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Fluctuating forecasts muddle chipmakers' plans

Posted: 05 Jun 2007 ?? ?Print Version ?Bookmark and Share

Keywords:chip market forecasts? semiconductor components suppliers? electronic end-equipment demand?

Skepticism is growing about the outlook for 2007 and beyond with the mounting disconnect between consistently strong electronic end-equipment market demand and dwindling sales at semiconductor component suppliers. This is shaping up as a potential planning and operation dilemma for the industry.

It 's a problem the industry has confronted before and failed to resolve. An inventory overhang that started sometime in the middle of 2006 resulted in negative sequential revenue growth at many leading IC suppliers in the first quarter of this year. Now it seems that other problems were lurking within the multibillion-dollar pile of excess semiconductor parts.

Declining average selling prices (ASPs), softness in the DRAM market, where Microsoft Corp. 's newly released Vista operating system hasn't yet boosted PC demand, and stiff price competition in the microprocessor market have forced researchers to revise downward their forecasts for semiconductor sales this year.

Gartner Inc. joined the throng of researchers and chip suppliers scaling back their annual sales forecasts, reducing its 2007 semiconductor growth estimate to 2.5 percent growth over the 2006 period versus an earlier prediction for a 6.4 percent expansion.

"It is likely that, despite continued unit growth in influential electronic systems markets, downward device [ASPs] pressure will remain in place for much of 2007 as oversupplied semiconductor market conditions persist," said Richard Gordon, research VP at Gartner.

The same stats showing continued strength in end equipment demand hold the seeds of future confusion as to whether sales would spike in the medium term. Richard Templeton, president and CEO at Texas Instruments Inc., said he believes the industry successfully whittled down its excess inventory in the first quarter when sales at the Dallas-based chip maker fell 8 percent from the prior quarter and 4 percent from the comparable 2006 quarter.

Confirming that demand at end customers has been "reasonably steady," Templeton said during a presentation Thursday (May 31) at the annual Cowen Small and Mid-Cap Technology Conference in New York that TI expects to resume sequential growth in the second quarter.

"We watched the semiconductor industry run four or five pretty strong quarters through June or July last year and we watched as the industry as usual get ahead of itself," Templeton said. "We've spent a couple of quarters clearing up some of the inventory. Through that whole process end demand has actually been reasonably steady and as a result we said second quarter will begin sequential growth upward."

Templeton adds a caveat, though, for the rest of the year, saying "that is not a statement of what the shape or the robustness of the second half would look like. It's just a statement that we have completed a couple of quarters cleaning up and that's not an abnormal pattern when you look at semiconductor history," he added.

Opposing views
So how will the semiconductor market fare in the entire year? Forecasters aren't placing a big bet on robust performance despite statements from other industry players, especially contract electronic manufacturers, that they haven't yet seen any significant declines in orders from OEMs. This view, if correct, would imply that orders for semiconductor products should rebound strongly in the traditionally strong second half and power the industry to a solid upper single-digit finish for 2007.

That 's not what forecasters, including Gartner and the World Semiconductor Trade Statistics (WSTS), are predicting. Last week, WSTS slashed its forecast and now says it expects semiconductor shipment will grow a mere 2.3 percent in 2007 to $253.5 billion compared with its previous 8.9 percent expansion forecast. The industry association sees growth resuming strongly in 2008 when sales will increase 10.2 percent to $279.2 billion. Gartner is predicting 2008 sales will rise a more modest 8.7 percent.

Upon which of these estimates should semiconductor suppliers base their capital investment and other operating expense planning? Perhaps neither, considering the oversized correction in the previous forecasts.

-Bolaji Ojo
EE Times

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