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Semiconductor industry faces 'difficult year' in 2005

Posted: 15 Mar 2005 ?? ?Print Version ?Bookmark and Share

Keywords:pc? wireless? ic? asic? dsp?

Despite what appears to be some bright spots in the consumer, PC, and wireless markets, the IC industry is facing a "difficult year" in 2005, according to vendors and analysts at the Embedded Systems Conference (ESC) last week.

"We would characterize the mood (at ESC) as less than excited, but upbeat," said Doug Freedman, an analyst with American Technology Research Inc.

"There does not appear to be a rush to introduce new products, a condition that only occurs when end markets and competition heats up," Freedman said in a report. "It seems that we are in a period of stable end market share, which we would characterize as healthy but not conducive to robust semiconductor revenue growth."

One chip maker at ESC was slightly more pessimistic about the prospects for 2005. "It's going to be closer to flat growth for the semiconductor industry this year," said Richard Tobias, vice president of the ASIC and foundry business unit at Toshiba Corp.'s U.S. arm, Toshiba America Electronic Components Inc.

"This is going to be a difficult year," Tobias said during an interview at ESC.

Indeed, after a somewhat strong year in 2004, semiconductor vendors are now seeing historically weak sales patterns in the early part of 2005, especially for DSPs, flash memories, logic, among other products. FPGAs, microprocessors and other product markets are seeing stronger-than-expected growth thus far.

For system LSI devices, unit shipments are expected to increase, but average selling prices (ASPs) are going to fall, Tobias said. But the ASIC and foundry businesses "are growing significantly," he said. "In the United States, the ASIC and foundry businesses are extremely good."

Indeed, amid a lull in the overall silicon foundry business, Toshiba is seeing strong growth in the arena, thanks in part to a recent and major deal with Xilinx Inc. Last November, Toshiba and Xilinx made official a foundry relationship under which the Japanese company will manufacture field programmable gate array (FPGA) products for the U.S. fabless design house.

Not all is going well in the foundry business. "Based on reports from close to a dozen Taiwanese foundries and chipmakers, the most recent February data for Taiwanese wafer starts indicated a 2 percent month-over-month decline verses flattish expectations almost a month ago," Avinash Kant, an analyst with investment banking firm Adams Harkness Inc.

"While March is expected to be up month-over-month, due to weakness in January and February, current expectations call for Q1 to be down 3 percent quarter-over-quarter vs. earlier expectations of up slightly," Kant said in a report. "While Q2 forecasts have come down some now (from up 13-to-14 percent last month to up 9-to-10 percent), Taiwanese chipmakers are still counting on a meaningful ramp in Q2 wafer starts."

Flash forecasts

In the flash-memory market, the business has stabilized after sizzling growth in 2003 and for most of 2004, said Ian Williams, vice president and general manager of the Embedded Business Unit at Spansion LLC, a joint flash-memory venture between Advanced Micro Devices Inc. and Fujitsu Ltd.

In 2004, the NOR-based flash-memory market was in what Williams called the "under-supply" mode. Now, supply and demand are more in balance in the arena, although the business is expected to take off again in the second half, he said.

"It's a cyclical market, but the fundamentals are still robust," he said. "Bit rates are expected to grow this year."

Spansion believes that NOR flash-memory densities are doubling every five quarters, due in part to a new class of camera-based cellular phones that are gobbling new and more complex parts. "Cameras are a good application. Color is a good application. Those applications are a boost for the replacement market," he said.

Digital still cameras and flash-based MP3 players are among the main drivers for the NAND-based flash market, said Tad Keeley, marketing manager for flash memories at Renesas Technology America Inc., the U.S. arm of Japan's Renesas Technology Corp.

"The growth for digital cameras is slightly off," Keeley said. "My prediction is that flash-based MP3 players will be a better driver than most have predicted."

Still, there are mixed signals in the NAND market. "So far, we've seen a little softening in the market," he said. "We've seen some erosion in prices, but it's less than what I thought."

PCs and DSPs forever

In the PC market, there are some positive signs. This week, Intel Corp. (Santa Clara, Calif.) raised its revenue guidance for the first quarter to $9.2-to-$9.4 billion, which is the high end of its previously guided range of $8.8-to-$9.4 billion.

The new range implies a decline of 2-to-4 percent from the previous quarter, which is slightly better than normal seasonality, said Richard Shannon, an analyst with Piper Jaffray.

"I believe that the main driver of the sales upside is mobile products, likely driven by the launch of the Sonoma mobile platform marketed as Centrino," Shannon said. "Intel also indicated that there could be some incrementally higher corporate IT spending driving the upside, fueling better-than-expected demand in desktops and servers."

DSP and analog giant Texas Instruments Inc. said Monday (March 7) it expects revenue for the first quarter ending March to top out at $2.91 billion to $3.03 billion, compared to $2.90 billion to $3.14 billion originally forecast.

Earnings per share are expected to range from 22 to 24 cents per share, compared with the previous range of 22 to 26 cents per share.

Texas Instruments said the updated estimates reflect lower-than-expected demand for its DLP (digital light processing) products used in televisions and projectors. Even though TI believes DLP-based televisions and projectors gained share in 2004, customers had built for more robust end-of-year sales.

The company also noted that sales continue to be affected by customers adjusting inventories in their distribution channels, which are expected to be completed by the end of March.

Texas Instruments expects semiconductor revenue to range from $2.55 billion to $2.65 billion, compared with the prior range of $2.55 billion to $2.75 billion. Sensors and controls revenue is projected to range from $285 million to $295 million, compared with $280 million to $300 million previously.

- Mark LaPedus and Spencer Chin

Silicon Strategies

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