Similar to the wine industry, semiconductors have some good years and some not so good years. One trade group’s consensus is that 2004 will be an “excellent vintage”.
The Semiconductor Industry Association (SIA), which released its annual forecast for 2003-2006 Wednesday, says global sales of semiconductors in 2003 are on par to increase by 15.8 percent to $163 billion. But more importantly, the San Jose, Calif.-based firm is projecting 2004 revenues to increase by 19.4 percent to $194.6 billion. Beyond that, the SIA forecasts a slight market correction of only 5.8 percent growth to $206.0 billion in sales in 2005, but an upswing back to 6.6 percent to $219.6 billion in 2006.
The three-year moving average of sales activity is tabulated by the World Semiconductor Trade Statistics (WSTS) organization, which represents approximately 66 semiconductor companies.
“We are on an accelerated growth path and this is great news,” said John Daane, chairman, president and CEO of Altera Corporation, who presented the fall forecast during the SIA’s 26th Annual Forecast and Award Dinner.
Daane, who once worked in the wine industry, said he was “very pleased that we are looking at a year where the external environment is in our favor. Growth will be broad based across all markets.”
Alternatively, In-Stat/MDR’s global semiconductor forecast will remain at 16.7 percent growth for 2003. The firm continues to expect worldwide semiconductor revenue to reach $164.2 billion in 2003, a 16.7 percent increase over 2002’s figure, driven by a 10.9 percent growth in unit shipments and a 5.3 percent increase in ASPs. This revenue forecast remains unchanged from In-Stat/MDR’s last two semiannual forecasts.
“Although the first half of 2003 ran slightly below our expectations,” Steve Cullen, principal analyst and director of Semiconductor Services at In-Stat/MDR said, “the second half has started strong and is expected to exceed earlier expectations, resulting in no net change to the overall annual forecast. Growth will continue throughout 2004 when we expect that worldwide revenue will reach a new record high of $206.8 billion, 25.9 percent ahead of 2003.”
The forecast comes on the heels of what as been a tumultuous year for chip makers who have suffered from the effects of the war in Iraq, a droopy U.S. dollar, and the SARS epidemic.
Originally, the SIA estimated 2003 to hit 19 percent growth and 16.8 percent growth for 2004. The group revised its estimates in June suggesting worldwide sales of semiconductors to increase 10.1 percent during the by the end of the year.
“Since June, the third quarter has come on strong and the market has turned much quicker than people have anticipated,” Daane said.
Despite its volatile nature, Daane points to the MOS Memory market (DRAMs, Flash, SRAMs, and EPROMs) as the main driving force in 2004. The SIA’s report predicts the DRAM market, followed by Flash, will lead sales in this product sector. In 2003, the MOS Memory market is forecast to grow 16.6 percent to $31.5 billion and 32.3 percent to $41.7 billion in 2004. In 2005, this market is expected to incur a cyclical downturn with a decrease of 10.1 percent to $37.5 billion in sales. By 2006, the loss will be made up with growth resuming to 18.2 percent to $44.3 billion.
One problem now facing chipmakers is the cost of actually building and bringing one to market. The industry trend to move to 90-nanometer
“We are facing an inflection point in our industry where chip development costs are rapidly increasing with each new process node,” Daane said. “We believe that this is going to result in some fundamental changes in our industry.”
Daane said if a company is spending 20 percent on R&D, the revenue target of that company should be about $150 million. Compound that with a company that has at least 10 percent market share. The SIA said the revenue target of that company should be about $1.5 billion. The justification of ASIC/ASSP development in that case would require $1 billion.
“There are very few chips that can achieve this level of return,” he said.
The way around this? More programmable chips.
“Now, more than ever, semiconductor manufacturers are forced to closely evaluate the return on investment of each chip produced. New opportunities lie in programmable architectures such as microprocessors, microcontrollers, DSPs and programmable logic, which can be leveraged across many customers and many markets.” Daane said, “Cost and flexibility will to be the keywords going forward.”
Asia Remains Strong
Regionally, the Americas are expected to grow 1.9 percent to $31.9 billion in 2003, and then grow 17.7 percent to $37.5 billion in 2004. In 2005, we forecast the market to remain nearly flat with growth of 1.7 percent to $38.2 billion, and then resume growth of 6.4 percent in 2006 to $40.6 billion. Europe is expected to pad on 17.3 percent in 2003 to $32.6 billion, 14.7 percent to $37.4 billion in 2004, 5.9 percent to $39.6 billion in 2005, and 6.3 percent to $42.0 billion in 2006.
The SIA said the Japanese market should grow 24.3 percent to $37.9 billion in 2003, increase 17.9 percent to $44.7 billion in 2004, 4.6 percent to $46.8 billion in 2005, and 4.4 percent in 2006 to $48.9 billion.
But of all the semiconductor regions, Asia continues to experience the strongest growth. It is forecast to grow 18.6 percent to $60.6 billion in 2003, 23.4 percent to $75.0 billion in 2004, and 8.2 percent to $81.5 billion in 2005. In 2006, Asia Pacific will report growth of 8.2 percent to $88.2 billion.
Memory Drives Growth
Broken down by product lines, discrete components, which include power transistors and radio frequency (RF) solutions that are found in wireless consumer products, are forecast to grow 5.9 percent to $13.1 billion in 2003. Discretes are then forecast to grow 12.7 percent to $14.7 billion in 2004, 9.3 percent to $16.1 billion in 2005, and 2.4 percent to $16.5 billion in 2006.
The optoelectronics market (laser devices, image sensors, and products that are frequently used in communication applications) is expected to increase 34.7 percent to $9.1 billion in sales in 2003, grow 19.2 percent to $10.9 billion in 2004, 5.0 percent to $11.5 billion in 2005, and 10.0 percent to $12.6 billion in 2006.
Consumer and automotive application-specific analog products are expected to help the analog sector. The largest end-use driver of analog includes the upgraded telecommunications networks for Internet service and digital telecom technologies. Analog is expected to grow 10.0 percent to $26.3 billion in 2003, 15.4 percent to $30.4 billion in 2004, 11.5 percent to $33.9 billion in 2005, and 2.1 percent to $34.6 billion by 2006.
The global logic market includes standard logic, standard cell, field programmable logic devices (FPLD), and a broad variety of application-specific products. In 2003, the SIA says MOS Logic will grow 15.0 percent to $36.0 billion, increase 15.6 percent in 2004 to $41.6 billion, 11.4 percent to $46.3 billion in 2005 and 2.0 percent to $47.3 billion in 2006.
MOS Micro Devices including microprocessors, microcontrollers and digital signal processors, is forecast to grow 13.9 percent to $43.4 billion in 2003, 18.2 percent to $51.2 billion in 2004, 9.0 percent to $55.8 billion in 2005, and 5.4 percent to $58.9 billion in 2006.
By the end of the year, the SIA says microprocessors will increase 14.4 percent to $27.3 billion and then are forecast to grow 18.3 percent to $32.3 billion in 2004, 7.6 percent to $34.7 billion in 2005, and 6.0 percent to $36.8 billion in 2006.
The global microcontroller market, which is driven by consumer and automotive applications, will increase 6.4 percent to $9.9 billion in 2003, according to the SIA. The group then predicts 12.1 percent growth to $11.2 billion in 2004, 6.0 percent to $11.8 billion in 2005, and 2.0 percent to $12.1 billion by 2006.
Digital Signal Processors, which are found in wired and wireless communications applications, along with consumer, computer and automotive, is a market that is now forecast to rise 25.9 percent to $6.1 billion in 2003, 27.1 percent in 2004 to $7.8 billion, 19.3 percent to $9.3 billion in 2005, and 7.6 percent to $10.0 billion in 2006.
Flash products can be found in communications and digital photography applications. In 2003, this market is expected to grow 42.7 percent to $11.1 billion, grow an additional 36.4 percent to $15.1 billion in 2004, and slow its growth to 2.0 percent to $15.4 billion in 2005. In 2006, Flash is expected to increase 9.0 percent to $16.8 billion in sales.
Ultimately, no one segment more clearly demonstrates the cyclical nature of the global semiconductor market than DRAMs. While DRAMs were once used almost entirely in computers, they are now found in a broad number of consumer and communication applications. The DRAM market is expected to grow 7.9 percent to $16.5 billion in 2003 and 35.0 percent to $22.2 billion in 2004. In 2005, DRAMs are expected to decrease 20.0 percent to $17.8 billion. In 2006, this market will rebound 30.0 percent to $23.1 billion in sales.