limit potential for small panel driver ICs, advised Lawson.
“We still have a pretty robust outlook for driver ICs from 2008-2012. LCD TV growth is remaining. Monitors and notebook PCs continue to show relatively strong growth in the long term trend,” he said.
Large panels are where the driver ICs will find its biggest opportunity. Small panels will be down this year due to much lower unit shipments. This is due to the quite lower volume shipments of mobile handsets, which make up approximately two-thirds of all categories of drivers in the small categories.
Display driver market forecast — revenue outlook
In this area, the revenues are likely to be more dictated by large panels. The small panel driver revenues are falling due to the ASP erosion exceeding units growth.
As for the large LCD driver IC revenue swings during the forecast period, 2008 and 2009 will contract due to the overall poor economy hurting customer demand. However, 2010 and 2011 should see strong growth return based on very attractive prices for panels and emerging markets taking more share of LCD TV market and growing.
On the whole, the total revenues are likely to contract >13 percent from 2008 to 2012. The year 2009 will be dramatically down by 20 percent over 2008. “Revenue growth is not there for small LCD drivers. The unit growth strong enough in small drivers to counteract the ASP erosion,” said Lawson.
Also, some of the market for small panels is LTPS, which typically has a smaller driver IC and cheaper driver IC anyway, as some of the functionality of the LTPS panels can be integrated into the panel, making for a cheaper driver IC.
Revenue rebound likely in 2010
Definitely, turbulent revenues lie ahead! As mentioned, 2009 driver IC revenues will show significant decline in 2009 over 2008. Panel production levels are still below a year ago levels.
A rebound is likely in 2010, but it won’t take the industry back to where it was! Keep in mind that the rebound that happens will be due to a rebound in consumer demand as well as the strength of the China market.
Driver IC unit growth has been slowing in the large panel category. This is due to the adoption of multichannel, high-column drivers as well as the gate-in-panel technology effect. Some maturing in LCD monitor and TV applications in Western markets is also causing slower end system unit growth.
As for small panels, the application growth rate is limited. As mentioned, the cell phone unit growth has been declining. Also, the LTPS share has been growing (driver ICs are smaller and less complex).
There have been continual ASP declines. Also, small panels are transitioning from 130nm to 110nm and 90nm, while large panels transitioning from 0.35um to 0.18um/0.16um. Also, there is a transition from 8-inch to 12-inch wafers.
Market share rankings
In this area, there haven’t that many changes. Himax has moved up a bit. iSuppli has added several other companies, such as Lusam, Raydium, Sitronix, Orise, etc., into its tracker.
Q1-09 display driver IC market shares
Q1-09 revenue levels dipped well below Q4-08 revenue levels due to production cutbacks and weak demand in large panel category. The revenue levels were down ~50 percent YoY for Q1-09 as the LCD panel market struggled to find stability in the middle of a disastrous Q4-08 and severe cutbacks in panel production, and thus, IC orders.
The Q4-08 revenues were $1,310mn and Q1-09 revenues were $1,017 revenues — about 30 percent down. Just for the sake of statistics, Q1-08 was $1,936mn.
Large LCD driver market outlook
Here, revenues are likely to grow ~10 percent over the next four years, primarily a rebound from the dismal H2-08 and 2009 levels. LCD TVs will remain a growth engine, overtaking monitor driver IC volumes from Q3-09 forward.
Lawson said: “There are still large markets such as China, and regions that are still in transition to flat panels. More consumers are buying more TVs per household, and decreasing the time between buying TVs.”
However, the monitor driver market has stayed mainly flat, and multichannel use and gate-in-panel are causing diminished unit growth as well.
LCD TV driver type forecast
There is clearly a trend toward multichannel, which is likely to grow for cost, space and reliability savings. It lowers the ICs per panel ratio, and lowers IC unit growth rate as well.
Growth is also expected in 10-bit as well as in TV space for improved image quality. The 10-bit growth may be trimmed due to short term focus on 120/240Hz performance, advised Lawson.
Most of this will be driven by the larger panel category. One trend is toward LED backlighting, which is increasing the contrast ratio.
Small/medium markets scenario
A majority of this market is driven by mobile handsets, which account for two thirds of the market. Almost all of the small display drivers are single chip except for clamshell phones.
Some other major applications of small display drivers include digital cameras/camcorders, automotive, digital photo frames, handheld games/PDAs, PNDs, PMPs, as well as some other applications.
Small display driver forecast
Here, active matrix remains the only growth area left. “Gains will be offset by steep CSTN/MSTN declines,” said Lawson. “The ASP erosion is also an issue.” There is a transition from 130nm/110nm to 90nm, as well as a move to 300mm and LTPS growth.
All of these present further revenue downward pressure as ASP decline exceed the end market growth. Also, the growth in active matrix is not yet enough to offset the revenue decline in cheap drivers used in CSTN/MSTN.
OLED driver ICs
OLED driver ICs are likely to see revenue growth to ~$150mn by 2012. The OLED volumes are still dominated by mobile communication sub-displays, said Lawson.
The AMOLED move to main displays is likely to be next largest market. It is also getting boost from a market shift from pure-music MP3 players to PMPs.
However, competition from TFT-LCD in the near term is likely to slow the OLED panel volume growth. Also, growth in TVs could be a huge market catalyst, but that is not likely to happen until at least beyond 2011.
Lawson added: “The top line is relatively small as OLEDs are still in a mode of competing against amorphous silicon, LTPS, TFT LCDs, etc.. Until OLEDs can resolve some of the manufacturing issues to get to larger sizes, this will remain one of the smaller markets in the whole driver IC category.”
Driver IC process node migration — 2009-10
A majority are currently built on 0.35micron. As mentioned, a process node transition has been occurring in the driver IC market.
Small/portable display driver designs are leading transition to smallest geometry nodes (90nm from 2010 onward).
As for the technology trends for driver ICs, these include TCON (timing controller) functional integration. Frame rate conversion/MEMC, DisplayPort and other new interfaces becoming more prevalent as well.
In packaging, there is a transition to higher pin count/more channels to save cost (large panel). There is an increased use of COG (chip-on-glass) gate-in-panel technology in monitors/notebooks. These are targeted at smaller screens.
There is also a bit-depth move to 10bit. Here, LCD TV performance is spurred by the DeepColor standard and premium TVs. Another interesting feature is the addition of integrated memory for mobile handset displays.
As for interfaces, handset interfaces will see more of serial high speed to reduce cost, EMI, and interconnectors. Here, there will be a role to play for MIPI (GSM market) and MDDI (CDMA market).
MIPI will probably become the predominant industry standard, but it has yet to take off. MDDI, a Qualcomm standard, has already been deployed in millions of displays.
Next, large panel ICs will move beyond RSDS, LVDS, etc., such as Cascade type, Vx1, PPDS, AiPi, and others. Also, DisplayPort is potentially applicable for panels.
In summary, the panel driver IC market unit growth is solid, but its revenue presents a different story. The unit volumes growth looks healthy due to primarily large panel applications.
The year 2009 will see improvement from the Q1-09 trough, but it will still not show revenue growth from 2008 level. The ASP erosion is likely to lessen in 2009 due to shortages, but the long term trend remains downward in face of process migration and panel price declines.
Expect more diversification/collaboration from DDI firms, noted Lawson. As the DDI market matures, large companies will be seeking new growth markets, synergy to cut costs and improve efficiencies.
Recent examples include Novatek and Cheertek, Himax Media Solutions and Renesas SP Drivers (Renesas, Powerchip, Sharp combined efforts).
Next, the small LCD and OLED driver markets are dominated by mobile phones. Here, MSTN and CSTN volumes will shrink to less than 15 percent by 2012. Also, TFT, LTPS and OLED will remain the growth areas for small/portable displays.
Finally, the large LCD driver market will see growth in gate-in-panel in LCD monitors, and especially in notebook panels. There will be multichannel, fewer driver ICs per panel, higher reliability, and lower component count. Transition to multichannel is key, as TV transition will impact volumes significantly.
According to a release from iSuppli today, following four consecutive quarters of reductions, global inventories of chips have declined to appropriate levels, clearing the way for stockpile rebuilding and higher sales in the second half of the year.
However, this particular blog post looks at a previous study from iSuppli where it trimmed the 2009 chip and electronics forecasts, but sees second-half rebound.
Thanks to my good friends, Jon Cassell and Debra Jaramilla, I was able to connect with Dale Ford, senior vice president, market intelligence services, for iSuppli, for a discussion on this particular study.
Given the lingering economic woes and continuing poor visibility into future demand trends, iSuppli, as mentioned, reduced its forecasts for global semiconductor and electronic equipment revenue in 2009.
Worldwide electronic equipment revenue is set to decline to $1.38 trillion in 2009, down 9.8 percent from $1.53 trillion in 2008. iSuppli’s previous forecast in April predicted a 7.6 percent decline in revenue. Global semiconductor revenue is set to fall to $198.9 billion in 2009, down 23 percent from $258.5 billion in 2008. iSuppli’s April forecast called for a 21.5 percent decline.
I quizzed Ford on how iSuppli sees the global semicon market performing over the rest of the year. He said: “We do expect sequential improvement in the second half of 2009 compared to the first half of 2009. However, the market will remain significantly below the market level of the same period in 2008.”
It is also apt to determine the behaviour of the electronic equipment segment in the same period. iSuppli expects a similar pattern in the electronics segment based on the current economic outlook and guidance from key OEMs.
According to iSuppli’s study, while all of the electronics segments are likely to suffer contractions in 2009, the automotive sector was a major culprit behind the downgrade. So, is it fair to only blame the automotive sector for the downgrade?
No, said Ford. “It should be noted that the downgrade is very minor and reflects a more broad-based impact of the economy on the electronics market.”
I mentioned about a new study from iSuppli, which talks about global chip inventories declining to appropriate levels, clearing the way for stockpile rebuilding and higher sales during H2-2009.
Prior to the release of this study, I had asked Dale Ford and iSuppli whether we would see companies revising their forecasts.
According to Ford, companies are already revising their forecasts and this has been noted in some of the earnings announcements this week. However, there is still great uncertainty in the economy and this presents the likelihood that company and industry expectations will continue to fluctuate.
As for iSuppli’s growth prediction for H2-09, its current published second half outlook calls for H2-09 to grow by over 17 percent compared to H1-09. iSuppli also is sticking to the 13.1 percent growth for the semiconductor industry in 2010.
As for the factors now leading to conditions looking up in H2, Ford said that the global economy is the dominant factor driving industry growth. All other factors are secondary in comparison.
It would also be interesting to see how the Japanese semiconductor industry is likely to hold out in H2. Ford added: “Japanese semiconductor suppliers have experienced a very difficult H1. However, with improving consumer sentiment, they have the opportunity for an improved H2.”
There is also a clear indication of the starting of the correction phase to rebalance over-depleted inventories. Ford said that a number of companies have noted that their Q2 sales are influenced both by rebalancing inventories and expectations of H2-09 demand.
If firms still continue in a wait-and-see mode, won’t this serve to make the market dynamics worse as firms are then faced with a massive catch-up problem? What should they do?
Ford advised: “There is the potential for companies to miss opportunities in the market if they are too passive. Companies need to aggressively communicate with their partners and clients to obtain the best visibility possible in planning their tactics and strategies for meeting market demand.”
Recovery or blip?
Finally, is this really the start of the chip market recovery or a blip on the statistics radar screen?
He said: “While we do not consider this to be a ‘blip’, we do expect that the ‘recovery’ will not be smooth. Ongoing uncertainty and volatility in the economy will impact the progress of the market moving forward.”
A recent report from Future Horizons suggests an 18 percent growth for the chip market in Q2-2009! So, is this a sign of the chip market recovery or a mere blip on the statistics radar screen?
It is both, said, Malcolm Penn, chairman, founder and CEO of Future Horizons, and counselled that: “The fourth quarter market collapse was far too steep — a severe over-reaction to last year’s gross financial uncertainty — culminating with the Lehman Brothers collapse in September. The first quarter saw this stabilise with the second quarter restocking, but there are other positive factors also in play.”
Examining a bit further, here’s what he further revealed. One, the memory market is seeing some signs of slow recovery. He said, “This has already started DDR3 driven!” Likewise, companies are also in the process of revising their forecasts. The reason, Penn contended, being, “The maths has changed dramatically since Jan 2009!”
According to him, factors now leading to conditions looking up in H2 2009, include the normal seasonal demand — from a tight inventory base — and tightening capacity. There is also a clear indication of the correction phase to rebalance over-depleted inventories having started. “This is what’s driving Q2′s high unit, and therefore, sales growth,” he contended.
Firms advised to stop seeing and waiting!
This isn’t all! Penn further counselled firms who are still in a wait-and-see mode to ‘stop seeing and waiting’! Next, fabs are also looking to maximize their returns. For one, they have stopped over-investing.
Do we have enough stats from others to back up what’s been happening in the global semiconductor industry? Perhaps, yes!
IC Insights stands out
First, look at IC Insights! It has stood out by pointing out in early July that H2-09 is likely to usher in strong seasonal strength for electronic system sales, a period of IC inventory replenishment, which began in 2Q09, and positive worldwide GDP growth.
IC Insights has predicted global IC market to grow +18 percent; IC foundry sales to grow +43 percent; and semiconductor capital spending to grow +28 percent in H2-09.
DDR3 driving memory recovery? Flat NAND?
Elsewhere, Converge Market Insights said that according to major DRAM manufacturers, DDR3 demand has been on the rise over the last two months and supply is limited.
This is quite in line with Future Horizons contention that there is a DDR3 driven memory recovery, albeit slow. It would be interesting to see how Q3-09 plays out.
As for NAND, according to DRAMeXchange, the NAND market may continue to show the tug-of-war status in July due to dissimilar positive and negative market factors perceived and expected by both sides. As a result, NAND Flash contract prices are likely to somewhat soften or stay flat in the short term.
Semicon equipment market to decline 52 percent in 2009!
According to SEMI, it projects 2009 semiconductor equipment sales to reach $14.14 billion as per the mid-year edition of the SEMI Capital Equipment Forecast, released by SEMI at the annual SEMICON West exposition.
The forecast indicates that, following a 31 percent market decline in 2008, the equipment market will decline another 52 percent in 2009, but will experience a rebound with annual growth of about 47 percent in 2010.
EDA cause for concern
The EDA industry still remains a cause for concern. The EDA Consortium’s Market Statistics Service (MSS) announced that the EDA industry revenue for Q1 2009 declined 10.7 percent to $1,192.1 million, compared to $1,334.2 million in Q1 2008, driven primarily by an accounting shift at one major EDA company. The four-quarter moving average declined 11.3 percent.
If you look at the last five quarters, the EDA industry has really been having it rough. Here are the numbers over the last five quarters, as per the Consortium:
* The EDA industry revenue for Q1 2008 declined 1.2 percent to $1,350.7 million compared to $1,366.8 million in Q1 2007.
* The industry revenue for Q2 2008 declined 3.7 percent to $1,357.4 million compared to $1,408.8 million in Q2 2007.
* The industry revenue for Q3 2008 declined 10.9 percent to $1,258.6 million compared to $1,412.1 million in Q3 2007.
* The industry revenue for Q4 2008 declined 17.7 percent to $1,318.7 million, compared to $1,602.7 million in Q4 2007.
Therefore, at the end of the day, what do you have? For now, the early recovery signs are more of a blip on the stats radar screen and there’s still some way to go and work to be done before the global semiconductor industry can clearly proclaim full recovery!
Before I close, a word about the Indian semiconductor industry. Perhaps, it needs to start moving a bit faster and quicker than it is doing presently. Borrowing a line from Malcolm Penn, the Indian semiconductor industry surely needs to “stop waiting and watching.”
I will be in conversation next with iSuppli on the chip and electronics industry forecasts. Keep watching this space, friends.
Friends, here is the full report on iSuppli’s recent activity titled “Mixed Signals in OEM Design Activities”.
Min-Sun Moon, senior analyst, Semiconductor Spend and Design, iSuppli, discussed how the “values” of design activities are discerned globally and how design decisions are made by a given country.
This report should be of particular interest to the Indian semiconductor design industry as it is apparent there is considerable scope for growth and development.
It is very well documented that everyone has been hit hard by the economic downturn. The electronic OEMs are no exception. They have also reduced shipments. The average selling prices (ASPs) of semiconductor devices have dropped dramatically as well.
Top six design influencing countries
As per iSuppli’s Design Activity Tool, the top six countries leading in the design influence are as follow: USA, Japan, China/Hong Kong, Taiwan, South Korea and Germany. The United States retains the no. 1 position, followed by Japan and China.
The dramatic changes in ASPs of chips and products meant an almost about 5 percent drop in semiconductor spend in 2008, and above 21 percent drop in semiconductor spend by the top OEMs in 2009. Hence, design activities by top OEMs dropped significantly.
The USA apparently has been going through a tough period, and it does not seem to have a bright future in 2009-10 due to drop in design spends. However, in 2010, it should post about 9-10 percent growth. The top design influencers in the USA include HP, Dell, Apple and Motorola.
China seizes opportunity
According to Moon, Japan retained the second position. However, China has seized the opportunity during the recession. It has some growth compared to other countries who have had negative growth this year.
China still remains one of the most attractive markets for OEMs to enter. Many top OEM have either opened or expanded R&D centers in China in the last few years.
However, because of the recession, the expansion by OEMs slowed down in China during 2009. Nevertheless, the Chinese market continues to grow. In the next few years, China will grow and the other countries will have some positive growth as well, but their growth will be slower than that of China.
China has also been showing interesting signs. Some Chinese companies are trying to enter new markets, such as automotive.
China is currently the third largest country in terms of design influence. The design share is about 10 percent in 2009. China could get close to Japan and the USA, but it will not happen in the near future though.
Top five countries in 2009
In 2009, the top five countries by design influence spend share are as follows: USA — 31 percent, Japan — 25 percent, China/Hong Kong — 10 percent, Taiwan — 8 percent, South Korea — 7 percent, and the Rest of the World — 19 percent.
Mixed signals are apparent in the design activities by country. For instance, this year, the USA has been losing market share. A large percent of design activities are moving to the Asia Pacific region. Some business in the USA is being continued or reduced — and being moved to other regions — in order to maintain the business and lower the cost of operations.
Japan’s design spend share increased from 22 percent (approximately $40 bn in 2008) to 25 percent in 2009. Japan is bringing a lot of design activities back home.
Taiwan used to be third largest in the design influence, but has now dropped to the fourth position, with share in design spend reaching 8 percent in 2009. China also contributed to the changes here. However, it is still better than others as some OEMs are still outsourcing to some ODMs located in Taiwan.
Identifying targets by regions
iSuppli gave examples of designing with sensors and actuators, and LEDs, as these are very popular currently.
According to Moon, designs using sensors and actuators have been more than 30 percent in the USA, while Japan has more than 25 percent. It is over 20 percent in Europe, while such designs have been less in Asia Pacific — above 15 percent.
The biggest influencers for sensors and actuators in the USA are said to be Apple, HP and TRW Automotive.
For LEDs, more use has been happening in Japan — over 30 percent. As an example, there are more LED TV design activities in Japan. The biggest influencers for LEDs in Japan are Canon and Sony.
Changes due to M&A
Another trend visible in the design spend share has been the changes due to mergers and acquisitions.
As an example, we have the Mitac Group, which acquired Magellan’s consumer products division. In 2008, Mitac Group had 78 percent spend in Taiwan, and 18 percent in the USA. After acquiring Magellan, Taiwan’s design spend share became 57 percent and USA’s became 13 percent. On the other hand, France’s share grew to 17 percent and Russia’s to 7 percent. This indicates that country-wise, budgets do get changed. This is just one example.
These are indeed very interesting numbers and facts, and as mentioned earlier, India has a considerable opportunity as an influencer in the semiconductor design spend going forward.
Recently, iSuppli came out with a study on whether the current solar downturn will lead to a more mature photovoltaic industry! According to iSuppli, severe downturn in the global PV market in 2009 could actually have a more positive outcome for the global solar industry, yielding a more mature and orderly supply chain when growth returns.
Worldwide installations of PV systems will decline to 3.5 Gigawatts (GW) in 2009, down 32 percent from 5.2GW in 2008. With the average price per solar watt declining by 12 percent in 2009, global revenue generated by PV system installations will plunge by 40.2 percent to $18.2 billion, down from $30.5 billion in 2008.
“For years, the PV industry enjoyed vigorous double-digit annual growth in the 40 percent range, spurring a wild-west mentality among market participants,” said Dr. Henning Wicht, senior director and principal analyst for iSuppli.
“An ever-rising flood of market participants attempted to capitalize on this growth, all hoping to claim a 10 percent share of market revenue by throwing more production capacity into the market. This overproduction situation, along with a decline in demand, will lead to the sharp, unprecedented fall in PV industry revenue in 2009,” he added.
What about new entrants?
I quizzed Dr. Wicht how this downturn would lead to a more mature PV industry and what about the new entrants?
Dr. Wicht said: “We expect that the solar industry will invest more softly. The years 2007/2008 were special. Each of the hundreds of suppliers were ready to invest to reach 10 percent market share. This is not likely to repeat.” Interesting! “Also, the new entrants will invest more modestly and closely linked to fixed customer orders,” he added.
Role of FIs in solar
Are financial institutions paying that much importance to solar, especially in places such as India? This is an issue that was also raised and discussed at the recently held SEMI India solar/PV paper launch.
According to Dr. Wicht, the financial investors are definitely looking into solar, mainly in Europe and US. “PV in India is still at the very beginning. From my experience, there is not yet much attention of financial investors for PV in India,” he noted.
Off-grid or grid connected apps?
Turning the discussion to off-grid vs. grid connected applications, I sought Dr. Wicht’s advice on the route that should be followed. Again, this topic was discussed during the SEMI India meet early this month. Hence, the interest for India in this field is significant!
Dr. Wicht highlighted: “Installations for the off-grid remains a small portion in terms of the sold modules (MW), about 5 percent. The off-grid system selling might be a good way to start in places such as India. For cell and module production, on-grid is where the volumes are needed.” Hope the Indian solar photovoltaics industry takes note of this valuable advice — and it holds good for other regions as well.
I also asked him regarding a good low carbon growth strategy for developing countries. Dr. Wicht said that depending on the place, it could be a combination of wind, solar and biomass.
Compensating for Spanish whiplash!
According to iSuppli’s study, the single event most responsible for the PV market slowdown in 2009 was a sharp decline in expected PV installations in Spain. Also, beyond Spain, the PV market is being adversely impacted by the credit crunch.
Therefore, why won’t attractive investment conditions in other some countries compensate for the Spanish whiplash?
Dr. Wicht said: “The investigated countries start from a low level of installations and show long, administrative procedures, limits of feed-in tarifs and reduced capital access. They simply cannot compensate the 2.6GW of Spain in 2008.”
Finally, what is likely to happen after the shakeout or fall in the coming years? He added: “System demand will grow stronger from H2-2010, absorbing the inventory, which has been built up in 2009 and 2010. From 2011, demand for modules will rise. It might pick up quickly. Then, companies, which are able to supply on short notice/(flexibility) can gain market share.”
Let me see if I can convince Dr. Wicht to visit India and share his insights with the Indian solar/PV industry. Last, but not the least, thanks Jon!
EL SEGUNDO, USA: Concerned about their image as they face the specter of bankruptcy, many memory chip suppliers are attempting to paint a more optimistic picture of the business by talking up a potential market recovery.
However, while overall memory chip prices are expected to stabilize during the remaining quarters of 2009, iSuppli Corp. believes a true recovery in demand and profitability is not imminent.
After a 14.3 percent sequential decline in global revenue in the first quarter DRAM and NAND flash, the market for these products will grow throughout the rest of the year. Combined DRAM and NAND revenue will rise by 3.6 percent in the second quarter, and surge by 21.9 percent and 17.5 percent in the third and fourth quarters respectively.
“While this growth may spur some optimism among memory suppliers, the oversupply situation will continue to be acute,” said Nam Hyung Kim, director and chief analyst for memory ICs and storage at iSuppli.
“For example shipments of DRAM in the equivalent of the 1Gbit density will exceeded demand by an average of 14 percent during the first three quarters of 2009. This will prevent a strong price recovery, which will be required to achieve profitability for most memory suppliers.”
Due to a long-lasting glut of DRAM, the imbalance between supply and demand is too great for this market to recover to profitability any time soon.
“Even if all of the Taiwanese DRAM suppliers idled all their fabs, which equates to 25 percent of global DRAM megabit production, the market would remain in a state of oversupply,” Kim said. “This illustrates that the current oversupply is much more severe than many suppliers believe—or hope.”
Besides cutting capacity, which suppliers have already been doing, they presently have few options other than waiting for a fundamental demand recovery. iSuppli believes that another round of production cuts will take place in the second quarter, which will positively impact suppliers’ balance sheets late this year or early in 2010 at the earliest.
DRAM prices now amount to only one-third-level of Taiwanese suppliers’ cash costs. Unless prices increase by more than 200 percent, cash losses will persist for these Taiwanese suppliers.
While average megabit pricing for DRAM will rise during every quarter of 2009, it will not be even remotely enough to allow suppliers to generate profits in this industry. The industry needs a dramatic price recovery of a few hundred percentage points to make any kind of impact.
iSuppli is maintaining its “negative” rating of near-term market conditions for DRAM suppliers.
Confusing picture in NAND
The picture is a little more complicated in the NAND flash memory market.
Pricing for NAND since January has been better than iSuppli had expected. However, iSuppli believes this doesn’t signal a real market recovery.
Most NAND flash makers are continuing to lose money. The leading supplier, Samsung Electronics Co. Ltd., seems to be enjoying the current NAND price rally as prices have almost reached the company’s break-even costs. However, all the other NAND suppliers still are losing money.
“While the NAND market in the past has been able to achieve strong growth and solid pricing solely based on orders from Apple Computer Inc. for its popular iPod and iPhone products, this situation is not likely to recur in the future,” Kim said. “Even if Apple’s order surge, and it books most of Samsung’s capacity, it would require a commensurate increase in demand to other suppliers to generate a fundamental recovery in demand.”
However, iSuppli has not detected any substantial increase in orders from Apple to other suppliers. Furthermore, Apple’s orders, according to press reports, are not sufficient to positively impact the market as a whole.
It doesn’t make sense for major NAND suppliers Toshiba Corp. and Hynix Semiconductor Inc. to further decrease their production if there is a real fundamental market recovery. This means supply will continue to exceed demand and pricing will not rise enough to allow the NAND market as a whole to achieve profitability.
The NAND flash market is in a better situation than DRAM at least. However, the market remains challenging because fundamental demand conditions in the consumer electronics market have not improved due to the global recession.
One of the reasons why the price rally occurred is that inventory levels have been reduced in the channel and re-stocking activity has been progressing. Overall, memory suppliers will begin to announce their earnings shortly and iSuppli will remain cautious about the NAND flash market until we detect solid evidence, not just speculation, of a recovery.
iSuppli is remaining cautious about the near term rating of NAND market, holding its negative view for now, before considering upgrading it to neutral.
“Production cuts undoubtedly will have a positive impact on the market in the future. However, it’s too early for to celebrate. iSuppli believes the surge in optimism is premature. Supplier must be rational and watch the current market conditions carefully to avoid jumping to conclusions too quickly,” Kim concluded.
EL SEGUNDO, USA: Once the world’s fastest-growing chip-manufacturing region, China hit an all-time low in the first quarter of 2009, with nearly 60 percent of the nation’s semiconductor manufacturing capacity unused, according to iSuppli Corp.
Semiconductor manufacturing capacity utilization in China fell to 43 percent in the first quarter, the lowest level since iSuppli began tracking the market in 2000, and a massive drop from a recent high of 92 percent in the second quarter of 2004. This rock-bottom utilization rate comes as a direct result of low demand spurred by the global economic downturn. However, the utilization plunge indicates that China’s long-nurtured goal of establishing a vibrant domestic semiconductor production industry is in serious jeopardy.
“During the last 10 years, the Chinese government has worked to develop a domestic economy that would provide the nation with economic independence,” said Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli. “The establishment of a technologically strong Chinese semiconductor industry was considered an essential element of China’s long-term domestic economic and technological independence. Unfortunately for China, the plan collapsed as global sales dried up before demand generated from internal sources was able to grow to match demand generated from the rest of the world. Once viewed by China’s government as a pillar of growth, semiconductor manufacturing has turned out to be a financial burden.”
China’s investments in capacity and technology in the semiconductor sector have not provided the financial returns that were forecast for investors, Jelinek added. Adding to China’s dilemma is the overestimation of capacity, which was expected to be shuttered in other regions in favor of lower-cost, more efficient Chinese manufacturing.
“With the addition of the current global economic recession, China’s focus has shifted from establishing semiconductor manufacturing independence to restructuring its entire chip industry before it simply collapses.”
China’s utilization is expected to rise moderately through the rest of the year, but will remain very low at 54 percent in the fourth quarter of 2009. Over the longer term, utilization will rebound to 84 and 85 percent in 2012 and 2013. However, when utilization recovers to these levels, China’s semiconductor industry will look very different from how it has in the past, with the number of competitors in the industry likely to be dramatically reduced due to consolidation.
The figure presents iSuppli’s quarterly and annual estimate and forecast of semiconductor utilization in China.
What will China’s semiconductor industry look like when utilization recovers?
“Since Chinese semiconductor manufacturers do not possess a technological differentiation from their competitors, they are at a disadvantage, since there is simply far too much of the same kind of capacity in the world chasing after the same opportunities,” Jelinek said.
“This will lead to mergers and consolidations. However, even if suppliers with similar technologies merge, will they create anything but larger companies with bigger cash-flow problems?”
At first glance, such a scenario is most likely what will happen. Nonetheless, there will be one ancillary effect that will significantly impact the landscape of companies in China: The bigger company will be viewed as the most likely survivor.
This perception will transform into reality as customers assure themselves of a strong supply source by aligning with the largest, most cost-effective semiconductor maker. In the end, the smaller company simply will be forced out because it is uncompetitive in technology and price.
No recovery until 2012
With iSuppli not forecasting a recovery for Chinese manufacturers until 2012, it is unlikely that weak companies can survive two years in the face of a negative cash flow.
iSuppli anticipates the first merger in China’s semiconductor industry will be finalized in the second quarter of 2009. This will signal that time is of the essence if a company or a group of companies is going to be able to weather the storm. iSuppli anticipates that by the second half of 2010, a smaller—yet stronger—semiconductor industry will emerge in China.
The severe downturn in the global Photovoltaic (PV) market in 2009 actually could have a positive outcome for the worldwide solar industry, yielding a more mature and orderly supply chain when growth returns, according to iSuppli Corp.
Worldwide installations of PV systems will decline to 3.5 Gigawatts (GW) in 2009, down 32 percent from 5.2GW in 2008. With the average price per solar watt declining by 12 percent in 2009, global revenue generated by PV system installations will plunge by 40.2 percent to $18.2 billion, down from $30.5 billion in 2008.
The figures present iSuppli’s forecasts of global PV installations in terms of gigawatts and revenue.
“For years, the PV industry enjoyed vigorous double-digit annual growth in the 40 percent range, spurring a wild-west mentality among market participants,” said Dr. Henning Wicht, senior director and principal analyst for iSuppli. “An ever-rising flood of market participants attempted to capitalize on this growth, all hoping to claim a 10 percent share of market revenue by throwing more production capacity into the market. This overproduction situation, along with a decline in demand, will lead to the sharp, unprecedented fall in PV industry revenue in 2009.”
However, the 2009 PV downturn, like the PC shakeout of the mid 1980s, is likely to change the current market paradigm, cutting down on industry excesses and leading to a more mature market in 2010 and beyond.
“The number of new suppliers entering and competing in the PV supply chain will decelerate and the rate of new capacity additions will slow, bringing a better balance between supply and demand in the future,” Wicht said.
Blame it on Spain
The single event most responsible for the 2009 PV market slowdown was a sharp decline in expected PV installations in Spain. Spain accounted for 50 percent of worldwide installations in 2008. An artificial demand surge had been created in Spain as the time approached when the country’s feed-in-tariff rate was set to drop and a new cap of 500 Megawatts (MW) loomed for projects qualifying for the above-market tariff. This set a well-defined deadline for growth in the Spanish market in 2009 and 2010.
While the Spanish situation is spurring a surge in excess inventory and falling prices for solar cells and systems, this will not stimulate sufficient demand to compensate for the lost sales in 2009. Even new and upgraded incentives for solar installations from nations including the United States and Japan—and attractive investment conditions in France, Italy, the Czech Republic, Greece and other countries—cannot compensate for the Spanish whiplash in 2009.
The Spanish impact will continue into 2010, restraining global revenue growth to 29.2 percent for the year. Beyond Spain, the PV market is being adversely impacted by the credit crunch.
“Power production investors and commercial entities are at least partially dependent upon debt financing,” Wicht noted. “Starting in the first quarter of 2009, many large and medium solar-installation projects went on hold as they awaited a thaw in bank credit flows.”
After the fall
After 2010, the fundamental drivers of PV demand will reassert themselves, bringing a 57.8 percent increase in revenue in 2011 and similar growth rates in 2012 and 2013.
“PV remains attractive because it continues to demonstrate a favorable Return on Investment (RoI),” Wicht said. “Furthermore, government incentives in the form of above-market feed-in-tariffs and tax breaks will remain in place, making the RoI equations viable through 2012. Cost reductions will lead to attractive RoI and payback periods even without governmental help after 2012.”
Furthermore, lower system prices will open up new markets by lowering incentives and subvention costs. The lower the PV system prices are, the lower the incentives will have to be. Developing regions will be big the beneficiaries of these lower prices and thus will grow faster than the global average, Wicht said.
Source: iSuppli, USA
iSuppli Corp.’s LCD PriceTrak Service recently reported that prices for LCD monitor panels are rising, despite the weak economic situation and cuts in consumer spending. Isn’t this quite unusual, and on surface, really spectacular, given the recessionary conditions.
Thanks to my good friend, Jon Cassell, I was able to get into a conversation with Ms. Sweta Dash, director of LCD research at iSuppli. I started by trying to find out the reasons for LCD monitor panel prices to be doing reasonably well in these times.
China’s program driving demand
Sweta Dash said panel demand has been strong due to ‘China’s rural consumer stimulus program’, which increased sales of small-size TVs that uses monitor panels. Also, the panel demand was strong from branded manufacturers due to inventory adjustments.
She added: “Monitor brand manufacturers and retail channel orders mostly stem from the demand for inventory replenishment because they have kept their stockpiles at lower-than-normal levels since the end of 2008. Now, factory demand is strong as they need to buy panels for inventory adjustments.”
In that case, is China’s rural customer stimulus program the only major factor behind this rise in prices of LCD monitor panels?
According to Dash, the other factor is the inventory adjustment by brand manufacturers. TV sales in the US were also better than expected due to the very aggressive prices by brand manufacturers.
“Some retailers reported that they could not meet their demand due to low inventories level. Now, they are trying to adjust the inventory level. Besides better than expected demand for TV and monitor panel, severe cut in factory utilization rates (severe cut in panel production) also contributed to the tight supply for the monitor panel and small-size TV panel, which resulted in panel price increase,” she noted.
Is there any specific reason behind the retailers placing higher orders during recession? Or is it only due to the very low prices?
Dash clarified that it is mostly inventory adjustments. “In March, the inventory levels for monitors at the brand and channel levels were below three weeks level; and some were at two weeks level, which is considered low for this time of the year. Also, once the panel price starts increasing, buyers try to buy more in order to take advantage of the very low price.”
Situation regarding component shortages
There was also a note in iSuppli’ report regarding component shortages. I was keen to find out the exact situation with component shortages, and which specific ones!
Dash said that there is tight supply for PCBs and driver ICs. The lead time for PCBs is extending from two to three weeks to four to six weeks; and the lead time for certain driver ICs is extending to about six to eight weeks.
No recovery soon!
Interestingly, iSuppli cannot declare that monitor end-market demand is headed for a sustainable recovery at this point.
Dash added: “In the absence of a strong rebound in end-market demand, rush orders are not likely to be sustained in May with component shortages being resolved by then. And, the forecast for panel demand is most likely to remain conservative at that time. Also, panel prices are still below cost level. Therefore, in spite of the increasing panel demand, suppliers are still losing money. Further, panel suppliers are rushing to increase their utilization rates and production.”
Koreans doing better than Taiwanese
Evidently, the Korean suppliers seem to be doing better than the Taiwanese, as of now. What would be the key reasons for this?
According to Dash, the Korean suppliers were able to provide more competitive prices due to weaker Won rates.
She added: “Also, the Korean suppliers have higher generation fabs, and they have more in-house or regional component production, which gives them the cost structure compared to Taiwan suppliers. They also have more internal customers (for example, Samsung LCD’s internal customer is Samsung TV and monitor brand).
Year ahead for LCD monitor panels
Finally, how does the year ahead look like for LCD monitor panels?
Monitor panel demand may face some softness after the inventory adjustment in Q209. That is the reason why panel suppliers have to expand their production cautiously.
“Otherwise, it has the danger of pushing the market back to over supply. We still expect real end-user demand to recover in the second half of 2009 especially by Q4-09. If panel manufacturers act cautiously and expand rationally in the first half of 2009, they can see real demand recovery in the second half of 2009,” noted Dash.