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IC market succumbs to economic, inventory snag

Posted: 03 Feb 2012 ?? ?Print Version ?Bookmark and Share

Keywords:semiconductor industry? revenue? inventory? wireless?

It seems the semiconductor industry is having a hard time saving itself from economic and inventory woes. Although growth is expected, it is barely enough to allow the industry a breather. IHS Inc. has predicted that the IC industry revenue this year will approach $323.2 billion, up by only 3.3 percent from last year's $312.8 billion.

While expansion this year is expected to be better than the 1.25 percent increase last year, the overall picture could brighten considerably if the U.S. and the rest of the world recover in 2013. Under such a scenario, growth from 2013-2015 will average between 6.6-7.9 percent. Additionally, total semiconductor revenue by 2015 will climb to about $397.7 billion.

Although consumer spending, which is a key factor in the chip market, lowered the level of inventory of electronic devices and other items during the 2011 holiday season, the reduction was insufficient to re-energize chip demand to replenish stockpiles. Worse, a deliberate decrease in manufacturing run rates by companies in 3Q11 proved unable to bring inventory down to levels that would have fired up additional orders and increased factory run rates. Thus, semiconductor demand for manufacturers will remain depressed until 2Q12, noted IHS.

IC revenue forecast

Worldwide semiconductor industry revenue forecast (Billions of U.S. Dollars)

Such developments will have a ripple effect throughout the industry. For instance, because factory utilization will not recover until the middle of the year, integrated device manufacturers (IDM) that both design and manufacture semiconductors in-house will experience even greater stress to simply maintain the viability of underperforming factories. And with current manufacturing capacity deemed acceptable for meeting demand, most capital expenditures to boost efficiency within the industry likely will be pushed out to 2013.

Hurdle for memory; wireless a frontrunner
The most beleaguered semiconductor segment will be the memory space, especially DRAM, with revenue projected to decline to 16.1 percent this year on top of a 26.8 percent fall last year. And a once-energetic performer in 2011NAND flashwill see less rosy prospects this year because of additional capacity coming on to meet a surge of demand for the memory in devices such as mobile handsets and media tablets.

In contrast, a strong market revenue driver this year will be the wireless communication segment, spurred by media tablets, smartphones and industrial electronics. For the semiconductor industry to revitalize, however, it is imperative that the core PC and peripheral markets experience a significant increase in demand, IHS added.

Doom for DRAM market?
The market woes of the DRAM industry never seem to let up. On top of facing a terrible market forecast and poor demand for its products, the DRAM industry now has to confront a worrying build-up of inventory that risks sinking the industry even more.

The 1H12 is almost certain to be a challenging period for the industry, with negative growth being forecast for the historically slow first-quarter season. The industry will begin to rebound in Q2 and then go on to a strong Q3, as is normal for the business.

Foundries dedicated to manufacturing semiconductors as their main activity will continue to outperform the industry, while IDMs will have lower growth, especially as they have abdicated manufacturing in leading-edge technologywhere the high margins areto the foundries. The advice is for IDMs not to sit by idly and allow fabless or foundry companies to control leading-edge design or production on their own. Otherwise, they risk consolidation, which would have the unintended effect of providing rival foundries with even more opportunities for additional growth.





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