ConFab: Good years through 2012, says McClean

by Pete Singer, editorial director

May 19, 2010 – Look for strong growth in the second half of 2010 and several years of continued growth, said Bill McClean, president of IC Insights, speaking at The ConFab in Las Vegas.

Worldwide GDP is about $56 trillion, 7% growth in electronic system sales this year. Last year, it was down 11%, the first decline since 1946 and maybe only the third year in history that electronic systems sales declined, McClean pointed out. He looks for good growth in 2010 following "a very bad year" in 2009, not just in dollars, but even more in unit shipments. "We’re looking at 28% growth for semiconductors this year — and that’s a conservative forecast," he said, even with flat to 5% increase in 2Q vs. 1Q.

Although painful, global recessions generally produce big upturns for the semiconductor industry — "not just moderate increases, but big upturns, and they’ve usually last two years," McClean said. "This is going to be no different. We think this is going to actually last three years, through 2012."

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Bill McClean,
IC Insights

Another reason for optimism is that the chip industry’s two big drivers, cell phones and PCs, are looking "very strong," McClean said. First, PC sales actually increased in 2009 — during the worst global recession in 63 years, he reiterated. "That talks about underlying demand — what happens when the economy recovers?" Right now IC Insights sees 13% PC unit sales growth but this could push up to 18%, he said. Part of this is an overdue systems refresh, and adoption of Windows 7, after "a lot of companies bypassed Vista," he explained. "Companies are getting some cash flow and getting the money to spend on these new systems. We’re looking at a big rebound in the PC marketplace."

The other emerging IC driver, cell phones, saw shipments dip -5% in 2009, better than the -7% dropoff in the last big downturn of 2001 ("we have to put this in perspective — the worst global recession in 63 years, and cell phone unit sales only went down 5%," he reiterated), and McClean says projected 10% unit volume growth for 2010 is "probably a conservative forecast." Underscoring the importance of cell phones is the shift in mix toward higher-end phones — "smart phones" made up 14% of shipments in 2008, 16% in 2009, and probably 22% in 2010, he noted. This is a key metric for the IC industry because such phones require far more memory (2.8Gb vs. 700Mb, a 4X jump) as a regular 2.5G phone, he pointed out.

Meanwhile, semiconductor capital spending should enjoy "a big rebound from the big cuts in 2009 — at least 57%, probably over 60%," he said, with companies upgrading their capital spending budgets throughout the year. (Samsung just this week ratcheted its semiconductor capex budget up to a record $9.7B.) And right now is typically the seasonally slow part of the year, he pointed out. "Don’t get lulled to sleep," he cautioned. "We still have the second half of 2010 to come. We have a better cell phone market, a better PC market in the second half of the year, and we have a better consumer market in the second half of the year with the holiday season. There could be some really strong growth coming in the second half of this year.

Even the semiconductor materials market (e.g., silicon wafers, packaging materials) should grow at least what the unit markets are going to grow, McClean said (at least 24%).

Most of the capital spending for 2010 will be for technology node migration, not for capacity — "which is a little scary," McClean said. Memory capex in 2007 (primarily flash and DRAM) was $32 billion, and then came the worst global recession in 63 years — and now two years later companies are out of capacity. "And now we’re going to spend $7.5 billion? Man, that is not enough. It’s not even close," McClean warned. "We’re going to double spending on memory this year — and it’s still not even close to being enough. We’re behind the curve to say the least."

Foundry spending is going to ramp up as well, returning to levels from the 2004 time period, McClean said. The reason, in a word: GlobalFoundries. "It’s been a wake-up call to TSMC, and now TSMC is hitting the gas on capital spending," McClean said. "This is going to be a dogfight." And that budding rivalry will push foundry spending "close to what’s needed." — P.S.


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