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IC forecasts: What keeps analysts bullish, worried

Posted: 22 Mar 2010 ?? ?Print Version ?Bookmark and Share

Keywords:IC market? automotive? LCD? baseband? solar cell?

Although the signs are positive in the chip sector this year, there are still some concerns. Here are 10 reasons why I'm bullishand worriedabout 2010:

1. The economy
Why I'm bullish? "Low interest rates, low oil prices, and the stimulus packages that were instituted around the world are all contributing to a stabilizing economy and upturn. Purchases were less than the replacement market in 2009, and pent up demand is pulling the market in a positive direction," according to New Venture Research, formerly Electronic Trend Publications.

"The economy is stabilizing, which is easing fears of spending on consumer goods. The housing market, which took down the economy by taking the credit markets down with it, is stabilizing, and the ratio of income to housing expenditure is more balanced than it was previously. The automotive market, which is host for numerous ICs, had fallen substantially during the downturn. This market did benefit from the cash-for-clunkers program, although automotive sales fell back after the program ended. But it became a booster to spending, which helped. And automotive is expected to turn up in 2010 and beyond, particularly in areas such as China," according to the firm.

Why I'm worried? The job losses continue. In California, for example, thousands of government and city employees will get pick slips. I also keep hearing about a "bubble" in China, which is about to explode. That will send shock waves worldwide. I am also hearing about labor shortages in China. Greece is in bad shape, which may impact the EU. Many economies worldwide are awful.

Let's not forget the U.S. job losses, budget deficits and the sub-prime mess are concerns.

2. Chip demand
Why I'm bullish? Gartner, IC Insights, iSuppli, Semico have all separately made new and bullish IC forecasts in 2010.

"Believe it or not, the good times are here!" That's the recent message delivered by Jim Feldhan, president of Semico Research Corp., who predicts a two-year growth cycle for ICs.

IC revenue will grow at 18.8 percent in 2010, with unit growth at 18 percent, according to New Venture Research. This is considerably better than the 8.8 percent decline in revenue and 6.9 percent decline in units in 2009.

Actel, LSI, RF Micro, TriQuint and others have recently raised their forecasts. LSI's "management sees stronger than anticipated growth across the board in IT spending as expectations are being exceeded in enterprise servers, data storage, and networking infrastructure," said Daniel Amir, an analyst at Lazard Capital Markets.

"While we are expecting successive sub-seasonal quarters of growth (likely 2HCY10 or early-CY11), we anticipate that both the timing and magnitude will prove to be better than feared," said analyst Doug Freedman of Broadpoint AmTech. "We maintain our investment thesis that fears of a material cycle overshoot are overblown. Our view remains that the recovery will moderate as sequential growth slows, limiting the magnitude of the inventory overshoot."

"Our recent trip to APEC (Power Electronics Conference) in late February affirms our thesis that analog demand should remain strong through the next few quarters. Checks reveal that particular areas of strength will be driven by growing demand for power management (particularly in portable electronic devices servicing the medical and industrial end-markets) and the increasing need for low-power solutions," Freedman said.

Why I'm worried? Taiwan Semiconductor Manufacturing Co. Ltd chairman Morris Chang has said he expects chip market growth to slow in the second half of 2010, before picking up again in 2011, according to a Taiwan Economic News report.

"Inventories are obviously building due to unsustainably lean levels exiting Q3 09, higher component lead times, concerns about 2H component supply, and, in some cases, OEM bullishness about likely robust 2H 10 end demand (particularly for PCs, smart phones, and corporate spending)," according to FBR.

"Currently, visibility into 2H component shipment trends remains limited, though OEMs are largely constructive on end demand. Subject to much debate is whether contracting lead times will cause a soft landing in Q3 or Q4 with muted 2H seasonality, or whether contracting lead times will cause a hard landing with component shipment shrinkage in 2H," according to FBR.

3. Consumer craze
Why I'm bullish? Worldwide per capita income in 2009 declined by 2 percent to $10,500, marking the first annual decrease during the post-World War II era, according to U.S. government data. In contrast, iSuppli estimates global revenue from shipments of smart phones rose by 9.6 percent for the year, while LCD TVs experienced a 14 percent increase and netbook PCs surged by a stunning 90 percent.

"There's been a measurable shift in how consumers are spending their disposable income," said Derek Lidow, president and CEO of iSuppli. "In a time of great economic distress, when people had less money and spending on essentials like food and rent declined, consumers surprisingly used a disproportionate amount of their money to purchase new consumer electronics products."

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