Thursday, January 27, 2011

Time to stop agonising; 2011 will be a strong year!

This is a summary by Malcolm Penn, CEO, Future Horizons. For those who wish to know more, please get in touch with me.

November’s WSTS results were distorted by a billion dollar downgrade (restatement) to the year-to-date numbers. These things do happen from time to time, but one of this size quite rare.

The overall impact was to reduce the year to date market by around half a percent; not so bad per se but, due to its leverage, it reduced the overall year-on-year market growth by a couple of percentage points!

As a result we have downgraded our 2010 forecast to (a still very reasonable) 30 percent. This falls into the category of ‘tweaking the final number’ though … it is not a change to our underlying forecast sentiment or outlook.

Re-statements aside, what then for the outlook for 2011?

Looking at our four horsemen of the semiconductor apocalypse:

1. Economy – grew ~4.8 percent in 2010 (IMF) and is forecast to grow 4.2 percent in 2011.
2. Capacity – effectively sold out; with Cap Ex spending now flat and the book-to-bill below parity.
3. ASPs – have been increasing now since Q2-2009 … six quarters in a row.
4. IC units – are in a ‘steady as you go’ mode with NO excess inventory and NO excess capacity to build any.

In short, whereas this time last year the problem was getting any orders, the problem today is getting semiconductor product. The chip market fundamentals really do not get any better than this, yet industry pessimism it at its highest since the Lehman Brothers collapse.

What concerns us is the industry perception that moving from a 30 percent growth year to single digits in 2011 heralds yet another classic chip market boom turned to bust. It does not.

The same is true everywhere you now look in the food chain … few people or firms will commit anything to any one beyond the immediate deal; business is now turn’s driven, not for strategic long-term vision or gain.

The current Mexican standoff in the 450mm wafer transition debacle is another industry supply chain mismanagement example, with the chip industry saying ‘yes please’ and the equipment suppliers saying ‘no thanks’. Yet where is the SIA and SEMI in this debate? Siding with their members rather than orchestrating a solution.

Likewise, who in the infrastructure is counting and measuring real industry demand? The WSTS in its (lack of) wisdom stopped publishing orders, and the associated book-to bill, data several years ago, despite the latter being one of the key original measurement tools when the system was created under the directionof data visionary Jack Beadle (then with Motorola).

Needless to say it was dropped for all the wrong reasons … to try to keep the financial community offindustry’s backs. As a result, the industry now has no structured order visibility!

Entering 2011 we thus see the industry fundamentals in especially good shape, a fact that can clearly be seen if you redraw the graphs to take out the ‘data crash’ caused by the Lehman Brothers collapse.

* Continuing Cap Ex famine, despite 2010’s 140 percent Cap Ex spending growth.
* Falling Cap Ex book to bill (since August 2010) now less than 1 (December).
* Six successive quarters of flat industry capacity, cruising well below excess capacity threshold levels.
* Supply-chain mismanagement; no trust, no confidence, no commitment … no business?
* Shortages everywhere … from substrates (e.g. 200mm wafers), equipment (try buying an immersion stepper or single wafer epi reactor), to lead frames (especially given the desire to move from gold to copper-based packaging).
* Industrial and automotive products now completely sold out … even memories are starting to get tight.

Do not be misled by the single digit growth number … 2011 will be a very strong year for the chip industry. 2012 will be a double-digit boom.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.