SEMI Silicon Valley Lunch Forum
Semiconductor Sales Up 9.8 Percent in 2006: On Track to Reach $300 Billion by 2008
-- Short Term Concerns Include Inventories, Consumer Spending --
San Jose, Calif., August 24, 2006 – Semiconductor device sales will grow about 9.8 percent this year and are on track to exceed $300 billion by 2008, according to a speaker at the SEMI Silicon Valley Lunch Forum yesterday.
Held quarterly, the SEMI Silicon Valley Lunch Forums provide a venue for industry leaders and analysts to deliver up-to-date trends and data to SEMI members and their guests.
Doug Andrey, analyst with the Semiconductor Industry Association, said the key growth driver for semiconductors continues to be cell phones, expected to grow 20 percent this year in unit terms. One of the fastest growing product sectors is digital TVs, forecasted to grow 52 percent this year. Personal computers will experience 10 to 12 percent unit growth.
Andrey pointed out that for the first time, the market is experiencing strong year-on-year growth in DRAMs, but weak microprocessor sales growth. This was largely due to declining ASPs driven by price wars between Intel and Advanced Micro Devices. “Overall the industry is healthy but you will see diffferent results depending on what sector you are in,” said Andrey.
Andrey quoted iSuppli data that showed inventory levels increased by $2 billion in Q2 this year. However, the current inventory levels are only 10 percent of levels in the bubble year of 2000.
Capacity utilization increased from about 89 percent in Q1 to 92 percent in Q2. “Major foundries have come out with guidance that their utilization will decline in the third quarter. At the same time some of the major IDMs say that their utilization will increase. So there is likely to be a slight increase in the third quarter,” said Andrey.
Going forward, macro economic indicators such as rising oil prices, a slowdown in housing sales and a dramatic fall off in home equity extraction rates were concerns, according to Carl Johnson, president of Infrastructure.
“If the housing market stalls, then consumer spending will be adversely affected,” he said. “These macro events will have a big, big impact on what happens in the future. We’ve been through housing cycles before…but it means that you have to adjust your strategy accordingly.”
Meantime, the industry was “more or less still making money…but there are some clouds on the horizon,” according to Risto Puhakka, an analyst with VLSI Research, which sees semiconductors growing at 9 percent this year to $248 billion, with 5 percent growth for 2007.
Equipment sales should grow 23 percent in 2006 to $63 billion, and decline by 3 percent next year. The flat panel display sector will enjoy stronger growth, according to VLSI Research. FPD equipment sales are expected to rise 16 percent in 2006 and 14 percent next year.
Puhakka said that although inventories are rising, so are semiconductor sales. “We don't expect major problems coming up in inventory levels,” he said.
It’s a different matter for capacity utilization. “We are getting a lot more capacity in place and that will result in declining utilization rates,” said Puhakka. While the ratio will spike for the Christmas season, it’s expected to decline below 90 percent levels by the end of the year, according to VLSI Research.
Bob Johnson, an analyst with Gartner Dataquest, said the device industry can look forward to several years of moderate growth. “It’s a fairly lazy growth curve in historical terms. Going forward this is the type of picture we will have to get used to; roughly high single digit, low double digit growth,” he said.
The semiconductor equipment market was given a boost earlier this year when memory players decided to “invest like there was no tomorrow”, according to Johnson. Memory will account for more than 40 percent of capex in the three years from 2005 to 2007. “It is providing a tremendous boost to the industry right now, but that train is not going to keep rolling that fast forever,” he warned.
Gartner Dataquest forecasts that capex spending growth in 2006 will be in the range of 15 to 16 percent. Johnson was somewhat concerned about the inventory build up, noting that he doesn’t see a lot of actions to correct inventories. “This looks a lot like 2004. The inventory going up in 2004 led directly to softness in the equipment market in 2005,” he said.
John Housley, a consultant with Techcet, provided an overview on the materials market. Semiconductor materials were expected to grow 8 percent this year to reach $35 billion. Of that, the front end materials market (excluding silicon) will account for $10.7 billion. He noted that the indirect materials market was huge, estimated at $5 billion. This included products such as quartz, graphite and filters.
Housley said he was concerned about the “confrontational model” that has developed between materials suppliers and IDMs. “If they are very fortunate, they go back to the IDM with a product and [the IDM] will say, ‘I like it, it’s great. We are putting it on our roadmap and we’re going to buy our first volume from you in 7 or 8 years.’ For materials suppliers that’s a model that doesn’t work so good,” said Housley
SEMI is a global industry association serving companies that provide equipment, materials and services used to manufacture semiconductors, displays, nano-scaled structures, micro-electromechanical systems (MEMS) and related technologies. SEMI maintains offices in Austin, Beijing, Brussels, Hsinchu, Moscow, San Jose (Calif.), Seoul, Shanghai, Singapore, Tokyo and Washington, D.C. For more information, visit www.semi.org.
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