Analyst: IC growth dims but demand ok, 2009+ still rosy

With nagging concerns about persistently sluggish memory pricing and oversupplies — and now all the upheaval in US markets and yet-to-be-calculated damage to consumers’ wallets and discretionary spending — IC Insights has lowered its IC market outlook for 2008 from ~9% semiconductor growth to a range of 1%-5%, with 4% being most likely scenario.

“July results indicate that the IC industry lost the momentum that was built throughout 2Q08,” the firm writes. And even more recently, some large pure-play IC foundries are seeing demand plummet for almost all end-use segments except high-end cell phones, with sales possibly down 20% sequentially in 4Q, which would lower IC Insights’ forecast to 8% for the segment from 13%.

“IC users are now being very cautious with regard to their orders and are planning to enter 2009 with conservative inventory levels,” the firm stated.

SST asked IC Insights president Bill McClean about his firm’s revised outlook, which was first announced two weeks ago at its Fall Forum. First warnings actually showed up on the macroeconomic plane, with unexpected negativity in both European and Japanese economies, he explained. Japan’s economy is generally expected to swing negative in 3Q08, essentially putting Japan in an official recession (two straight quarters of negative GDP is a general definition of a recession). Europe will probably skirt this in 3Q, but just barely, McClean said. And the US economy wasn’t expected to show much growth in 3Q either, before all the recent volatility.

All this negativity is causing systems companies to be conservative, leading to expectations that the holiday season won’t be strong — maybe 9%, though about average seasonally. The plus to that is that the industry won’t be hand-wringing about an inventory overhand to start the seasonally slow first quarter of the new year, McClean pointed out. That, he said, means “2009 will stand on its own merits.” Then ASPs will start to flatten out as capex cutbacks work on the market and pricing.

In raw numbers, IC Insights has cropped about $6B from its previous outlook for 2008, most of that (~$5.2B) from NAND and logic. On the memory side, blame Toshiba and SanDisk and other firms whose big spending “has come back to bite them,” McClean said. For logic, fabless companies are seeing a 2H08 that’s not as strong as initially anticipated (particularly after a “pretty big first half”), due to worldwide economies slowing down. “Nobody wants any inventory carrying into 4Q,” McClean told SST.

Revised 2008 IC market forecast summary. (Source: IC Insights)

The problem isn’t with end demand, though; it’s pricing. Capex cutbacks such as being seen now historically have worked, eventually stabilizing prices, McClean pointed out — DRAM ASPs in July and August were 20% higher than in January, and NAND flash memory is probably two quarters behind that, with ASPs maybe stabilizing by the middle of next year, he said.

Confident in what it says is still double-digit annual growth in end-demand, IC Insights has actually tweaked up its forecast for IC unit volumes this year to 9%, and says 10% is possible. Cell phones in particular are contributing tremendously to overall market growth — in its update, IC Insights says “the long-term market potential from interconnecting more than half of the world’s population to cellular networks (which occurred in December of 2007) is staggering.”

McClean’s prediction through year’s end? “The fourth quarter will be about flat, maybe down a point or two,” he told SST. “It looks pretty even keel. Then 2009 will stand on its own merits.” Beyond that, continued capex cutbacks and continued end demand are also the reasons IC Insights hasn’t touched its forecasts beyond this year, with increasing optimism (2009: 8%, 2010: 11%, 2011: 13%, 2012: 16%). — J.M.


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