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IC market stuck in 'muted' environment

Posted: 29 Aug 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Gartner? chip? Wedbush Morgan Securities? semicon? semiconductor?

The semiconductor market appears to be stuck in what some call a "muted" business environment. It is too early to tell if it is in the midst of a summer lull or headed towards a major slowdown.

To be sure, there are plenty of mixed signals in the market. On one hand, for example, Gartner Inc. recently raised its semiconductor forecast to 10.9 percent growth for 2006, up from 10.6 percent in its previous forecast.

On the other hand, Gartner's report also presented several key but conflicting indicators about state of the unpredictable IC industry. According to the firm, the silicon foundry outlook appears promising for the Q3, but "softness should occur in the fourth quarter." Also, Silicon wafer demand in area will grow 18 percent in 2006 and 4 percent in 2007, although polysilicon shortages persist and continue to be a major concern. In addition, Gartner's Semiconductor Inventory index rose from 1.07 in Q1 to 1.10 in the Q2, "which puts it at the upper limit of the 'normal' range."

Analyst Craig Berger of Wedbush Morgan Securities Inc. summarized the current business climate, "The industry is not in a typical downturn but is in a more muted adjustment, given that profitability metrics remain generally good and supply chain inventories remain at healthy levels, particularly at OEMs and EMS customers." He reiterated his outlook for 9 percent IC growth in 2006. Overall chip shipments peaked in July and will see a 13 percent year-over-year growth rate, "a relatively muted peak verses history," he said.

It is, however, a mixed bag among the various product sectors. In memories, for example, DRAMs are flying off the shelves. "We expect the industry to be in undersupply through 2H '06 and most of 2007," according to Gartner. Supply is tight for low-density, NOR-based flash-memory devices, but NAND remains in an oversupply modewith demand expected to pick up by September. Pricing for NAND has been terrible in recent weeks.

Also, not all markets are seeing a potential uptick. PC-based microprocessors are seeing a seasonal lull. And blaming a slowdown in wireless, National Semiconductor Corp. lowered its quarterly forecast. Analyst Doug Freedman of American Technology Research believes National "may be cautious with forward guidance given the sharp decline in orders seen during the summer months." He added, "We believe some of the softness in wireless revenue is related to share loss in new handset models as both Freescale and Texas Instruments look to gain share at their tier one OEM accounts."

Discrete and power-management products remain in demand, especially at International Rectifier Inc. (IR). "Checks suggest IR's commodity chip supply remains very tight in the distribution channel, with recent double-digit price increases on FETs and leadtimes lengthening to 20-26 weeks on some parts," Berger said. "IR's supply tightness reflects robust demand from ramping gaming consoles and Intel server platforms, but also reflects less than stellar planning or execution in ramping its new fabrication facility."

On the emerging medical front, Medtronic reported weaker than expected shipments of implantable defibrillators (ICDs), which could impact chip makers like Microsemi Corp. "Microsemi's 15 percent revenue exposure to ICD chips could be concerning to some investors, though we believe this end market weakness is reasonably well known," Berger said.

- Mark LaPedus
EE Times

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