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IC Insights cuts chip revenue forecast

Posted: 22 Sep 2008     Print Version  Bookmark and Share

Keywords:semiconductor industry  revenue forecast  logic market  NAND flash market 

Market research firm IC Insights Inc. has cut its semiconductor industry revenue forecast for 2008 by Rs.25,715.08 crore ($6 billion), but said long-term trends would support pricing stabilisation that will enable the industry to achieve a compound annual growth rate (CAGR) of 10.6 per cent between 2007 and 2012.

IC Insights now forecasts that the industry will grow 4 per cent in 2008, reaching Rs.1,047,032.18 crore ($244.3 billion). Three months ago the firm predicted that the industry would grow 7 per cent this year to Rs.1,072,747.25 crore ($250.3 billion).

Bill McClean, president of IC Insights, attributed the revision to two chip segments—the logic market, which he said is experiencing an inventory correction, and the NAND flash market, where pricing has collapsed.

Overall, IC unit growth remains strong and is on track to increase 8 per cent this year, McClean said, though average selling prices (ASPs) will be down 4 per cent. "The market forecast revision is not about units," he said during an IC Insights seminar here. "It's based on pricing."

In the long term, though, McClean said new trends favouring reduced capital spending will serve to increase fab utilisation rates, ultimately stabilising chips ASPs or even causing them to increase. Overall chip ASPs decreased 5 per cent in 2007 and 8 per cent in 2006, according to IC Insights.

As a result of less aggressive expansion by major chip vendors in 2008, McClean said, overall semiconductor industry capital spending will be down 18 per cent this year.

Capital spending as a percentage of semiconductor sales will be about 17.5 per cent, he said, the lowest since 2003. Over the past four years it has been in the 20 to 22 per cent range, and historically has been 20 to 30 per cent most years since 1995, according to data provided by IC Insights.

"In our opinion, this [capital spending as a percentage of sales] number is not coming back up," McClean said. The percentage will move towards 15 per cent in the long term, he said.

The reduction in capital spending has evolved thanks to a change in mentality among chip vendors, McClean said, with a new focus on profitability. The change in philosophy is being led by silicon foundry giants Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and United Microelectronics Corp. (UMC), who are scaling back on capital spending in an effort to stop eroding per wafer revenue, he said.

TSMC's capital spending in 2008 will be an estimated 15 per cent of revenue, and UMC's 16 per cent, McClean said, down from 26 per cent and 23 per cent, respectively, in 2007. "These guys are not going to chase the last few points of market share like they used to," he said.

Fab-lite giving more power to foundries

The so-called "fab-lite" model adopted by numerous companies over the past couple years—reducing fabs and depending on foundries for production—has given foundries more power to dictate overall capacity and revenue per wafer, McClean said.

Meanwhile, large, multi-product companies that also play in the chip industry are narrowing their focus, McClean said. Infineon Technologies AG and Philips Electronics spun off all or part of their chip units a couple of years ago, and Japanese conglomerates like NEC Electronics Corp., Sony Corp. and Hitachi are scaling back, he noted.

Eleven semiconductor companies will allocate more than Rs.4,285.85 crore ($1 billion) to capital spending in 2008, down from 16 companies in both 2006 and 2007, according to IC Insights data. Eleven would be the smallest number in the "according to the data.

For 2009, IC Insights is forecasting a single digit increase in semiconductor capital spending, likely in the 8 to 10 per cent range. "Somebody increasing cap spending by 10 per cent next year will be considered aggressive," McClean said.

McClean pointed to UMC's financial report for the third quarter of 2007, when the company stated that increasing profitability would be its No. 1 business objective going forward. Other companies that took the "vow of profitability" in 2007 included Advanced Micro Devices Inc., Infineon, NEC, NXP, Renesas Technology Corp., Semiconductor Manufacturing International Corp. (SMIC), STMicroelectronics NV, Texas Instruments and TSMC, McClean said.

McClean acknowledged that IC Insights' prediction of ASP stabilisation is dependent on chip vendors keeping a lid on capital spending. "If we get a 20 per cent increase in capital spending next year, our assumptions for ASP gain go right out the window," he said.

IC Insights' revised 2008 forecast calls for the memory market to be down 10 per cent year-to-year. The firm sees the DRAM segment down 10 per cent, with NOR and NAND flash down 10 and 4 per cent, respectively.

The firm now expects the logic market to be up 13 per cent in 2008 after earlier forecasting 16 per cent growth.

McClean said original equipment manufacturers (OEMs) are doing a better job of controlling inventory than in the past, not overbuying chips in anticipation of a huge fourth quarter. As a result, he said, there shouldn't be a major chip inventory overhang going into 2009, which has been the cause of the big downturns in the semiconductor industry.

According to IC Insights, IC unit growth grew by double digits each year for six consecutive years between 2002 and 2007, the first time the industry achieved double digit unit growth for more than three consecutive years.

- Dylan McGrath
EE Times

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