(December 27, 2010 – PR Newswire) — S&P Equity Research semiconductor and semiconductor equipment analysts Clyde Montevirgen and Angelo Zino have issued their 2011 forecasts for the industry.
"The year 2010 is expected to close strong for the semiconductor and semiconductor equipment industries, as sales growth for both are forecasted to reach decade highs," said Montevirgen. "Consequently, we anticipate that most chip and equipment companies will experience multi-year high margins and exceptional earnings increases." Added Zino, "While we think there is still some room to grow, we project more modest advances ahead."
They forecast that semiconductor industry sales will rise 7% in 2011. Considering recent forecasts from S&P Economics, research from industry and trade groups, and bottom-up analysis of sales trends for the companies in their coverage universe, the analysts see increasing unit shipments for key end-markets, such as computers, smartphones, and communications. These account for a large percentage of the semiconductor industry’s demand.
They expect industry sales to rise to nearly $320 billion in 2011 from an anticipated $299 billion in 2010. For 2011, semiconductor equipment sales growth should slow; sales will rise less than 10%, after their projection for industry revenues to increase more than two-fold for 2010. Although the industry is experiencing a sharp rebound in sales this year, following an extended period of under-investing by semiconductor manufacturers, the analysts forecast that growth will slow going forward, as companies digest recent capital expenditure purchases. Zino and Montevirgen expect most demand for semiconductor equipment to come from more advanced technology nodes, as well as from larger memory customers and foundries looking to expand capacity.
Memory
They project that capacity purchases will be driven by flash memory manufacturers, such as Toshiba and Samsung, given expectation for stronger demand and tight supply in this sub-industry. Robust unit shipments for smartphones and tablets will be a major catalyst for these manufacturers, which should keep customer profitability at high levels. Unlike Dynamic Random Access Memory (DRAM), which relies heavily on PC demand, the flash memory market depends on a number of different applications and looks to be in better shape than DRAM on a comparative basis. The flash memory industry has emerging technologies, such as solid-state drives (SSDs), which should drive new demand.
The S&P analysts see DRAM segment sales declining in 2011, following projection for a more than doubling in capital spending in 2010. They believe the biggest growth catalyst for the DRAM segment in 2010 has been the transition from DDR2 (double data rate) technology to DDR3 (both DDR2 and DDR3 are types of DRAM chips that are found in personal computers). DDR3 technology is the successor to DDR2 and offers advantages such as lower operating temperatures, greater speed, and reduced power consumption. Now that DDR3 has become mainstream, Montevirgen and Zino do not see any major catalyst boosting segment spending in 2011.
Asia
They forecast that the Asia-Pacific region will make up 55% of semiconductor sales by the end of 2011, and see more semiconductor companies trying to make cost structures more variable by outsourcing manufacturing to third-party foundries. Leading Taiwanese foundries, such as Taiwan Semiconductor manufacturing (TSM 12 ***), have invested heavily in sub 40nm manufacturing processes, which will attract chip companies that do not have the capital to invest in such high-end manufacturing technology. Also assuming softer sales growth and less favorable tax incentives in Europe, as austerity measures continue, they see Asia continuing to gain global share.
Capacity and adjacent markets
They expect the semiconductor industry’s plant utilization rate to be around 90% by the end of 2011. Capacity utilization rates will fall from the current mid-90% range to the mid-to-high 80% range early in 2011, as chipmakers allow excessive inventory in the supply chain to digest. Although the analysts foresee increasing capacity from recent capital expenditures, they believe that seasonal strength and a rebound in end-market demand in the second half will help keep plants busy through the fourth quarter of 2011.
They forecast that the semiconductor industry’s gross margin will widen modestly throughout 2011. Chipmakers will start the new year by burning off excessive inventory, the analysts say, so expect first-quarter gross margins in the low-50% range, given lower plant utilization rates. However, orders will return to more seasonal patterns starting in the second quarter, and margins should expand to the mid-50% area by the end of the year.
Semiconductor equipment manufacturers are moving further into higher-growth, adjacent industries, namely solar, given that the semiconductor equipment industry is in the midst of a long-term secular decline, say Vino and Montevirgen. They believe pursuing new growth avenues makes sense given the similar processes and technology used within both industries. In addition, the solar industry has higher growth opportunities versus the more mature semiconductor industry. Small and large companies will be looking to enter the solar arena, whether organically or through merger and acquisition activity. The analysts expect Advanced Energy Industries (AEIS 14 *****) and Varian Semiconductor Equipment Associates (VSEA 37 ****) to be major beneficiaries of this trend because of their high investment in R&D within this arena.
They think the semiconductor equipment back-end industry (packaging and automatic test equipment) will experience pressure to consolidate, given the segment’s lower growth rates, high fixed costs, and lower profitability relative to other areas of the supply chain. Further consolidation of test equipment companies would facilitate cost savings through economies of scale and drive more effective factory utilization.
Intel (INTC)
The analysts also predict that Intel (INTC 21 ****) will finally gain some traction in the handset and tablet markets. With Intel’s proposed acquisition of Infineon’s wireless business unit (expected in early 2011), Intel will instantly become a formidable competitor in the baseband segment of the handset market. Intel will successfully be able to cross-sell its Atom processor with the baseband chips, and Montevirgen and Vino expect even more progress once it creates a single chip solution that integrates both functions. Additionally, they believe that Atom will find some success in the lower-end segment of the tablet market.
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January 11, 2011 — Though single-exposure patterning schemes are unable to meet 22nm specifications, advanced patterning technologies using ArF immersion allow us to continue shrinking critical dimensions in semiconductor devices. However, the use of ArF immersion at 22nm requires multi-step patterning processes and elaborate pitch-doubling schemes such as litho-etch-litho-etch (LELE) and self-aligned double-patterning (SADP) technologies. Although these technologies are more costly than any single-exposure process, they persist as a standard patterning solution for today’s 22nm device architectures in the absence of viable alternatives.
