Monday, October 26, 2009

Chip industry epitaph — “It’s A Lovely Day Tomorrow”: Semicon update Sep. ’09

Here are the excerpts from the Global Semiconductor Monthly Report, September 2009, provided by Malcolm Penn, chairman, founder and CEO of Future Horizons. There are a lot of charts associated with this report. Those interested to know more about this report should contact Future Horizons.

July’s WSTS results showed the industry recovery is continuing to gain momentum, with total semiconductor growth down 9.6 percent versus July 2008, up from minus 25.8 percent in June 2009. This is in line with our negative 14 percent year-on-year growth rate for the whole of 2009 and our 12 percent sequential third quarter growth projection.

Indeed, these forecasts are now virtually in the bag, only a further economic meltdown of Lehman’s Brothers proportion can now derail the chip market recovery. Not that this is out of the question, given so few lessons have yet been learned and little has culturally changed in the banking and financial sectors, but at least for now the chip market recovery is in full swing.

In short, there is more upside potential to our forecasts than downside risks; it’s going to be a really lovely day tomorrow.

Let the good times roll … tomorrow’s been a long time coming!

There have been wild fluctuations when looked at on an individual monthly basis meaning no single month’s data is a good indicator of the underlying trends. Each month is thus just another peg in the ground, especially during a period of rapidly changing conditions.

Whilst June’s minus 25.8 percent year-on-year growth looked much closer to our original minus 28 percent forecast for the year, rather than the minus 14 percent, we reforecast last month, this graph is backward looking and does not take into account (a) the prospective second-half-year rebound and (b) the fact we will be measuring future 12:12 growth rates against a dynamic whereby the 2009 numbers are trending up whereas the 2008 numbers were trending down, amplifying the impact of the 2009 positive monthly trends. As demonstrated by July’s results, we can now expect to see this number to trend upwards for the rest of 2009, albeit with continuing acute month-on-month fluctuations.

As can be seen, there is very little sensitivity now to the 2009 outcome, with 2009’s market coming in at around $ 215 billion.

Mathematically, a $215 billion 2009 chip market would result in a market the same size as it was in 2004, a five-year CAGR of 0.2 percent. An ideal number for the short sighted to drive nail a in the chip market ‘told you growth is over’ coffin. To mis-quote Jerry Sanders III … “Nuts”. CAGRs are notoriously flawed and should all come with ‘Numbers Can Seriously Damage Your Health’ warning. Depending on your start and finish point, you can derive any growth number you want. As shown in Figure E4, CAGRs for the industry over successive five-year periods from 1999 to 2010 vary dramatically, from 0.2 percent to 12.7 percent. Caveat Emptor.

As with all industry statistics, numbers need to be interpreted very carefully indeed, especially in an industry where the supply-side dynamics are driven by long (five year) design and investment decisions and the demand-side works on lead-times measured in months.

The reality is there is no substitute for a long-term plan with clear CEO vision and direction. History has shown sound industries are built around visionaries and leaders; falling foul only when greed and the pen pushers take control. As with life, even good businesses grow old and eventually loose momentum, giving way to the new upstarts vying for control of their chosen patch. It is never easy, however, to hand over the reins and growing old gracefully is difficult to achieve.

Even more difficult is reviving an aged organisation to compete against the new status quo. As history has shown over and over again, it is impossible to turn a company around once it has allowed itself to become ‘old’, where ‘old’ is much more an attitude of mind than physical age.

No amount of product pruning or reorganisation can downsize or rejuvenate a time-expired organisation. Better by far not to have allowed the firm to stagnate in the first place, which again points back to vision, leadership and a clear, well-executed long-term strategy. Loose sight of the direction and/or sacrifice tomorrow for today and you loose control of the company.

Despite conventional wisdom, there are more than enough chip market opportunities to fuel significant growth over the next many years, so long as you have the courage to ride the chip market ups and downs. In the words of Irving Berlin, and a song that could well have been the anthem of the chip industry …the only clear message is “It’s A Lovely Day Tomorrow”.

“It’s a lovely day tomorrow, tomorrow is a lovely day, Come and feast your tear-dimmed eyes on tomorrow’s clear blue skies, If today your heart is weary, if every little thing looks gray, Just forget your troubles and learn to say, tomorrow is a lovely day.”

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