After one of its worst years on record, the semiconductor industry has stabilized and is on the verge of a healthy rebound, according to industry analysts making their predictions for next year.
For the first time in two years, several market analyst groups are predicting double-digit revenue growth in 2003 and 2004 for chipmakers especially with the big names like Intel , AMD
, Texas Instruments
, Xilinx
and Micron Technologies
.
Recent forecasts from Silicon Valley-based trade group Semiconductor Industry Association (SIA) predict growth of about 21 percent to $169 billion in 2003, 22 percent to $206 billion in 2004, and then remain flat at $206 billion in 2005.
The trade group’s latest Global Sales Report (GSR) indicates global semiconductor sales reached $12.68 billion in November 2002, a 1.3 percent sequential increase from the $12.51 billion in revenue reported in October 2002 continuing the trend that began in the fourth quarter 2001. Much of the growth is due to sales of Wi-Fi
“There is some wiggle room depending on how December and the first part of next year plays itself out,” SIA Commutations Director Molly Tuttle told internetnews.com. “But being in the 20 percent range means that wireless has continued to spark consumer interest in things like DVDs, cameras, and video games.
Earlier this month, analyst group Gartner Dataquest predicted double-digit growth in 2003 for semiconductor packaging and assembly as well as positive growth for semiconductor capital spending and wafer fab equipment spending. Gartner says the chip market is now poised for 10.5 percent growth in 2003, with revenue of $ 29.6 billion.
And New York-based Fitch Ratings this month, which also predicts double-digit growth said, “the biggest near-term concern for the industry is the future of PC unit growth, the return of the telecommunications equipment market, and the fierce pricing environment, all of which are major contributors to worldwide semiconductor revenues,”
“Offsetting this weakness is relatively strong consumer electronics sales, with particular strength in power management applications,” Fitch said in its report.
Flat growth in 2002 is a dramatic improvement from the greater than 30 percent decline in 2001, which was one of the worst years in the industry’s history.
Leading the charge into 2003 are a host of non CPU
Deutsche Bank Securities analyst Ben Lynch says entry of Chinese producers “will aggravate efforts to structurally improve industry” and says growth should come more from developing markets and new applications such as mobile data, WLAN, broadband access and digital TV.
“The U.S. region most important since it accounts for 41 percent of IT spending, of which 35 percent comes from the semis,” said Lynch. “Corporate is still the swing factor as spending has slowed to 8-10 percent from 15-16 percent in previous years.”
One of the biggest hurdles for chipmakers, say analysts is clearing the massive inventory amassed. The buildup over the last year or so has set the stage for the introduction of newer semiconductors aimed at powering new applications and growth markets, such as Wi-Fi. But Fitch, in particular, warns, “any delay in spending for the deployment of these applications could weigh on future semiconductor sales.”
In fact delays in chips have already hurt the industry to some extent. Some microprocessors due in the first part of 2003 were actually expected for a pre-holiday rollout in 2002 such as AMD’s choice to hold back on production of its Hammer and Barton chips as well as similar snags experienced by NVIDIA over its GeForceFX graphics chip. AMD and NVIDA say their respective processors will make the grade in the first quarter of 2003. Intel, which is looking to release its mobile Banias chips next year suffered a minor setback. Each of the companies reported technological reasons for the setbacks, but the decisions have either resulted in loss of market share or cutbacks resulting in financial losses.
Other custom deals such as IBM’s new PowerPC processor and its nanotechnology
Still analysts say successful semiconductor companies will stick to the basics and continue to be those that can innovate, whether through more complex system-on-chip designs, niche design contributions, or advanced manufacturing processes.
Chipsets Ahoy!
Thankfully the growth rate of the Semiconductor Assembly and Test Services (SATS) segment of the packaging market turned positive in 2002 at about $8.2 billion in market revenue. Gartner Dataquest analysts expect continued growth in 2003. However, similar to 2002, the growth may not be consistent.
“The shift to array and leading-edge packaging is growing while continuing to be more sophisticated and complex. Many IDM’s and OEM’s desire to conserve their capital and are now actively seeking to outsource more of their packaging requirements,” Gartner principal analyst Jim Walker said. “As the transition to these new packages has occurred more in recent months, the result is the return to growth and profitability in the outsourcing market.”
Walker says that now that the industry has bottomed out and slow growth has returned, production implementation of new package and assembly technologies can occur. Array packaging (CSP, flip chip and BGA), system-in-package (SIP) and stacked (3D) packaging have seen increasing growth in the last few months. Even these have been outpaced by the growth of the QFN (quad flat-pack, no lead) family of packages, which is witnessing the fastest ramp up of any package previously introduced in the industry.
Bursting at the Fabs
Worldwide semiconductor capital spending is projected to grow 15 percent in 2003 to $32 billion, up from $27.8 billion in 2002. Worldwide wafer fab equipment spending is expected to total $18.5 billion, a 16 percent increase from 2002 revenue of $15.9 billion.
Part of that growth is being driven by 300mm wafers at new IBM facilities in East Fishkill, N.Y. as well as Intel’s new state-of-the-art facility in Arizona.
“Spending will be driven by a continued need for advanced technology to keep innovation going and manufacturing costs down, and a renewed need for more capacity,” said Gartner chief analyst and director Klaus Rinnen. “Fab utilization worldwide has been improving since the end of 2001. Leading-edge capacity exceeded 90 percent periodically during 2002 and future improvements in end-user demand will map quickly into further capacity needs.”
Analysts say the leading-edge utilization rate is the primary trigger for capacity spending. There is much less capacity available at the leading-edge process technologies, so small increases in demand will have a large effect on utilization.
“Many of the new designs from fabless semiconductor companies and IDMs will go into production of these technologies during 2003. As demand increases, foundries will expand capacity in an attempt to stay ahead, while at the same time, avoid overspending and driving down utilization to unprofitable levels,” said Rinnen. “Because the foundries are sitting on unfilled fabs, and equipment lead times are relatively short, capacity can be increased very quickly when demand growth resumes.”
New fab activity remained slow in 2002, as lack of demand and overcapacity in the fabs kept the need for new equipment down and focused on technology.
“Technology buys for leading-edge devices have been the key drivers for equipment purchases during 2002 and into 2003. Implementations of technologies associated with copper and 193 nm deep-UV were the bright spots for new equipment purchases in 2002, and will continue to be focal points in 2003,” Rinnen said.
Gartner Dataquest analysts said that in 2003 the industry needs continued strength in consumer and governmental spending as a foundation for growth, but a corporate spending return is a must to drive demand improvements.
“While there is an absence of a driving killer application and a catalyst to incite an end-user spending spree, the temporal expanse of depressed spending is creating pent-up demand,” said Rinnen. “Spending will be more at corporations’ discretion, but there are competitive elements that could exert pressure on corporations once the wave starts.”
