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Why has the semicon equipment bubble really burst? – II

October 27, 2010 Comments off

Here’s the concluding part of my discussion with Dr. Robert Castellano of The Information Network, from New Tripoli, USA.

Repercussions of a deteriorating semiconductor industry
I asked Dr. Castellano regarding the repercussions of a deteriorating semiconductor industry.

He said that the semiconductor equipment industry seems to be in serious trouble. There could possible be little growth in 2011, and the how is that there will be sufficient pushouts in equipment that revenues are moved to 2011 from 2010.

Dr. Castellano said: “We warned two months ago about pushouts, and today, Veeco stated that they “recently experienced rescheduling of tool shipments from the fourth quarter into the first quarter by several customers in Korea and Taiwan.” In other words, pushouts! We will continue to see this more and more.

“Problem is, will the equipment vendors admit it? ASML vehemently denied any customers’ pushouts last quarter, but with tools selling for $35 million each and customers such as Nanya and Inotera announcing losses, there is no way in creation pushouts won’t happen.

“Then, there is the issue of 450mm wafers. The only ones pushing it are the semicons, because they recognized that they could generate twice the number of chips for almost the same capital equipment cost. The equipment industry was dramatically impacted by the 300mm transition, and growth was nearly flat from 2001 to 2009. Not so for the semicons.

“No equipment supplier wants 450mm, it is being pushed by Sematech and Intel, plus a consortium in Europe that feels that perhaps 450mm will knock off competitors and they can make up the vacuum in sales. Only the top 15 equipment suppliers will survive.”

How will pushouts benefit the industry?
On the subject of industry pushouts being highlighted time and again, it is also necessary to see whether and how will these benefit the industry in the long run.

Besides the reasons mentioned above, semiconductor sales are intimately tied to the economy. There is a direct correlation between semiconductor sales and GDP, as well as the PLIs of The Information Network. If the economy is robust, more money is available to purchase electronic items containing semiconductors. The reverse is true, indicative of the present economic climate.

The Information Network has also indicated that firms will announce lower results, and it’d get worse in the following quarter. Why will this happen and which firms could be likely ‘hurt’?

Dr. Castellano said: “This will happen because the crest in the tidal wave was only reached in the past month or so, and it is a long and slippery slope down because it went so high up to begin with.

“The DRAM manufacturers will be hit the hardest. Growth was strongest for them for the first half of the year, where sales grew 135 percent in Q2 2010 compared to Q2 2009.”

Is there a way out? If yes, when?
Finally, when will there be some recovery in the semiconductor equipment sales and why? Surely, as with everything, there has to be a way out!

Dr. Castellano concluded: “We see minimal growth in 2011, again depending on macroeconomic factors. We see two years of downturn in the industry – 2012 and 2013.”

Why has the semicon equipment bubble really burst? – I

October 26, 2010 5 comments

Yesterday or early today, I’d mentioned about receiving an interesting report from The Information Network — where it said that the global semiconductor equipment industry bubble has burst!

It made interesting use of an analogy around “The Emperor’s New Clothes,”  a short tale by Hans Christian Andersen and the global semiconductor industry. So, I got in touch with Dr. Robert N. Castellano, president of The Information Network, New Tripoli, USA, to find out more.

Just why did the bubble burst?
I started by asking him why The Information Network has been pointedly indicating that the semicon equipment bubble has burst?

He said: “If we take a look at the SEMI book-to-bill ratio, bookings were down from $1,837 million in July and $1,816 million in August to $1,616 million in September. Keep in mind that these are three-month moving averages. so that September’s numbers were proped  up by stronger July and August bookings.

“Additional data come from our proprietary leading indicators (PLI) that we have developed obver the past 15 years. They point to changes and inflections in the economies of the world and correlate with inflections in semiconductor equipment revenues several months out. We plot SEMI’s announced billings (revenue) instead of bookings, which are anticipatory. Our PLI has been trending downward for the past three months, signalling an inflection in equipment revenues. We will see this happen this quarter.”

Pitfalls of two years of growth combined into one!
The report has also indicated that year 2010 is the same as 2000 — where two years of growth were combined into one. What are the pitfalls from such a development?

Dr. Castellano added that in 2000, equipment revenues skyrocketed, followed by a severe downturn in the following year. In a typical cycle, we see about three years of growth. But not so in 2000. The reason for the large growth was inaccurate market forecasts, when some ‘analysts’ kept hyping shortages in certain ICs, particularly DRAMs. This led IC manufacturers to purchase more equipment and build more fabs to meet the anticipated growth.

Little did they realize that the Dell Computers of the world were also reading the same ‘erroneous’ forecasts and purchasing twice the number of ICs they needed for fear of shortages.

The IC companies, not realizing the customers were double dipping, thought that the phenomenon was real and kept expanding. In 2001, IC manufacturers were left with about $10 billion in excess inventory. The year 2000 coincided with Y2K. Later that year, the Internet bubble also burst. So, growth came from anticipated applications, rather than real demand. Read more…

What’s Farnell (element14) up to? And, semicon equipment bubble burst? Whoa!!

October 25, 2010 3 comments

I’ve received two interesting reports today. One, from Premier Farnell on a name change and another from The Information Network on the troubles of the semicon equipment industry.

First, Premier Farnell plc announced the launch of a new, market leading customer proposition in Asia offering a significantly expanded inventory of products relevant to electronic design engineers, next-day delivery in Asia Pacific and an enhanced range of services, under the name element14.

I have not quite understood this move!

I wonder how is this going to help Farnell! It has had element14 for so long now. Hey, I even provided Farnell feedback on the element14 website back in July 2009 (in Bangalore), and even discussed with its executives in Singapore when they sought further queries on the feedbacks provided by me.

What’s Farnell (or element14) really up to?
At least, I don’t see any newness in Farnell’s element14 release. Unless, there’s a move to dilute the Farnell brand itself, which is and will be really strange!

I for one felt element14 was (and is) doing magnificiently as a standalone entity, and has done a great job in building a community of design engineers around itself.

The release also says that the Group’s businesses located in Australia, China, India, Malaysia, Singapore and New Zealand will be known as element14 and will offer customers and suppliers a multi-channel, multi-currency, multi-language way to source their product needs, quickly and easily.

So, I checked Farnell’s India site. Now, the India website of Farnell is confusing me. There’s a message on the site that says ‘Farnell Electronics (India) Pvt Ltd name change in progress’.

Where is the need to call Farnell by its original name in the UK, and why rename it elsewhere, especially in Asia? Is it that the brand name is not well known across Asia? What’s wrong in the first place with having two separate standalone and successful identities such as Farnell and element14?

It would be prudent on Farnell’s part to maintain element14 as the community it has been originally meant to be. For instance, why call Farnell India as element14 India all of a sudden?

I hope to hear from my friend, Ravi Pagar at Farnell soon, hopefully, in the morning. Have sent him the query. Name change or not, best wishes to element14/Farnell in its future endeavors.

Semicon equipment industry bubble burst?
Now to the second one! I also received an interesting report from The Information Network — where it says that the global semiconductor equipment industry bubble has burst!

It has also made interesting use of an analogy around “The Emperor’s New Clothes,”  a short tale by Hans Christian Andersen and the global semiconductor industry.

The report has set me off thinking. Just how can the global semiconductor industry afford to not overlook repeated warnings? This is peculiar! What could be the repercussions of a deteriorating semiconductor industry? The Information Network also mentioned industry pushouts. How will these benefit the industry in the long run?

I hope to speak with Dr. Castellano regarding the study and get some replies on my queries.

What’s very interesting is a prediction made at the end of this report. The Information Network says that firms such as AMAT, AMD, APD, ASML, AVZA, CAJ, FJTSY.PK, HPQ, INTC, MU, NVLS, OMG, TOELF.PK, TOSBF.PK and other IC, equipment, and material suppliers have or will be announcing their results soon. “Nearly all will point to a slowing in the next quarter in their releases and conference calls. It will get worst in the following quarter!”

Wow! That will be significant! Hey folks, I’m going to watch all of these firms very closely as they annouce their quarterly results. Suggest, you do the same.

Rankings of various semicon market watchers’ sales growth expectations 2010

October 22, 2010 14 comments

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. Read more…

Global semicon market set for slowdown due to deteriorating business climate!

August 16, 2010 1 comment

Now that’s going to be very interesting, should it happen! After close to two quarters of robust growth experienced by the global semiconductor industry, a slowdown was bound to be around the corner!!

I was going through a report sent out today, by Dr. Robert N. Castellano, president of The Information Network, New Tripoli, USA, of the same title, and decided to get his thoughts.

Deteriorating business climate

Dr. Robert N. Castellano, president, The Information Network.

Dr. Robert N. Castellano, president, The Information Network.

According to The Information Network, The business climate for the semiconductor industry is deteriorating, as per its upcoming report, titled, “Hot ICs: Market Analysis and Forecast of the Top 15 IC Sectors”.

As per the report, along with fellow DRAM manufacturers Samsung, Hynix, Elpida, Micron, etc., will suffer from slowing sales of electronic gadgets and PCs. In the CPU sector, the slowdown in PC sales will affect Intel and AMD. Foundries such as TSMC and UMC will also be impacted.

As sales drop in electronic gadgets, the most pronounced affect will be in the DRAM sector, where sales grew 135 percent in Q2 2010 compared to Q2 2009. The drop in semiconductor sales will usher in a corresponding drop in semiconductor equipment and materials sales.

The front-end market will suffer pushouts and the lithography sector will be impacted most, where sales of $35 million immersion DUV tools have flooded the market of late.

Slowdown likely in world economies

I quizzed Dr. Castellano as to why the semiconductor business climate is deteriorating.

He said: The semiconductor industry is directly correlated with the economies of the world, and there is a direct correlation with semiconductor sales and worldwide GDP. Our leading indicators (LI) point to a slowdown in the world economies.

“As these proprietary LIs are correlated with semiconductor revenues, we will se a slowdown in the next few months. We are already seeing signs of a slowdown in the PC and LED indistriies. Numerous public companies have given forward guidance that the next quarter will show some weakness.”

Given the good two quarters this year, how certain is The Information Netwok that the semicon market is now set for slowdown? Dr. Castellano cited similar reasons as above, adding: “Our LIs have an extremely accurate correlation with transition times. We have developed these LIs over the past 15 years.”

What’s the impact on foundries and silicon wafers?

So, how will all of this impact the foundries?

Dr. Castellano said: “Foundries make their money from two sources: sales of ICs from fabless IC companies and sales of ICs from IDMs who do not have sufficient in-house capacity or sufficient technology capabilities for newer ICs. The macroeconomic effect will stymie sales for both revenue sources.”

Does The Information Network foresee an overcapacity situation in silicon wafers during 2011?

“No. We are forecasting 8.4 BSI (billion square inches) of Si wafers in 2010, which is up slightly from the 8.2 BSI in 2008. So, the Si manufacturers have the capacity already on hand. Semiconductor wafers will face competition from solar wafer  consumption, which will double in 2010, but polysilicon is plentiful, and the two sectors, for the most part, use different crystal growing methods,” he added. Read more…

Semicon rankings 2009: Global revenue dips, but did anyone tell that to Apac suppliers?

March 29, 2010 Comments off

Recently, I received a report from iSuppli, which boldly stated that Asia-Pacific semiconductor suppliers defied the downturn in 2009. It said: “combined revenue for semiconductor suppliers headquartered in the Asia-Pacific region actually grew by 2.3 percent in 2009 to reach $44.5 billion, up from $43.5 billion in 2008. In contrast, global semiconductor revenue in 2009 fell by 11.7 percent to $229.9 billion, down from $260.2 billion in 2008.”

Today, there’s a report from Gartner stating that the total worldwide semiconductor revenue reached $228.4 billion in 2009, down $26.8 billion, or 10.5 percent, from 2008.

Which report would you prefer reading first? I’d go with iSuppli’s report!

 Final Total Semiconductor Revenues by Region (Revenue Millions of US Dollars): Source: iSuppli, USA

Final Total Semiconductor Revenues by Region (Revenue Millions of US Dollars): Source: iSuppli, USA

One, it is no surprise that Asia based semicon suppliers have done so well. That’s not all! Only two major semiconductor product segments escaped the downturn of 2009: LEDs and NAND flash memory. Korean and Taiwan based suppliers have led the way.

Let’s look at iSuppli’s list of top 25 suppliers for 2009. First, the movers or suppliers that had positive growth in 2009 or improved their rankings. The movers were:

* Samsung at no. 2 with 3.5 percent growth
* Hynix at no. 7 with 3.7 percent change over 2009; in fact, Hynix improved its position from no. 9 in 2008 to no. 7 in 2009
* Elpida Memory at no. 15 with 9.7 percent change over 2009; Elpida improved its position from 19th in 2008 to 15th in 2009.
* Mediatek at no. 16 with 22.6 percent growth; Mediatek also improved its ranking from no. 24 in in 2008 to no. 16 in 2009 — a sizeable jump up.

Interesting, isn’t it? All of these suppliers are from Asia! Two Korean and one each from Taiwan and Japan, respectively.

Also, if you look at the top 25 suppliers, barring these four, none of the others managed a positive growth or change in 2009.

If you need to look at some other movers in iSuppli’s table, here they are:

* Qualcomm — moved up from 8th in 2008 to 6th in 2009.
* AMD — moved up from 12th in 2008 to 8th in 2009.
* Micron — moved up from 16th in 2008 to 13th in 2009.
Nothing much to speak about the rest! Is that expected? Perhaps, it is! 2009 has been a year best forgotten.

Top 10 semiconductor vendors by revenue estimates, 2009 (Millions of US Dollars): Source: Gartner, USA

Top 10 semiconductor vendors by revenue estimates, 2009 (Millions of US Dollars): Source: Gartner, USA

Now. when I look at Gartner’s top 10 semiconductor vendors, it also indicates Samsung and Hynix as the only two suppliers within the top 10 to register some positive growth in 2009.

LEDs, NAND beat downturn

Coming back to iSuppli’s report, with LEDs and NAND beating the downturn, it said: “with expanding demand from mobile products such as cell phones, the NAND Flash market grew by more than 15 percent in 2009. LEDs saw a rapid rise in adoption in a wide range of applications, especially in backlighting of LCD-TVs, causing their revenue to rise by more than 5 percent.”

iSuppli even goes on to mention the creditable performance of Seoul Semiconductor in LEDs. Also, it mentions that more than half of Taiwanese suppliers achieved revenue growth in 2009. MediaTek, Nanya Technology and Macronix International led the way for Taiwan with growth of 22.6 percent, 21.2 percent and 14.4 percent, respectively. Read more…

Top 5 high growth markets driving (semicon?) recovery, and top 10 hot and emerging technology platforms

October 14, 2009 11 comments

Today, I received two wonderful reports — one, highlighting the top 5 high growth markets driving (semiconductor) recovery, and two, the top 10 hot and emerging technology platforms well poised to profoundly impact manifold sectors across the globe while offering potential high RoI for investors!

First, semiconductors! Semico Research has come up with a report that highlights the top 5 high growth segments driving growth and recovery in the semiconductor segment. For the record, 2009 is likely to see the global semiconductor industry decline by 12.5 percent. The top 5 segments according to Semico Research are:

* Netbooks

* Portable navigation devices (PNDs)

* Digital TVs

* DVD recorders

* Video game consoles

Hey, there really seems to be a lot of light at the end of the tunnel for the consumer electronics industry!

On netbooks, I think Intel needs to be given most, if not, all of the credit. Here’s what iSuppli has to say in its fast facts for Intel’s Q3 results:

* Intel also capitalized on the continued rise in demand for netbook PCs. The company dominates the netbook microprocessor market with its Atom chip. iSuppli predicts global netbook shipments will rise to 22.2 million units in 2009, up 68.5 percent from 13.2 million in 2008.

* While Atom represents only a small share of Intel’s total revenue, its profitability is disproportionately high. “Netbook microprocessors are a high-margin product because they utlilize old technology,” said Matthew Wilkins, principal analyst, compute platforms, for iSuppli. “The Atom is based on the old Pentium M microprocessor and uses a mature manufacturing process. Because of this, Intel is getting very high yields and an extremely high margin on the Atom.”

On PNDs, SatNav has recently introduced a Bluetooth enabled multifunction PND. Also, In-Stat reports that the worldwide unit shipments for PNDs will reach approximately 56 million units in 2012.

However, iSuppli has just sent out a story to me, saying that PNDs have now entered a period of slowing growth, spurring companies throughout the supply chain to re-evaluate their business models. Interesting!

As for digital TVs, according to DisplaySearch, developed markets are starting 2009 with strong growth and emerging markets are transitioning from CRT to LCD TVs faster than expected. However, plasma (PDP) TV is expected to fall about 2 percent Y/Y to 14.1 million in 2009 after strong 28 percent growth in 2008. As per iSuppli, OLED-TV revenue will likely rise by a factor of 240 by 2015—but still remain a niche. Let’s see!

DisplaySearch’s total global TV forecast is 200.4 million units in 2009, down 3 percent Y/Y, the first decline in total shipments in recent memory as the global recession and rising unemployment continue to take a toll on demand. However, the slowdown will be temporary as the worldwide economy emerges from recession and new markets enter the initial stages of the flat panel and digital TV transition.

Among DVDs, Samsung has introduced its first internal Blu-ray disc combo drive with BD-R and 8X BD-ROM read speed. Also, Flex-DVD is the latest technology in the DVD replication industry. This single layer format has the same capacity of a DVD-5 (4.7GB for standard size and 1.1GB for 3″ Mini DVD), but is half the thickness of the standard DVD.

Video game consoles — I find it quite interesting! It has been reported that the only products to see a decline in unit shipments in the second quarter were handheld video games, video game consoles, etc. Watch this market segment!

Now, to the top 10 hot and emerging technologies! According to a report from Frost & Sullivan, these are:

* Nanomaterials

* Flexible electronics

* Advanced batteries and energy storage

* Smart materials

* Green IT

* CIGS solar

* 3D integration

* Autonomous systems

* White biotech

* Lasers

Flex-DVD, above, is a great example of flexible electronics. Green IT — although a much abused term, it has certainly been on the top of the charts for quite some time now. Battery technologies and energy storage — yes, certainly. There are rightful places for CIGS solar — a point also made by Dr. Robert Castellano of The Information Network — and smart materials, as well as lasers and white biotech.

Well, what do you think folks? Do you agree with these top 5 and top 10 lists?

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