By Christina Bruns
WaferNews Associate Editor
Important lessons can be learned about the current and future state of the semiconductor industry by looking at historical cycles, according to IC Insights, Scottsdale, AZ. The research firm compared Cycle 3 (1983 – 1984) to the current Cycle 6 (1999 – 2001), focusing on where the bottom may be, excess wafer capacity, and IC average selling prices (ASPs).
The market research firm said it expects that the beginning of an upturn in 2001 will be a “rolling bottom,” similar to the 1985 upturn.
“The mid-80’s cycle was a slow-rolling-bottom type of turning point in the market and the situation was similar to now,” said Bill McClean, president of IC Insights.
Overhang of excess wafer start capacity is the main reason IC Insights is forecasting a moderate upturn in late 2001. This excess capacity is forecast to dampen IC ASP increases and in turn subdue a potential spike in the late 2001 IC market (which did happen in the second half of 1998), according to the report. Excess capacity is also what kept IC ASP increases low in 1985, even as the market bottomed and unit volume demand rebounded.
The firm also said IC ASPs were an important leading indicator and a “pure reflection of the balance or imbalance of supply and demand.”
“Historically, the correlation between IC industry market growth and IC ASP is very good,” IC Insights noted. It explained that when IC ASPs are falling, the IC market is typically weak and declining.
“However, rising IC ASPs usually indicate a strengthening, if not booming, IC market,” the firm said.
“We’ve got a lot of excess capacity out there,” McClean told WaferNews. One of the keys of the bottom is you have to establish a bottom with IC ASPs.”
“Before [the events of September 11] we were forecasting a sequential upturn in 4Q. Now it looks to be flat. Hopefully ASPs won’t continue to decline,” he added.
The company further discussed the 1998 IC market, when IC ASPs bottomed in July of that year, the same month that the IC market hit bottom.
“It is interesting to note the upward spike in both IC ASP and market trends in the second half of 1998,” which IC Insights believes was caused by the lack of sufficient advanced IC wafer start capacity. The firm said it was important to mention that 1998 was the third year after the boom of 1995, and excess capacity from that year had sufficient time to be burned off by mid-1998. IC Insights stressed that this was not the case in 1985 and believes it won’t be the case in 2001 either.
“The downturn really began in earnest in 1Q01 and the market hasn’t really been able to adjust. It’s only had a few quarters. We still have too much capacity out there,” McClean said.
As for a rebound in the industry as a whole, McClean told WaferNews that macroeconomic conditions would play a big role in the recovery timeframe. But the near- and long-term future of the IC industry remains hopeful, he stressed.
“We’re expecting economic conditions to pick up by mid-2002. When the rebound comes it could be very strong,” he noted. McClean predicts the semiconductor market will rebound in 3Q02, around the July/August timeframe.
“1H02 looks uncertain,” he said, “but in mid- to late-2002, economic conditions could improve considerably.”
“The economy is going to be a prime focus into 2002 and the groundwork will be laid for pro-growth next year.” McClean noted.
Looking at near-term worldwide GDP, the research firm said the events of September 11 have harmed the economies of many countries. Before the attack, 2001 worldwide GDP was likely to show about 2.4% growth, right on the edge of a world recession, according to IC Insights. It now appears that the 2001 worldwide GDP growth rate will drop to 1.8 to 2.0%, fully within the range of a worldwide recession, the firm noted.
IC Insights also said long-term GDP would be affected by the recent US tragedies. The worldwide economy may show strong growth in 2002, especially in the second half of the year, the firm said. While the exact timing of a strong worldwide economic rebound is unclear, IC Insights believes that there is a good chance it will begin in mid-2002. Worldwide GDP could be expanding at a 4.0% or greater growth rate in 2H02, the firm noted.
IC Insights also said that the recent interest rate cuts by the US Federal Reserve, the European Union, UK, and Japan will help to lay the foundation for an economic rebound in 2002.
(WWW.WaferNews.com)