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Good news: IC recovery to start in 2H 09

Posted: 14 Apr 2009 ?? ?Print Version ?Bookmark and Share

Keywords:IC rebound? market recovery? industry semiconductor?

The pent-up electronic system demand and increasing average selling prices (ASPs) will drive the IC market to register double-digit growth in 2010 and 2011 after beginning to recover in 2H 09, according to market research firm IC Insights Inc.

Chip industry revenue in 2011 will surpass 2007 totals, according to the firm's current forecast, which is more optimistic than many others in the space in recent months. Gartner Inc. said in February that it does not see chip revenue returning to 2008 levels until 2013.

IC Insights is currently forecasting that overall IC industry revenue will decline 17 percent in 2009, followed by growth of 15 percent in 2010 and 19 percent in 2011. The projections are largely the same as the firm issued in January.

Bill McClean, president of IC Insights, told EE Times that his firm has been predicting double-digit growth for 2010 and 2011 for some time. A severe decrease in chip industry capital spending!the firm is now projecting it will decrease 39 percent in 2009!will result in a rapid increase in ASPs when demand begins to recover, he said.

"These supply issues are going to start turning the other way," McClean said. "When we see some seasonal strength in things like cellphones and consumer devices at the end of the year, I think people are going to be surprised about how quickly the market turns."

McClean said DRAM vendors are planning to spend, in total, $4 billion to $5 billion on capex in 2009, and the four leading foundries are planning to spend about $2 billion in total, both dramatic decreases from recent years. The result will be increases in average selling prices that have already begun, he said, adding that 2008 was the first year since 2004 that foundries showed increases in revenue per wafer.

"IC suppliers, I think there main focus is to get better pricing," McClean said. "These capex cutbacks are really going to force the issue."

Any surge in leading-edge IC unit demand could very quickly push 300mm fab utilization rates to 90 percent or beyond, with an increase in ASPs trailing closely behind, IC Insights said. While Q1 utilization rates for 200mm facilities hovered at only about 50 percent, 300mm fab utilization rates for the first quarter ran at a fairly healthy 80 percent, the firm said.

Lean inventories
A severe inventory burn in Q1 08 and Q1 09 caused IC users to cut their order rates far below what is needed to sustain future electronic systems requirements, according to IC Insights. With IC inventory adjustments expected to be finished in the first half of the year, unit demand for ICs is expected to accelerate in the second half, the firm said.

IC Insights' observations about low inventories are consistent with what other market watchers have said in recent weeks. Last month, Jim Feldhan, president of Semico Research Corp., said lean inventories across the supply chain could jump-start a rapid IC recovery when the economy starts to improve. Last week, a venture capitalist said that chip inventories are at record lows and that the industry may have hit a "local bottom."

IC Insights said positive forces that are likely to drive growth in the worldwide economy later this year, including record low interest rates, low oil prices and more than $2 trillion in worldwide economic stimulus!less than 10 percent of which has been spent.

According to IC Insights, global recessions cause pent-up demand for electronics. A strong electronic systems and semiconductor industry rebound has followed each of the past four global recessions over the past 30 years, according to the firm.

"In IC Insights' opinion, given the extreme and unprecedented cutbacks in IC industry capital spending in 2008 and 2009, a surge in IC average selling prices in 2010 and 2011 is almost guaranteed," McClean wrote in a recent report. "This surge in IC ASPs will be the driving force for double-digit growth in the IC market over the next couple of years."

In the report, IC Insights offered two examples of companies anticipating an increase in demand later in 2009!foundry giant Taiwan Semiconductor Manufacturing Co. and automotive semiconductor supplier Melexis. Both companies are banking on better second halves to reach targets for 2009, the firm said.

"First quarter 2009 levels are so depressed, that in most cases, there will be a noticeable second-half over first-half 2009 increase in business," McClean wrote.

Semiconductor companies should not adjust their businesses! especially with regard to personnel cuts!to run at first quarter levels, given the expected increase in demand, IC Insights said. Unpaid leave, salary cuts and other measures may be the best approach to bridge the gap between the current weak level of business and the expected second-half recovery, according to the firm.

- Dylan McGrath
EE Times





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