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Sanghi remains guarded despite IC rebound

Posted: 30 Apr 2010 ?? ?Print Version ?Bookmark and Share

Keywords:IC recovery? microcontroller? analog?

At last year's Embedded Systems Conference (ESC) here, the IC industry was suffering amid the recession and business was horrible. Now, at this year's event, the recovery is in full bore and business is booming for most chipmakers.

Actually, in the spring of last year, the overall IC market hit the bottom and business began to gradually improve in the marketplace, said Steve Sanghi, Microchip Technology Inc.'s president and CEO. "Until March (of 2009), the market was hemorrhaging," Sanghi told EE Times at ESC. "March was the bottom."

Overall, mostif not allchipmakers had a difficult campaign in 2009. Sales were down by an average of 40 percent for chipmakers last year.

So far in 2010, however, it's been a different story. "We're going to have a blowout year," Sanghi declared. "The growth has been a surprise (in the semiconductor industry so far this year). It has almost surprised everyone."

Demand for analog devices, microcontrollers and other chips have been strong, he said. There are shortages and extended lead times for select products.

Sanghi did not provide an overall forecast for the IC industry, but he made references to Microchip's recent announcement, in which the company raised its forecast.

It expects net sales for Q4 fiscal 2010 ending March 31 to be up about 8 percent sequentially. Microchip expects GAAP diluted earnings per share to be approximately 37 cents. On Feb. 3, Microchip provided guidance of net sales increasing 3 to 7 percent sequentially and GAAP diluted earnings per share of approximately 34 to 36 cents.

So what's driving the upturn and what are some of the warning signs?

Bullish and bearish
According to Sanghi, here are three reasons to be bullish:

1. The inventory replenishment cycle is largely over and has been replaced by a real demand cycle for chips in the market.

2. The stimulus packages from various governments, especially in China, have played a role in the sustained recovery. Cash for clunkers, appliances and other products are fueling IC demand.

3. There is a recovery in the housing market. In 2008, new housing starts were about 2.2 million units in the United States alone. That figure dropped to 200,000 in 2009. In 2010, housing starts are expected to be between 450,000 to 500,000.

There are, however, warning signs in the industry:

1. The "missing link" in the recovery is job losses, especially in the U.S. Unemployment in the U.S. remains too high. On the other hand, Microchip and other chipmakers are hiring.

2. There are signs of a possible overheating. There is a feeling that all chipmakers are gaining share and there is no double ordering taking place in the market.

"That's too good to be true," Sanghi said, leaving him to remain guarded and on the side of "caution."

- Mark LaPedus
EE Times

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