Wafer markets in 2H04: deja vu all over again?

January 7, 2004 – Will history — along with an unexpected slowdown in silicon wafer demand — repeat itself in the second half of 2004? It could, based on a new analysis by Advanced Forecasting Corp., which claims to have identified strong similarities between the current strong growth patterns in wafer demand and the last boom period that eventually triggered the 2001 recession.

Using what it describes as a set of “strict assumptions” and its current forecast, the Saratoga, CA-based research firm has concluded that strong growth in worldwide wafer sales appears to be assured at least until the third quarter of 2004, but the new analysis raises concerns about the second half of the year.

“We started looking at the data and realized there are very strong similarities in the slopes of wafer shipments in 2000 and 2003,” explained Rosa Luis, director of marketing and sales for Advanced Forecasting. The firm’s analysts also discovered similarities in the curvature and slope of forecasted wafer demand and actual shipments nearly three years ago, just prior to the severe 2001 downturn.

“The trends seem to be very similar, and we are making the assumption that if it continues like it did in 2000, we could see a downturn in the second half of 2004. But I want to strongly emphasize ‘could,’ because the semiconductor industry does not follow any particular pattern,” Luis added. “All we are able to say at this point is the wafer market appears safe until the second half of 2004.” The research firm maintains that its outlooks are based purely on quantitative forecasting models with an emphasis on turning points in demand and revenues for ICs.

As a subset of its IC revenue turning-point forecast, Advanced Forecasting also issues wafer demand reports, which measure actual product shipments and projects underlying demand for silicon substrates five months out. Recently, actual wafer sales began realigning themselves with forecasted underlying demand trend lines, but looking ahead, the research firm’s analysts will be watching for any signs of a slowdown in demand projections. While the similarities of patterns in 2000 and 2003 are raising some concerns, Advanced Forecasting said it believes industry conditions are better now than they were just ahead of the 2001 recession because of the mid-2002 “correction” that slowed wafer sales.

While the new analysis warns of a potential downturn later in 2004, other market researchers appear confident that wafer sales will not suffer any setback until mid-2005, at the earliest. For example, Gartner Inc. has told its clients that wafer sales are expected to grow 15% in 2004, and silicon material shipments worldwide will reach a new quarterly peak level in the second quarter of this year — surpassing the 3Q 2000 highpoint of nearly 1500 million square inches (MSI). Gartner’s Dataquest unit in San Jose, CA, is forecasting wafer shipments at 1500 MSI in the second quarter, followed by about 1550 MSI in the third and fourth quarters.

“I find it hard to be forecasting any pullback in silicon demand at this point,” said Gartner Dataquest principal analyst Dean Freeman, adding that a slowdown is possible in the middle of 2005, setting the stage for a mild slump in chip sales during 2006. — J. Robert Linebach, Senior Technical Editor


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