Archive for the ‘ASPs’ Category

Global semiconductor industry to grow 7.9 percent in 2013

January 28, 2013 1 comment

Malcolm Penn

Malcolm Penn

According to Malcolm Penn, CEO, Future Horizons, the outlook for the global semiconductor industry in 2013 is likely to be +7.9 percent. This means, the global semiconductor industry will likely grow to $315.4 billion in 2013.

Should this happen, it would be significant, given that this is the third year in a row that the market failed to break the $300 billion barrier! The global semiconductor clocked around $292.3 billion in 2012, as against $299.5 billion In 2011.

I asked Malcolm Penn the rationale behind this. He said, the rationale is exactly the same as that for 2012. There is said to be no change to last year’s fundamental market analyses. That’s not all! There are likely to be exactly the same (economic) downside risks as well.

The unit demand, capacity and ASPs are all ‘positively aligned’. Here, it is advised that one should never underestimate the economy’s capacity to derail the chip market. Even the downside forecast has been to break the $300 billion barrier.

The global chip industry growth is driven by four factors. These are economy, which is on hold due to complete loss of confidence, unit demand, which is back on the 10 percent per annum treadmill (inventory gone), fab capacity, which is currently tight (very), especially at the leading technology edge, and ASPs, which are structurally following the usual ups and downs.

There is a very safe, long-term bet, provided companies execute properly. As it is, most firms don’t, as they are too pre-occupied with chasing short-term targets.

Finally, if the year 2013 does show a recovery, the global semiconductor market will likely go ballistic in 2014.

Chip forecast at 4-6pc range; financial gloom nicks industry recovery!

October 25, 2008 Comments off

Early this year, during the IEF 2008 at Dubai, Future Horizons’ CEO, Malcolm Penn, had forecast a 12 percent growth for the global semiconductor industry, and that we were all dealing with an industry in ‘deep trauma’!

Soon after, the chip market started showing some signs of recovery and actually started to buzz again. This was in early June. Later, in July, the semiconductor industry numbers started indicating that this may not be a bad year after all! It also came to light that lousy memory numbers were holding back overall market numbers.

With the memory market not showing much signs of recovery, several analysts revised their forecasts in August and September, including Future Horizons. In early September, Penn forecast that the global semiconductor industry would probably grow at 4-8 percent.

However, now, with a global slowdown now in place, Penn says that Future Horizons’ January (and July) forecast assumptions, and chip market forecasts, are no longer valid. He adds, “We have not yet had chance to fully crunch the numbers, but at first sight, 2008 now looks set to come in at between 4 and 5 percent, with 2009 in the 4-6 percent range.”

This is very unfortunate! Just when it seemed a little while ago that the global semiconductor industry was in some stage of a small recovery, the global financial turmoil has more or less, ended that hope!

Penn cautions: “2009, however, could slip negative, depending on what happens to IC unit growth. At the moment we think this highly unlikely, given the 6.1 percent advanced and developing market GDP growth forecast and the fact there have only been two years of negative IC unit growth in the last 23 years, namely 1985 and 2001, both triggered by a massive inventory build.”

Obviously, a slowing world economy is bad news for the chip industry! However, the coupling, he notes, is not as strong as one might be lulled into intuitively believing. There have been seven instances in the last 22 years where the chip market has grown in value during a period of slowing economic growth and two occasions when the market has declined in a period of GDP growth.

“IC units have exhibited three periods when they grew in the face of a GDP decline and five occasions when the units declined despite growth in the world GDP. The economy is, thus, not quite king; inventory, excess capacity and ASPs also play a role,” adds Penn in his monthly report.

Underlying good news for chip industry
The underlying good news for the chip industry is that all of the other industry trends are good. Inventories do not seem to be seriously bloated; wafer fab capacity utilization levels are high; capital expenditure is low, and has been now for several quarters; and ASPs are in the midst of a long-term structural recovery phase.

Thus, while 2009 IC unit demand must inevitably slow, this slowing will coincide with an inevitable parallel slowing in new capacity additions, itself the result of a significant 2008 and prior Cap Ex cutbacks. The combined effect ought to be a relatively benign decrease in capacity utilisation rates, helping to cushion the inevitable near-term ASP pressures.

Looking at the near-term ASP trends, ASPs overall have been falling during 2008, but they have been falling much slower than the 2007 rate. This means that ASPs are actually increasing when measured on annualised basis.

Slowdown bound to impact ASPs
According to Penn, the economic (demand) slowdown is bound to negatively impact ASPs. What is more important from a market growth perspective however is not that they are falling but how fast they are compared with the same period last year.

While the ASP recovery trend might wobble next year, the underlying trends still look good, providing the world does not slip into global recession.

The immediate world government policy challenge is to stabilize the global financial markets, while nursing economies through a global downturn and keeping inflation under control. “That is quite a steep challenge (it has never before been called upon to be done); the great danger being, aside from the risk of failing, is a return to vested self-interests and protectionism and the impact that this will have on globalisation and future world growth. There is a real danger this is the precursor of World War 3, with economics as the fire-power,” he adds.

Penn advises: “Over a longer horizon, policymakers will be looking to rebuild firm underpinnings for financial intermediation and will be considering how to reduce cyclical tendencies in the global economy and strengthen supply/demand responses in commodity markets.

“The electronics industry would also do well to divorce itself from the financial market’s casino driven addiction by starting to plan for its longer-term growth needs not the previous (and now seriously discredited) Wall Street greed/bonus-driven quarterly hysteria.”

This has indeed been a topsy-turvy year! Apple’s iPhone 3G and now, Google’s G1 phone have hit the markets. Intel demonstated its Moorestown platform at the IDF in Taipei, promising great things in 2009! Intel also spoke a lot about mobile Intenet devices (MIDs) and what great things these can do.

However, no one, it seems, is able to point out confidently that the cheer in Christmas spend will be back! Or, how, 2009, will pan out! When will the global semiconductor industry see light at the end of the tunnel?

Semicon to grow 10pc during 2008: Future Horizons

July 24, 2008 Comments off

Hold on to your horses, folks. The year 2008 may not be so bad after all for the global semiconductor industry, according to Malcolm Penn, CEO, Future Horizons.

While presenting the mid-term semiconductor industry outlook in London this week, he said that the overall semiconductor outlook for 2008 was somewhere between 7-10 perfect. This includes 5-8 percent unit growth plus 2 percent ASP growth.

In his presentation, he ruled out any changes in forecast, saying that the industry could grow at about 10 percent this year, though 12 percent growth was still possible.

Will unit sales will hold up then? This is one of the great unknown answers! Unit visibility is bad, very bad, he adds. The inventory excesses/adjustments can always catch you out, but the underlying 10 percent pa annual unit growth will continue.

When put together with increasing ASPs, will it start to deliver strong overall chip market growth? Penn assumes that this may happen either second half of this year at best, or second half of next year at worst.

How has the memory market been doing among all of this? Well, it has really been lousy, and it is this that is holding back the overall market numbers!

There have been concerns over the lack of investment in the overall semiconductor manufacturing capacity. This trend will likely continue. Penn says: “Yes, this was the whole theme for the capacity section. It’s been going on for a year and will continue that way for most of this year. That earliest correction will come in Q4-08, i.e., capacity in Q4-09.”

In the midst of all of this, it seems that the Asian giants such as China and India, as well as the other emerging markets have been compensating adequately for the recessionary tendencies elsewhere.

Finally, are the Intels, Samsungs and the foundries of this world spending the required billions of dollars to bring on production at the leading-edge? Penn says: “Intel yes, but Samsung is slowing, but the foundries, no! The reason? To put up their prices; the industry is fed up with four successive years of decreasing revenues per wafer start, despite all of the billions spent on new investment.”

So what’s Future Horizon’s overall outlook for 2008? One, no change to IFS2008-09 analysis. If anything, the fundamentals are stronger! Also, the global economic outlook has strengthened. However, fab capacity expansion rate has slowed. The inventory is as controlled as it gets. PC and mobile phone markets remain robust.

However, there is weakening consumer demand in the US and the UK/Eurozone. The memory markets are continuing to be plagued with price wars. As a result, the YoY maths has been slightly impacted (down). The balance still leans to the upside, depending on the ASPs.

Danger signs to watch?
Multiple, he says! Capacity: It’s hard to see how this can spoil 2008-09, provided unit growth holds up (need to watch capex). Next, demand — the current IC unit demand is sustainable provided the economy holds up (need to watch inventory). On the economy itself, the current outlook continues good, but risks still on the downside (if it does tank, run for the life boats).

And finally, ASPs, which are always the industry’s first line of defence (ASPs can still derail Q3/Q4, but they are improving, memories aside).

Chip industry in perspective
Technology marches on, new markets open, old ones expand, enhancing our lives. The fall out at the macro level affects the entire world economy. Next, the electronic market was traditionally Japan, North America and Western Europe. It now encompasses the whole Asian Rim, China, Eastern Europe and India. There has been a middle class market growth from 500 million to 3 billion people.

Large chip markets have become larger, niches have become commodities, and new niches have arisen. Far from maturing, the industry is still in its volatile high growth phase, says Penn, with at least a further 20 years of strong growth in prospect.

Third digital wave leaders will be different from today. The shakeout has started. The underlying growth drivers for chips continues good. The market’s not maturing nor slowing, and neither have the industry dynamics / psyche (globally competitive / intensely competitive).

As Penn says, he who dares may not necessarily win, but the feint-hearted will definitely lose! Aptly sums up the state of the global semiconductor industry.

iPhone’s impact minimal on chip market

July 2, 2008 Comments off

Future Horizons recently released its Global Semiconductor Monthly Report June 2008.

The first question on everyone’s minds is: Are there finally any signs of the global semiconductor/chip industry turning around. Malcolm Penn, CEO, Future Horizons says that most of the evidence is still anecdotal. The real, clear proof will show itself in Q3-08.

There are a set of market fundamentals that are in remarkably strong form. The global economy still strong, and even showing signs of ‘not getting worse’ in the US. However, there is also tight fab capacity. No matter, the unit demand has been holding firm and ASPs are holding no longer in free fall.

Even the memory market has been holding up much better for now. Penn says that memory ASPs have been ‘flat’ for six months now. So, there has been some upward movement in ASPs. According to Penn, memories have been flat, and are no longer falling. The logic has been increasing, but micro is still falling, and the overall total ICs is trending up.

The impact of Apple’s iPhone 3G has been minimal so far on the chip market. Penn says: “It’s just one item in a very large and complex mix of products. The overall i-phone volume is miniscule,” adds Penn.

With several advancements and announcements happening in the solar/PV segment, it may seem that the solar/PV market is taking over from where the chip market slipped. Penn says that although it certainly is a growth market for the equipment suppliers, but with still very small numbers, it cannot make up for the semicon equipment/capex slowdown.

Future Horizons had earlier forecasted 12 percent growth for the global semiconductor in 2008. With some other analysts revising forecasts, let us examine whether Future Horizons consider a revision as well.

Penn says: “If I were doing the forecast now, I’d have probably settled on 10 percent rather than 12 percent, but this is fine-tuning the maths, and not the analysis. We will not be changing our forecast at the July seminar.

“Our overall message is clear. The growth this year will NOT be 4-5 percent. I really do not care, if 10 percent rather than 12 percent is the final real number. We are not in the business of ‘guessing the right number’, rather, just getting the trends and analysis right.”

Penny yet to drop
Finally, there is a need to take into account the falling cap ex, tight capacity, focus on profits, continuing strong market demand, second half seasonal effects, etc. The forecast tea leaves all seem to be pointing in the same positive direction. Has the worm finally turned for the industry? Future Horizons thinks so! It also believes that the penny has yet to drop and that the impact on the market will be dramatic.

Penn explains that low capex means less new capacity (12 months later). And less new capacity means tighter supply. Tighter supply means price increases and rationing.

In parallel, falling ASPs means less profits. Less profits means an unwillingness to invest. Low ASPs means a reluctance to supply. Eventually, either someone exits the business or they increase the price.

“Positive unit growth (it is, IC units are up 9.2 percent YTD on 2007) and a positive ASP growth (so far 2008 YTD the trend is still negative 3.9, but this will reduce in 2H at least to zero, my guess is slightly positive. It is already only half last year’s decline) means strong value growth hence our belief growth will end up in the ’10 percent’ range,” he adds.

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