December 28, 2009 – After slumbering for the past year, the industry is ill-equipped to handle surging chip demand heading into 2010 and beyond — and tightened capacity will spell the end of the fab-lite model, predicts analyst Malcolm Penn of Future Horizons.
IC unit shipments surged "a staggering" 22.8% in October from just the previous month (September 2009); moreover, chip ASPs were up >5% in October vs. a year ago, considerably stronger than Future Horizons’ prediction of 3% growth for all of 4Q09, Penn notes in a new report. "It is now very difficult to see anything less than a 20% growth year for the semiconductor market in 2010" (Future Horizons’ most recent outlook pegged 22%), based on current industry momentum followed by "a very average quarterly growth pattern," he writes.
And in fact, he notes, it’s already looking like that 2010 growth number might be too low. The "weak" link between the global economy and semiconductor sales means the chip industry could surge even as regions muddle through economically, he suggests. To meet the WSTS’ fall forecast of 0.5% flatness in 4Q09, November and December must both put the brakes on vs. October, suggesting a market peak already has been reached — but "quite the opposite in face, there is every reason to believe that the market is strengthening, not weakening," he writes. And from this to assume predictions of "only" 12% growth in 2010 would require quarterly growth (1Q, 2Q, 3Q, 4Q) of -4%, 0%, 8%, and 2.5%. "There is no company out there experiencing or forecasting this kind of an outlook," he notes.
Much more likely, Penn writes, is that we will see "much stronger quarterly growth rates" than currently assumed, especially if prices firm up due to inventory shortages, increased lead-times, and product allocation. "We remain absolutely convinced that the industry has lulled itself into a false sense of security," he warns, extending into 1H10 and "to collapse with a vengeance under the second half-year’s strength, by which time it will be impossible to do anything about it." Assuming there is not another major economic crisis, numbers indicating the market recovery "have never looked as strong."
The underlying culprit, Penn says, is the drying up of capacity to "ludicrously low levels" of capex in 2009, and likely "no significant increase anticipated until mid-2010." Chipmakers demonstrable slowdown of capacity additions starting in 2007 (before the recession started) has left MOS capacity at levels from early 2007, Penn writes (citing SICAS data). Thus, with an inability to address building demand in late 2009 and inventories unreplenished since their year-end 2008/early 2009 purge, means "we are now condemned to enter 2010 with tight fab capacity and no excess stock," he says.
The result is a looming fab shortage and breathlessly-tight capacity not just into 2010, but extending to least the early part of 2011. "There will not be enough 2010 capacity in place to meet demand, [and] 2011 will be even worse," Penn warns. And anyone without direct and controlling access to capacity will be left out in the cold. "It will kill the fashionable — but fundamentally flawed — fab-lite strategy stone-dead," he predicts.
Penn’s year-end/opening advice to chipmakers and chip procurers: "By all means plan your budget and operations for a modest growth year — but you [had] better have a more aggressive Plan B in your back pocket."