Global semicon market set for slowdown due to deteriorating business climate!

Now that’s going to be very interesting, should it happen! After close to two quarters of robust growth experienced by the global semiconductor industry, a slowdown was bound to be around the corner!!

I was going through a report sent out today, by Dr. Robert N. Castellano, president of The Information Network, New Tripoli, USA, of the same title, and decided to get his thoughts.

Deteriorating business climate

Dr. Robert N. Castellano, president, The Information Network.

Dr. Robert N. Castellano, president, The Information Network.

According to The Information Network, The business climate for the semiconductor industry is deteriorating, as per its upcoming report, titled, “Hot ICs: Market Analysis and Forecast of the Top 15 IC Sectors”.

As per the report, along with fellow DRAM manufacturers Samsung, Hynix, Elpida, Micron, etc., will suffer from slowing sales of electronic gadgets and PCs. In the CPU sector, the slowdown in PC sales will affect Intel and AMD. Foundries such as TSMC and UMC will also be impacted.

As sales drop in electronic gadgets, the most pronounced affect will be in the DRAM sector, where sales grew 135 percent in Q2 2010 compared to Q2 2009. The drop in semiconductor sales will usher in a corresponding drop in semiconductor equipment and materials sales.

The front-end market will suffer pushouts and the lithography sector will be impacted most, where sales of $35 million immersion DUV tools have flooded the market of late.

Slowdown likely in world economies

I quizzed Dr. Castellano as to why the semiconductor business climate is deteriorating.

He said: The semiconductor industry is directly correlated with the economies of the world, and there is a direct correlation with semiconductor sales and worldwide GDP. Our leading indicators (LI) point to a slowdown in the world economies.

“As these proprietary LIs are correlated with semiconductor revenues, we will se a slowdown in the next few months. We are already seeing signs of a slowdown in the PC and LED indistriies. Numerous public companies have given forward guidance that the next quarter will show some weakness.”

Given the good two quarters this year, how certain is The Information Netwok that the semicon market is now set for slowdown? Dr. Castellano cited similar reasons as above, adding: “Our LIs have an extremely accurate correlation with transition times. We have developed these LIs over the past 15 years.”

What’s the impact on foundries and silicon wafers?

So, how will all of this impact the foundries?

Dr. Castellano said: “Foundries make their money from two sources: sales of ICs from fabless IC companies and sales of ICs from IDMs who do not have sufficient in-house capacity or sufficient technology capabilities for newer ICs. The macroeconomic effect will stymie sales for both revenue sources.”

Does The Information Network foresee an overcapacity situation in silicon wafers during 2011?

“No. We are forecasting 8.4 BSI (billion square inches) of Si wafers in 2010, which is up slightly from the 8.2 BSI in 2008. So, the Si manufacturers have the capacity already on hand. Semiconductor wafers will face competition from solar wafer  consumption, which will double in 2010, but polysilicon is plentiful, and the two sectors, for the most part, use different crystal growing methods,” he added.

In another of its reports, The Information Network had mentioned that semiconductor equipment pushouts are imminent. What are the reasons?

Dr. Castellano explained: “Already, sales in the equipment industry have approached triple digit growth. As semiconductor sales drop, there will not be the need for this equipment. Tools on order will be pushed out to 2011 so that the semiconductor manufacturers will not need to pay for equipment delivered, but not installed.”

2010 similar to 2000 — what can the industry learn!
I was quite intrigued to read a paragraph in The Information Network’s report, which says: “Year 2010 is becoming very reminiscent of 2000, where poor inventory control, fear of IC shortages, and concern over long waiting times for leading-edge equipment spelled disaster, and we ended the year 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.”

Why has the report likened 2010 to 2000? Also, what should the industry do to not repeat/learn from past mistakes?

Dr. Castellano advised: “Stop listening to forecasts that call for hyper growth (semiconductor manufacturers will tend to order equipment to get on a waiting list even if they don’t necessarily agree with the forecast), and stop listening to forecasts discussing shortages of a particular IC.

“Market researchers tend to try to increase exposure by coming out with press releases without understanding the real fundamentals of the macroeconomic supply side indicators that directly affect the market. The irony is that these forecasts come out in tenths of a percent as if the forecast was cut in stone.”

Captivating stuff! Wonder why those forecasts for the semiconductor and equipment industries seem to get bigger with each monthly announcement.

As The Information Network’s report concludes, “the fragile economies of the Western world do not warrant such growth.”

  1. August 18, 2010 at 5:51 pm

    This is really brilliant stuff from Dr. Castellano!

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