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10 reasons to remain bullish, worried for 2010

Posted: 15 Jun 2010 ?? ?Print Version ?Bookmark and Share

Keywords:electronics forecast? W-CDMA? DRAM? solar market?

So far, the electronics industry is seeing a big upturn, giving signs of a positive year. Still, I have some concerns. Here are 10 reasons why I'm bullishand worriedabout 2010:

1. ICs turn hot and cold.
"Worldwide semiconductor revenue in 2010 is projected to reach $290 billion, a 27.1 percent increase from 2009 revenue of $228 billion. The outlook for the semiconductor industry has improved from Gartner's first quarter of 2010 forecast, when we projected worldwide semiconductor sales to grow 19.9 percent," said Gartner Inc. analysts Bryan Lewis and Peter Middleton.

"Chip revenue growth is clearly outpacing system revenue growth, and that is a concern. Gartner's new semiconductor forecast has below-average growth in the second half of 2010, as we are anticipating a minor correction to realign semiconductor sales with electronic system sales."

2. Lukewarm memories.
Andrew Norwood, an analyst with Gartner said: "We are now forecasting that 2010 DRAM revenue will increase 78 percent (up from 56 percent growth in our February 2010 forecast). The reason for the upward revision is simple: pricing. Gartner had expected DRAM pricing to peak in mid-Q1 10; however, it has continued to edge higher. This revision means that we are now forecasting industry revenue to reach $40.9 billion in 2010, making this the second-highest revenue year ever. Only 1995 revenue of $42.2 billion is higher."

Joseph Unsworth, an analyst with Gartner, said: "Gartner has maintained that some inherent price softness during Q2 is actually healthy; customers should not misread recent price declines as signaling a greater deterioration of overall NAND market fundamentals. Gartner maintains that demand is healthy now, albeit influenced by seasonality, but we see no reason to deviate from our assertion that the second half of the year will witness a sharp increase in demand, driving a significant shortage in the coming months."

3. Capex up. Capacity woes.
Bill McClean, president of IC Insights Inc., said: "While total IC industry capacity utilization was only 57 percent in Q1 09, it reached 93 percent in Q1 10, a level that was higher than before the global economic crisis! As a result, in Q1 10 there were a number of device types that were reported to be very difficult to secure or that saw lead times dramatically increase.

"As tight as overall IC capacity has been in the IC industry since the first half of 2009, 300mm capacity has been even tighter! In Q1 10, 300mm capacity utilization was 97 percent. It should be noted that IC industry capacity utilization figures of 96 percent essentially indicate a 'sold out' situation. IC Insights believes that one limiting factor to 30 percent or greater IC market growth in 2010 might be the lack of IC fabrication capacity needed to support such growth."

4. Wafer madness: ASPs up
Paul Leming, an analyst with Soleil Securities, said: "Pricing is demonstrably moving higher in the semi-wafer industry. We believe the odds of industry pricing rising by as much 10-15 percent over the remainder of 2010 is increasing.

"For the fourth quarter in a row, Sumco's capital spending was reduced sharply. Sumco's capital spending is now 90 percent below the levels of 2007 and 2008."

5. Wireless hot, ASPs fall
Craig Berger, an analyst with FBR, said: "Recent checks suggest Qualcomm's calendar Q2 business is tracking within the upper half of guidance, and sequential revenue growth is likely in calendars Q3 and Q4. Given these checks, and given the global smart phone craze is likely driving higher global W-CDMA device units, we are raising our financial estimates on Qualcomm to incorporate higher calendar 2010 QTL devices (up from 608 million units previously to 625 million units.

"That said, average chipset ASPs have fallen from $21 in December 2008 to $16 in June 2010, and mathematically should not continue to decline at this fast pace."

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