Saturday, October 30, 2010

Semicon industry witnessing inventory corrections vs. industry decline!

iSuppli recently reported that although the global semiconductor industry will not repeat the blowout performance anticipated for this year in 2011, growth will continue due to the ongoing recovery in the global economy and electronics market.

According to iSuppli, global semiconductor revenue will reach $317.4 billion in 2011, up 5.1 percent from $302 billion projected for 2010. This growth cannot compare to the torrid 32 percent increase that the industry will see in 2010. With the worst of the recession behind us, revenue will continue to climb steadily after this year. Semiconductor revenue will rise to approximately $357.4 billion in 2014.

iSuppli also said that there are indications that softening demand will take hold in some segments, starting in the fourth quarter and continuing through the first quarter of 2011.

Thanks to Jon Cassell and Debra Jaramilla, I managed to catch up with Sharon Stiefel, analyst for semiconductor inventory and manufacturing for iSuppli to discuss this a bit more.

I first asked Sharon what was the main reason behind iSuppli trimming its 2010 semicon revenue forecast to 32 percent, down from its previous outlook of 35.1 percent.

She said: “The main reason for the reduction in the forecast was an over-estimate of Q2 semiconductor revenues. Factoring in the results for Q2, and calculating the numbers based on a projected slower second half, brought the overall 2010 forecast down from 35.1 percent to 32 percent.”

Inventory corrections vs. industry decline
It has been reported elsewhere that the business climate for the semiconductor industry is deteriorating. Does iSuppli believe in this?

Stiefel said: “We would disagree. There are pockets or regions where it is reported that growth is declining. However, it appears that those are inventory corrections vs. industry decline.

“With all the innovations in electronics going forward, in every sector, semiconductor content in products will continue for the foreseeable future.”

2010 is not 2000!
It has also been said that the year 2010 is becoming very reminiscent of the year 2000, where poor inventory control, fear of IC shortages, and concerns over long waiting times for leading-edge equipment spelled disaster, and led to the year ending with $10 billion in excess IC capacity and a shattered equipment industry that took years to claw out of the red and has never fully recovered until this year. Does iSuppli see a similar pattern as well?

Stiefel noted: “A lack of visibility going into Q4, combined with an inventory correction at OEM customers provides the possibility for inventories to rise to undesirable levels. This, however, is a relatively minor event compared to the situation in 2000-2001.

“Keep in mind that this recession didn’t put any major semiconductor companies out of business. They were able to reduce their production levels initially and work their way back to record revenues, gross margins and profits in 2010, at a record pace of recovery.”

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