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Fear and hope cloud chip market

Posted: 24 Nov 2008     Print Version  Bookmark and Share

Keywords:semiconductor industry  chip market  global financial system  over-supply 

Future Horizons is predicting that the semiconductor industry will witness a 2 per cent decline next year but that there will be no re-run of the huge downturn of 2001.

Chairman and CEO of Future Horizons Malcolm Penn, the 2010-11 rebound could be much more pronounced than most people currently feel.

Meanwhile, another analyst group, iSuppli, has revised downwards its projections for the chip market in 2008, forecasting that it will be 2 per cent down on 2007, reaching Rs.1,333,970.16 crore ($266.6 billion). In a previous forecast in September, iSuppli suggested the industry would see 3.5 per cent growth during 2008.

If true, this would represent the first year of decline for semiconductors sector since the disastrous performance in 2001.

According to Penn, September marked the start of the 11th chip industry slowdown. "We now expect Q4 08 to be down 6 per cent on Q3 08, making 2008's growth just 2.2 per cent on 2007—the fourth consecutive year of single digit market value growth."

He suggests that despite the sub-prime market fiasco, the 1H 08 chip market held up well, better than many predicted, but come the second half, the repercussions had spread to the bigger global financial system, tipping the United States, Japan and Europe into recession.

2001 déjà vu?
Penn puts the cause of previous downturns solely to over-supply, caused by a slump in demand, over-building of factories or excessive build-up of inventories. In 2001, all three happened.

"The 2001 slowdown was unique in that it was triggered by both demand and supply-side issues simultaneously, namely the collapse of the dot-com inflated demand euphoria, a 9-11 driven economic slowdown, and a massive inventory burn just as a huge amount of excess capacity was coming on stream. Everything that could have gone wrong did go wrong."

Entering 2009, the circumstances are completely different, says Penn. First we have no serious overcapacity in place (pre-slowdown utilisation rates were in the 90 per cent region), with capital expenditure deep in a retrenchment that started 12-18 months before the slowdown hit home.

"Second, prior to the financial meltdown there was little sign of inflated demand, with IC units running at or below the 10 per cent per year long-term trend line and no serious excess inventory in the supply chain."

And in a commentary to the latest predictions, Dale Ford, senior VP, market intelligence services at iSuppli, said the psychology of many industry players now has shifted to a survival mentality, with cost-control and cash-conservation considerations driving decisions. "The extremely low level of consumer confidence clearly points to a very difficult fourth quarter for the industry."

Ford said in discussions with semiconductor suppliers, equipment OEMs and contract manufacturers, "a story of fear and great uncertainty has emerged."

- John Walko
EE Times

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