Analysis: July chip data reiterates recovery well underway

August 31, 2009 – July is a historically slow month in the annual semiconductor picture, but this year is the exception to the rule, and suggests that gloom-&-doomers need to rethink their outlooks.

New monthly data from the SIA shows chip sales (a three-month average) rose for the fifth consecutive month — a startling 5.3% jump in July vs. the previous month, after a 3.7% improvement in June, to $18.2B. Sales for Jan-June were down -25% Y/Y, but July showed just a -18% decline, the SIA noted. The push, which indicates a “modest recovery in demand,” is being led by sales of consumer products such as netbook PCs and cell phones, notes SIA president George Scalise, in a statement. Corporate IT purchasing, as has long been the case, is still lagging a bit, “tempered by caution and longer replacement cycles,” he added.

By region, the US is still showing good strength, bettering its month/month and year/year growth to nearly 6% and 16%, respectively. Japan also continues to push along, maintaining M/M growth of ~8%, and improving to ~25% better than a year ago. Europe, which was essentially flat in June (both M/M and Y/Y), improved to ~5%-6% growth by both metrics.

Actual WSTS data showed a milder 2% increase in July chip sales, but that’s equally impressive for a month that’s historically been lousy following the quarter-ending June when everyone rushes to meet numbers, according to Semico Research’s Jim Feldhan. “It looks like the 12%-13% [forecast] for 2009 is a shoe-in,” he told SST, and nothing short of “a calamity event,” he said, could knock the industry off that path.

The brightening picture shouldn’t be a surprise; Feldhan says the market actually tanked back in February — of 2008. He, like other analysts, have countered various pessimistic industry forecasts by noting that while chip sales have been lousy for a while, end-unit demand for PCs, cell phones, etc. would have to completely evaporate to ~2000 levels, which simply won’t happen.

Feldhan is also bullish on 2010-2011, though it’s “tricky,” he admitted. There’s momentum building; capacity utilization is rebounding, and foundries are adding capacity. After two years of reigning in capex (-40% in 2008, estimated -50% this year), logic makers appear ready to spend again, Feldhan noted. The overexuberant memory sector has a lot of idle capacity, he noted, but much of it “needs to be upgraded to be competitive.” Put those together and he projects we might see a capex spike of much as 70% in 2010 — but cautions that “we don’t go off like drunken sailors and overspend.”

What’s driving end market demand, now and in the near future? Forget the new Windows OS; that hasn’t been a key driver since Windows 3.0, Feldhan said. What really drives consumer upgrades is machine age, so look to notebooks/netbooks and cell phones, where refresh rates typically are three years and less. Consumers (especially for phones) also are upgrading to new features and higher-end functionality (e.g. video, games), and that means better/more electronics inside (e.g. high-res cameras, more memory). It also means upgrades to the broadband infrastructure, too, he noted, as people demand not just the new functionality, but improved quality (e.g. YouTube videos on a mobile device).


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