Rankings of various semicon market watchers’ sales growth expectations 2010

October 22, 2010

This is a continuation of my coverage of the fortunes of the global semiconductor industry. I would like to acknowledge and thank Mike Cowan, an independent semiconductor analyst and developer of the Cowan LRA model, who has provided me the latest numbers.

Mike routinely tracks how the Cowan LRA Model sales growth forecast (each month)  compares to a wide range of major semiconductor industry market watchers in order to monitor how the model’s latest monthly update result “stacks up” against the competition, that is, 15 other prognosticators he routinely monitors.

Source: Cowan's LRA model.

Source: Cowan's LRA model.

The table given here summarizes the latest sales growth forecast expectations of these 15 other semiconductor industry forecasters, thus comparing Cowan’s forecast number to the rest of the crowd.

Cowan routinely updates his forecast numbers each month immediately following the WSTS release of its monthly actual sales numbers in order to “dynamically” predict the industry’s sales posture. Consequently, the sales and sales growth output of the monthly model run does NOT “sit still” as highlighted below.

Cowan LRA model for forecasting global semicon sales –– ‘divining’ (mathematically) future from past
* It should be emphasized that each month’s actual global sales number published by the WSTS is a ‘lagging indicator’ since it is released a full month after the fact.

* The Cowan LRA Model, however, “turns” this lagging actual monthly sales into a “leading indicator” by virtue of its near-term forecasting capability looking out over the next five quarters.

* This is the ‘beauty’ of the model and, therefore, makes it dynamic in the sense that it can be run each month utilizing the most recent actual global semiconductor sales number published by the WSTS. Thus, it allows “rigorous tracking” of the near-term sales forecast outlook for the global semiconductor industry on an “almost” real-time basis.

Source: Cowan's LRA model.

Source: Cowan's LRA model.

* Consequently, the model’s monthly sales forecast does not “sit still” but “evolves” with each succeeding month’s latest published sales number. Since conditions change rapidly and unexpectedly in the semiconductor industry, industry market forecasters are hard pressed to keep up with these changes.

How can the industry management be sure that a sales forecast issued two, three, or more months ago is still valid and relevant to what’s happening in today’s global semiconductor market?

In order to illustrate this ‘does not sit still’ principal embedded in the monthly update to Cowan’s forecasting approach, the graphic here shows the month-to-month evolution of year 2010 sales and sales growth forecast estimates as determined by the model from January to the present.

Global semicon market set for slowdown
Before I conclude, here’s a wonderful piece of information sent to me (and to several others) by Dr. Robert Castellano of The Information Network. Two months ago, I did a post with Dr. Castellano where he said that the global semicon market is set for slowdown.

The Information Network had, on September 21,issued a release similar to the report I had done with Dr. Castellano to all of its readers. This was at a time when the semiconductor market was humming along and many ‘analysts’ continued to up the ante in the market.

It seems that nobody believed them! Well, maybe not nobody, but few (including yours truly!).  Fast forward another month and The Information Network reiterates the slowdown.  Dr. Castellano says, “This time, we have a lot of company and it’s somewhat vindicating.”

Dr. Castellano had actually pointed out problems in the DRAM sector. “Isn’t it interesting that Nanya and Inotera both reported losses for 3Q10.  Again vindication for being slapped around by managers and shareholders in denial,” he added.

Dr. Castellano notes: “I also pointed out that we would be seeing problems in the semiconductor equipment market, particularly lithography. Isn’t it interesting that ASML went out of its way in its conference call that they were not seeing any pushouts in purchases. Interesting that ASML never bought our lithography report in the 25 years we are in business. It reminds me of when I pointed out last year that Intel was losing money on the Atom, and every conference call after that they said they were making money on the Atom (maybe Monopoly Money!), yet Intel never purchased our report on ARM versus Atom (ARM did!).”

The question now is: Has the Internet really become such a marketing tool that multibillion dollar sized companies want to save a few thousand dollars and only read headlines instead of buying insightful marketing reports?

Or well, are such companies even able to really ‘understand’ what’s actually happening in the global semiconductor industry?

PS: I hope most of you have also read that SEMI’s North American semiconductor equipment industry Sept. 2010 book-to-bill ratio is 1.03, which is 11 percent lower than August 2010.

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  1. October 22, 2010 at 8:13 pm

    Interesting insights… 🙂 Comments welcome!

  2. Anil
    October 23, 2010 at 1:06 am

    With regards to Robert Castellano’s comments, it appears that the near term outlook for the economy in general and the industry in particular is indeed souring a bit.

    I happened to stumble on an article in the past days which dealt with “stock buying” trends of company insiders. I believe there are ways to track this trend and find out what senior-most management within a company is doing with respect to purchase or sale of their own company’s stock. Since the senior management is supposed to be very informed about the happenings within the company, their purchases (or sales) of their own company’s stock is supposed to be an indicator of whether they are positive or negative about the fortunes of their company (at least in the short term). With that explanation, here are the numbers for this indicator, from this article:

    The usual average of the Sales to Buy ratio for insiders I believe is 2.0 to 2.5 (meaning that usually insiders are selling 2.5 shares of stock for every 1 they are buying). This ratio, apparently back in May-2010 went down to only 1.3 (meaning that roughly 1 share was being sold for every 1 being purchased!) – management extremely bullish about their companies (near term) future according to this indicator.

    Guess what is the ratio now? Apparently, >5!!!! In other words, insiders are selling more than 5 shares of their own company stock for every one they are buying. This is an extremely PESSIMISTIC posture on the near term future of their companies. Thus, it appears that most senior people running their companies indeed believe that the near term outlook is DOWN.

    That said, even if a short term dip does happen, it is expected to be short-lived. If you look beyond the next 6-month period, the economy is expected to pick up steam leading to a better outlook for our industry.

    • October 23, 2010 at 7:51 pm

      Thanks for your note, Anil… insightful, as ever! 🙂 Let’s hope for the best for the global semiconductor industry.

  3. S. Uma Mahesh
    October 23, 2010 at 7:45 am

    Valuable insights… interesting to note the prediction modelling efforts of learned scholars (like you all)!.. good learning…

    Curious to note the contrarian point with data – many think that the up turn will be on for some more time – with the year end purchases season, new technologies coming etc.

    Guess, the points/areas of slow down could be of more value…. as that could bring out a trend – what market, segment etc….

    And, I thought companies buy the reports anyway (though may not ‘study’ hem)…they can ignore at their own peril..

    Appreciate the learning given, dada 🙂

    • October 23, 2010 at 7:52 pm

      My pleasure, Mahesh Sir 🙂 I repeat what I said at the end — do folks ‘really understand’ the semiconductor industry…? 😉

  4. Dr. Robert Castellano
    October 23, 2010 at 7:43 pm

    Thanks Pradeep for the kind words and your insight. I love the way you merged my first commentary into your blog.

    I noticed at the end that you pointed to the b-to-b, which segues perfectly with my second commentary.

    • October 23, 2010 at 7:54 pm

      My pleasure, sir. It is an eye opener to read your reports. Also, I hope to present the correct side of the story, as always, as a neutral. 🙂

  5. Vinodkumar Shanmugam
    October 23, 2010 at 7:44 pm

    Thanks Pradeep for sharing the mail with the industry predictions.

  6. Monish
    October 23, 2010 at 7:46 pm

    Fantastic writing, great insights, Pradeep! You simply rock!!

  7. October 23, 2010 at 7:54 pm

    Vinod and Monish — many, many thanks for the words of encouragement. 🙂

  8. Malcolm Penn
    October 26, 2010 at 6:48 pm

    Dear Pradeep … lies, damned lies and statistics !!!!!!!

    First, the Cowan Model. As Mike C concedes, this is a retrospective averaging model therefore does not forecast per se, simply projects what the historical trend would be were all things steady and equal. They rarely are of course. Hence, the reason why his ‘forecast’ homes in on the real number as the year progresses. It gives wildly off target results in periods of rapid change (as in Q4-08 when it was still ‘forecasting’ Q4 growth when everything was plummeting to earth) and the reverse once the market had turned in Q2-09.

    Second, the imminent market collapse. For sure -9 percent in 2009, +36 percent in 2010 and +14 percent in 2011 sure looks like a classic boom turned to dust, but this is absolute poppy-cock. It’s just a reflection of the spike down (and irrational over-destocking) and back up again (to rebuild back stocks).

    If you look at the quarterly growth numbers you will see a much steadier pattern. 2011 will be a return to normality.

    As for trying to say DRAMs are a leading indicator of the market, that logic is neolithic and simply untrue. There was a massive over-investment in DRAMs 12 months ago, and right on cue, here comes the inevitable overcapacity.

    There is NO over-investment and capacity here will remain tight. There will be the inevitable seasonal slowdown but that is NOT oversupply and disaster.

    So, we find ourselves with a strong global economy (what’s wrong with 4 percent world GDP growth?), continuing under-investment (even this year’s +120 percent increase – from a negligible level btw – still keeps us well below the long-term average and a flat Cap Ex spend for 2011 will keep us there, actually it will be worse as the market will grow), structurally increasing ASPs (yes they’ve been increasing now for six consecutive quarters but no-one bothers to look at the WSTS data on this) and no excessive inventory build … all of the market dynamics are still in positive territory.

    The real problem is the US-centric firms still cannot yet bring themselves to accept that the US is no longer the centre of the universe. SE Asia is, and that’s outgrowing the US at least 3 to 1.

    Sincerely

    Malcolm

    • October 26, 2010 at 6:50 pm

      Thanks a lot for the wonderful insight, Malcolm. 🙂

    • Mike Cowan
      October 30, 2010 at 2:55 pm

      Hi Malcolm – Not quite sure where you are coming from relative to any “conceding” that I have done per your words: “As Mike C concedes, this is a retrospective averaging model therefore does not forecast per se, simply projects what the historical trend would be were all things steady and equal.”

      I strongly stand behind my (purely) mathematical model that exploits the application of linear regression analysis to historical actual monthly global S/C sales for the past 26 years. I believe that it is human nature that one “fears” what one does not understand (or does NOT take the time to understand!).

      I would be more than happy to demonstrate to you that in fact semiconductor sales history is in fact highly linear and thus highly amenable to the application of LRA (Linear Regression Analysis), that is, the approach I have developed is valid and provides a straight-forward forecasting capability that is mathematically rigorous and thus, it is not “lies, damned lies” as you invoke.

      If you are you interested in the details of what the model is all about – lets talk!

      Mike C. (Independent S/C industry analyst and developer of the Cowan LRA Model)

  9. October 26, 2010 at 6:51 pm

    I am really honored, humbled and touched that I am able to speak with the leading industry analysts from all over the world. Here’s wishing the global semicon industry all the success! 🙂

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