by James Montgomery, News Editor
Analysts surveyed by WaferNEWS generally reviewed 2006 as a decent year for the semiconductor industry, if you take away a “bloodbath” in microprocessors and a surprising weakness in ASPs. Holiday electronics sales seem to have been good — not great, but also not as sluggish as had been feared — which helps quiet concerns over inventories heading into the new year. All this sets the stage for growth in 2007 about at or even slightly better than this year’s pace, followed by what most industry watchers think will be the next cyclical peak in 2008, and a slowdown in growth in 2009.
“Generally, the outlook for 2007 is hope for the best (modest growth), but expect the worst (no growth),” said Gartner Dataquest’s Richard Gordon.
The past year was particularly tough for the microprocessor segment, which unlike most years saw declines in both ASPs and revenues, noted iSuppli’s Gary Grandbois. IC Insights’ Bill McClean attributed the overall 8% decline in ASPs to manufacturing efficiencies, as chipmakers keep moving to 300mm wafers and pass along some of the cost savings. (The top prize for the most accurate 2006 forecast goes to IC Insights, whose prediction last January of 8.4% came closest to what it now says will be the final growth for the year.)
Offsetting the weakness in micros and ASPs were impressive strength in handsets, a rebound in DRAM pricing (which balanced a sluggish NAND flash segment), and strong unit demand for all semiconductors, buoyed by a generally healthy economic outlook (global GDP was ~3.9%), according to analysts.
Industry watchers expect decent high-single-digit growth in 2007, although they admit the future will be hazy until late 1Q when post-holiday inventories and 4Q06 ASP trends can be tallied. But both micros and ASPs can’t help but improve in the coming year — and in fact ASPs appear to already be on the rebound, noted Future Horizons’ Malcolm Penn, pointing to an upward trend in the ASP quarterly ebb/flow over the past several months. If this continues into January, “we’ll probably revise our forecast up,” he said.
Top areas to watch in 2007 include stabilizing ASPs, handset demand, and an anticipated PC upgrade cycle due to Microsoft’s Vista OS. Handsets are a particular concern — nearly a billion units were shipped in 2006, but Gartner’s Gordon thinks that unit production growth may not reach double digits in 2007, “and that is not a good sign.” Future Horizons’ Penn wonders whether the industry is “burying its head in the sand” regarding consumers’ apparent lack of enthusiasm for higher-margin, high-end phones with extras like video and Internet capabilities, in favor of devices “that just make phone calls.”
The global economic picture has become an increasingly influential factor on the chip industry. McClean expects the US economy will “muddle through” the year, with enough safeguards in place (e.g., room for more rate-lowering by the Federal Reserve) to prevent a big slide into recession. But if end demand disappoints and the economic situation decays, “what was a minor inventory correction could turn into a big one,” he said. Penn noted that the IMF is predicting another strong year in 2007, a good sign for the chip market. Both analysts agreed that emerging regions, and likely not the “big four” (US, Japan, Europe, China), will play the biggest role economically.
Breaking from the pack, iSuppli’s Grandbois believes the cyclical peak will arrive earlier in 2007, thanks largely to a PC upgrade cycle as consumers adopt not just Microsoft’s Vista OS, but also swap desktops for laptops. He points to prominent growth in chips for consumer electronics (e.g., next-generation video game consoles), wired communications (infrastructure upgrades to offer “triple-play services” — video, voice, and broadband Net access), and a rebound in microprocessors (improving PC demand and “settling dust” from the Intel/AMD price war.
Most analysts, though, project a “pause” in 2007 will set the stage for a push to a cyclical peak in 2008, figuring the Vista upgrade cycle won’t really impact PC growth until then. Nearly everyone expects a downward slide in 2009, largely due to concerns about overcapacity (which Grandbois expects will emerge in 2008) and a very weak memory market. “At some point NAND flash gigabyte demand growth will slow, and when that happens there will be a commodity memory market bloodbath,” said Gartner’s Gordon. McClean agreed, saying that DRAM firms’ demonstrated rationality becomes a “two steps forward, one step back” situation when hungry second-tier firms start spending wildly to go toe-to-toe with larger companies, and suddenly “we’re back to where we were 15 years ago in DRAM.” Still, longer-term, both McClean and Penn agree the memory manufacturers will become better disciplined.
With everyone generally forecasting within a narrow band of mid- to high-single-digit growth for the next three years, can we officially say the industry has muted its cyclical waves? Probably not. McClean pointed out that taking out the ASP slide in 2006, 20% industry growth would have been within reach. And with the industry showing it can chug along without relying upon a single market driver (e.g., PCs in the 1990s), the real baseline metric is unit volumes, which have risen 15%/year in the past 10 years, and ASP increases are frosting on top of that. In his just-released market update, Penn notes that if chip sales keep to the long-term average of 10% growth, tacking on an ASP rebound creates “a potent combination.” Likewise, McClean says he “can easily envision another 18% unit volume growth like [2006], and add 10% growth for ASPs, for 28% growth,” he said. “I think it can happen.” — J.M.
Semiconductor forecast scorecard (% growth)
…………………………………..2006…..2007…..2008…..2009
Future Horizons…………..9.0…….12.0……15.0…….8.0
Gartner DQ………………..10.4………9.2……11.6……-1.0
IC Insights…………………..8.7………7.2……19.8……..2.4
Information Network…….9.3………9.3……11.9……..7.2
iSuppli…………………………9.0…….10.6……..8.7……..3.7
SIA………………………………9.4…….10.0…….10.8……..5.8
Semico…………………………10.1…….7.6…….14.9……..9.1
VLSI Research……………9.0………4.8…….12.1……10.8
WSTS………………………….8.5………8.6…….12.1……..n/a
Source: Analyst survey