Analysts: Recovery is in the Chips

The tech recovery is on and nowhere its that more apparent than in the semiconductor industry, according to analysts.

New reports released Monday by Gartner , Advanced Forecasting, and the Fabless Semiconductor Association all point to double-digit growth in a year that didn’t start out so well.

Stamford, Conn.-based Gartner says an usual seasonal uptick in demand is prompting them to forecast $173 billion worth of worldwide sales in 2003. That is an 11.2 percent increase over 2002 when worldwide semiconductor revenue totaled $156 billion.

Gartner research vice president Richard Gordon says the industry is about to enter a more accelerated growth phase, which is one part of Gartner calls a “three-phase recovery” in the IT market.

“It is becoming increasingly likely that the long-awaited corporate PC replacement cycle will be characterized by incremental increases in IT spending spread over a more prolonged timeframe than we have seen in the past,” Gordon said. “While this trend would underpin a sustained semiconductor recovery, it may act to temper headline annual revenue growth. Excess capacity in the telecommunications sector also remains a concern that could postpone the return and inhibit the level of telecommunications industry capital spending in the medium to long term.”

The predictions seem to exceed what industry trade groups have suggested. At the end of 2002, the Semiconductor Industry Association (SIA) projected worldwide sales of semiconductors would increase 10.1 percent to $169 billion by the end of the year.

At its midyear forecast, the group revised its numbers to a compound annual growth rate of 9.8 percent taking into consideration the War in Iraq and the SARs epidemic. Beyond 2003, the SIA expects worldwide sales of semiconductors to hit 16.8 in 2004, 5.8 percent in 2005, and 7.0 percent in 2006. The SIA expects industry sales to grow from $141 billion in 2002 to $205 billion in 2006.

Gartner’s take is that in front-end semiconductor manufacturing, silicon demand is increasing, overall wafer fab utilization now exceeds 80 percent and foundry wafer pricing has firmed up. In packaging and assembly, overall consumption rates continue to increase on a monthly basis and leading-edge capacity has become tight as the demand for advanced packaging solutions grows.

The forecast is relevant given major technology advancements from semiconductor giants like Intel , AMD , Texas Instruments , Motorola and IBM .

In the device market, the analyst group says inventories are back to normal levels, pricing has stabilized, and in some cases, there are shortages of critical components. In application markets, the digital cellular handset market remains healthy, demand for digital consumer electronics products has not waned and there are early signs that the corporate PC replacement cycle has begun.

Even though the IT sector seems to be recovering from the dot-com bust Cupertino, Calif.-based Advanced Forecasting warns the “bubble” could happen again.

“The likelihood of the bubble reoccurring will be high if those forecasting demand and growth do not learn from the mistakes of 2000,” the group said in its report putting the blame strongly on “inaccurate forecasts.”

In lieu of the slow churn of the past 18 months, Advanced Forecasting now estimates accelerated growth of ICs will begin in the fourth quarter of 2003. The company says the recovery is supported by high fab capacity utilization levels and sales of ICs in units that currently stand at 5 percent below their all time peak of 7.7 billion units. At the depth of the 2001 recession, IC units declined 33 percent from their peak; IC revenues dropped 46 percent from their peak.

The growth is also showing its head in fabless houses like the ones at QUALCOMM , NVIDIA and Broadcom .

The Fabless Semiconductor Association’s report on industry revenue for the last three months show a total of $4.2 billion, up 5.3 percent sequentially from $3.9 billion in Q1 2003, and more than 19 percent year-over-year from the $3.5 billion reported in Q2 2002.

The top three fabless companies included QUALCOMM’s CDMA division with $557.2 million, NVIDIA with $459.8 million and Broadcom with $377.9 million. The remainder of the top ten included ATI Technologies, Xilinx, SanDisk, MediaTek, Altera, Marvell and Conexant, respectively.

The FSA also found that there have been 32 fabless mergers and acquisitions, totaling more than $966 million, in the first eight months of 2003. Six of these acquisitions involved fabless companies acquiring other fabless companies, while the other 26 acquisitions involved fabless companies acquiring other technology (semiconductor and non-semiconductor) companies.

News Around the Web