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Reports point to bleak IC, fab-tool markets

Posted: 23 Jun 2008 ?? ?Print Version ?Bookmark and Share

Keywords:IC industry? fab-tool market? memory sector?

The mid-year data from various market research firms indicate gloomy IC and fab-tool industries for 2008.

IC Insights Inc. has lowered its IC 2008 growth forecast from 9 to 7 percent. And in other bad signs, the various fab-tool, book-to-bill ratios are way below parity.

North America-based manufacturers of semiconductor equipment posted a book-to-bill ratio of 0.79 in May, down from 0.82 in April, according to a report SEMI on June 19. A book-to-bill of 0.79 means that $79 worth of orders was received for every $100 of product billed for the month.

In comparison, Japanese semiconductor equipment manufacturers posted a book-to-bill ratio of 0.79 in May, up from 0.76 in April, according to the Semiconductor Equipment Association of Japan this week.

"Booking are approaching levels observed in 2005, which was the last time the semiconductor industry reported a year-over-year decline," said Stanley Myers, president and CEO of SEMI, in a statement.

Down but not out
There are also mixed signals in the IC industry and the overall economy. "Given the extremely high oil prices, we have lowered our worldwide GDP forecast from 3.4 percent to 3.2 percent," said Bill McClean, president of IC Insights.

The IC market is a mixed bag, as IC Insights cut its chip growth forecast for 2008. The market is down but not out.

"Actually, we are slightly more positive on IC average selling prices for this year, which we have declining 1 percent instead of declining 2 percent," McClean said. "However, we have reduced our IC unit volume shipment expectations from 11 percent growth to 8 percent for this year. It appears 2008 will be the first year since 2001 that IC unit volume growth will not reach 10 percent or better. However, 8 percent growth in unit shipments is still relatively healthy."

Memory, PC markets
As expected, the memory market remains in flux. "Spot pricing for DRAM was flattish over the past week but NAND prices were generally down; MLC was down about 5-7 percent on the week whereas SLC was flat," said Avi Cohen, head of research at Avian Securities, in a research note.

"Inputs from our contacts suggest that contract pricing for the 2H of June will be flat to up low single-digit in DRAM for the leading suppliers, while NAND should be down 5-8 percent," Cohen said.

Others have a different idea. "NAND contract pricing should decline 10-15 percent in June," said Daniel Amir, an analyst with Lazard Capital Markets.

"Our channel checks suggest a declining NAND pricing environment in the short term for the following reasons: 1) quarter-end dumping by the major memory manufacturers in order to hit quarter revenue targets; and 2) aggressive pricing by Hynix Semiconductor in both the 8- and 16Gbit components," Amir said. "We expect pricing in July to remain soft until we see a rebound in August."

On the PC side, the markets are mixed. "Processor inventories for Intel and AMD both fell on the week in North American distribution," Cohen said. "We don't expect a substantial pick-up in channel activity until OEMs begin their 'Back To School' builds in a few weeks."

There is some good news. "Despite previous concerns regarding macro economic impact on the PC market at the beginning of the quarter, Q2 has so far turned out to be fairly seasonal, which is a relief to many players within the supply chain," Cohen said. "While the U.S. market is definitely mixed at best, with enterprise remaining quite healthy whereas consumer is a bit softer, strong demand from emerging markets has more than offset the weakness."

Inventory issues
Inventories remain an issue in the overall IC market. "Recent checks with proprietary distributor contacts in Asia show that May shipments declined 8 percent month over month, in line with expectations from one month ago and in line with the historical five-year average," said Craig Berger, an analyst with FBR Capital Markets.

"Some of our contacts noted upside strength driven by desktop PC chips (analog and power management chips), while some of our contacts noted weakness primarily due to memory chip pricing. We think in line May distributor shipments are a positive given recent investor skittishness in the space and still low expectations," he said.

For the month of June, Berger said distributor contacts in aggregate expect June shipments to grow 2 percent month over month, about two points better than the five-year average of flat month over month. "While this is not dazzling upside, we do believe that underlying demand trends, particularly away from the consumer sector, remain reasonably robust," he said.

In a report, Berger also noted that Q2 PC figures with the top six notebook ODMs and top four desktop motherboard makers are mixed and somewhat heighten risks. "Notebook builds for May trended below expectations due to notebook battery constraints, strong April builds, and the elimination of some double ordering originally placed to guard against parts shortages. On the desktop side, the 2Q motherboard build forecast increased, more than fully offsetting the reduction in notebook units," Berger said.

As for Apple's supply chain, Berger said figures for iPod in Q2 have been revised positively by 15 percent since the last check in late March. "We see greater Shuffle, Classic, and Nano builds slightly offset by fewer Touch builds. On the iPhone front, forecasted Q2 build volumes fell by less than 10 percent versus prior checks, with Q2 build volumes likely to grow about 250 percent quarter over quarter as Apple tracks towards, but not meaningfully ahead of, its 10 million unit iPhone target for calendar 2008."

In the foundry sector, Berger said that recent checks with a very large foundry show that production forecasts have been steady over the past month. "In aggregate, production units are still set to seasonally increase by 5-8 percent q-on-q, consistent with our prior checks," he noted.

- Mark LaPedus
EE Times

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