A look at the economy
12/01/2008
At the time of this writing, the extent of the financial crisis (both in scope and duration) is still unknown, though most agree that it will get worse before it gets better. But we’ve been gathering reports from leading semiconductor market forecasters and analysts and can share what they’re telling us. Semiconductors and nanotech do not go hand in hand, of course, but it’s an interesting barometer.
The good news is that market fundamentals are quite different than they were in 2001. “Staring a global economic recession in the face, will 2009 be a re-run of 2001? We think no,” says Malcolm Penn, CEO of Future Horizons (Kent, UK). Downturns in the semiconductor industry over the last 60 years were always caused by excess capacity, he points out, triggered either by demand or supply side issues–e.g., by overinvestment (making capacity overshoot demand) or a demand slowdown, whether through an inventory burn or recession (making short-term capacity exceed near-term demand). The 2001 slowdown was unique, Penn notes, in that it was triggered by both demand and supply-side issues: the collapse of dot-com inflated demand euphoria, a 9/11-driven economic slowdown, and a resultant massive inventory burn just as a huge amount of excess capacity was coming onstream. Entering 2009, he compares, we have no serious overcapacity in place (pre-slowdown utilization rates were ~90%, and capex cutbacks started 12-18 months ago) and IC ASPs are in the middle of a cyclical upward trend. Moreover, IC units have been running at or below the 10%/year long-term trend line with no serious inventory overhangs. “For once, the industry is in structurally good shape to enter a recession,” Penn writes, and “this will make the 2009 downturn statistically shorter than it would otherwise have been.”
Bill McClean, president of IC Insights (Scottsdale, AZ), believes the effect of a global recession on the worldwide semiconductor market in 2009 depends greatly on the magnitude and duration of the recession. A severe US recession coupled with a steep global recession (which he defines as <2.0% worldwide GDP growth) “would probably cause the worldwide semiconductor market to show a 10% decline.” He further expects worldwide semiconductor industry capital spending to decline 15% in 2009 after falling 24% in 2008, and even with these spending cutbacks IC ASPs should fall another 6% in 2009, the same as is expected for 2008. McClean projects that the steep spending declines, and a capital spending vs. sales ratio “that is likely to reach an all-time low (15%) in 2009,” will cause IC ASPs to rebound–expecially for DRAM and NAND flash memory–and “spur double-digit semiconductor industry market growth in 2010, 2011, and 2012.”
Despite all the negative sentiments about the economy, Aida Jebens, senior economist at VLSI Research (Santa Clara, CA), does not believe electronics sales will be in negative territory next year, for several reasons. “With the exception of 2000-2001, there has never been a case in history when an economic slowdown or recession resulted in a drop in electronics sales,” she notes. The 2000-2001 period was driven by the Y2K tech boom, she says, and was made worse by the terrorist attacks, but “we do not have the same situation today–we simply have a very nervous sentiment because of the economy.” And electronics, she points out, typically do well in a slow economy. Consumers tend to cocoon in their homes when times are tough, choosing to buy electronics instead of going away on vacation or going out for entertainment. And though we should expect a pullback in corporate spending on high-end servers, “even in recessions, businesses tend to buy computers and peripherals and networking hardware to improve efficiency and boost productivity,” she points out. VLSI expects both consumer and business spending to stagnate in 2009, resulting in a very slight 3.5% growth in electronics sales.
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Peter Singer is editor-in-chief of
Small Times. He can be reached
at [email protected].