Economic and Analyst Predictions from ISS 2011

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Economic and Analyst Predictions from ISS 2011

HALF MOON BAY, Calif. — January 12, 2011 — The 34th annual SEMI Industry Strategy Symposium opened yesterday with economists and industry analysts presenting detailed economic and industry forecasts and their implications on the semiconductor supply chain. Despite a booming year in capital spending and IC sales growth in 2010, most analysts forecast continued moderate growth in capex and chip sales for the coming year.

Mark Durcan, president and COO of Micron, was the first day keynote speaker and discussed how Micron will thrive in a changing world, focusing on partnering, joint ventures and global scope. Durcan stressed that partners and joint ventures increase scale spreading cooperating costs across larger volumes and creating larger, more effective R&D, as well as increasing penetration into key customer accounts. Through partnerships and global sourcing of capital, Micron is committed to a broad portfolio of memory products.

“We see it as a memory business, not a DRAM or NOR business,” said Durcan. “You need to be in all the segments and you need to scale.”

Durcan briefly discussed Micron’s plan to extend their core competencies to solar and LED. Concerning new memory technologies such as PCM, Durcan admitted that Numonix has development efforts going on and it is no longer a question of if, but how big will the segment be.

Robert Fry, chief economist at DuPont, talked about the economic recovery from the deepest and longest recession since the Great Depression. Recovery in the U.S. manufacturing slowed form May to September. Then in late 2010, growth in the U.S. reaccelerated. Housing impacts the recovery, and while the level is now going up, the level is extremely low. Fry sees leading indicators sending mixed signals. While some point to reacceleration (ISM New Orders Index up strongly in October and December; stock prices up 25% since early July; etc.), others point to continued “pause.”

In terms of 2011 Real GDP (annual percent change), Fry sees 3.2% for the U.S., 1.1% for Japan, 9.2% for China, and 1.6% for W. Europe with 3.9% for C. and E. Europe. With the average for the world at 3.4%, the U.S. GDP looks about average, although it is down from the 3.9% for 2010.

Bruce Kasman, chief economist at JP Morgan, stressed that global growth is up with drags fading and indicators improving. He stated that fundamental supports are in place with the private sector shifting from a defensive posture and policymakers in help mode. However, in the U.S., depressed sentiment tempers U.S. Household “lift” because the Household sector is in the “midst of post-traumatic stress disorder.” The fundamental issue is that the U.S. needs a lot a growth to get back to 6% unemployment by 2017. Kasman expects 2011 growth at 3.7% (Q4/Q4), but sees the U.S. as “standing atop tectonic plates” with the U.S. unemployment rate in 2012 at about 8.5% at year end. While he sees a lot of challenges, 2009 came through better than expected, and 2010 will see corporate earning and some jobs, but there are still some issues of health and balance in the economy.

Industry Forecasts

Bill McClean, president of IC Insights discussed both supply and demand issues. On the demand side, he said the worldwide GDP grew 4.2% in 2010 with 3.9% forecast for 2011. He says that pent up demand for PCs, cars and more will result in double-digit growth in 2010 with 9% forecast for 2011, and 8% forecast for 2012. Growth in the IC industry is expected to continue through 2012, supported by worldwide GDP and electronic system sales growth. McClean predicts 9-10% long-term CAGR for IC unit shipments. On the supply side, he thinks that the IC industry is closed to new major manufacturing startups and that the fab lite movement will gain momentum. Another supply issue is the inevitable delays in moving IC manufacturing production to 450 mm. All this, he believes, will result in long-term stable-to-increasing IC average selling prices and IC market CAGRs of 8-10%.

McClean sees IC sales continuing their momentum into both 2011 (10% growth forecasted) and 2012 (better than 2011 at 11% growth). McClean forecasts capital spending to grow 5-6% in 2011.

Handel Jones, CEO at International Business Strategies, predicts a 7.4% growth in semiconductors in 2011, growth for 2012, and a serious global reconciliation with deficit spending in 2013. Jones focused on the many technical and business challenges in the semiconductor equipment industry. He anticipated that Intel would reach production in 22 nm by end of year, but said that 20 nm “would be very tough”, requiring novel designs such as FinFets or tri-gate structures. TSV has high growth potential will contribute about a “half a node” to Moore’s Law goals.

Dean Freeman, research VP at Gartner, used a theme of “An Industry at an Inflection Point.” Freeman said that the three key technology trends that will drive semiconductor applications are: cloud computing, social networking, and greentech/IT. Applications that will drive growth through 2014 are smartphones, mobile PCs and media tablets. He said that capital spending growth will slow after 2010. In 2010, spending was up 109%, driven by move to 4x and 3x nm capabilities. In 2011, production re-aligns with demand, slowing a bit, but strong NAND demand will drive capex growth through 2013. With GLOBALFOUNDRIES morning announcement of capex spending of $5.4 billion, Freeman predicts a positive year in global capex spending, rising to $40 billion from $38.

Jim Feldhan, president of SEMICO Research, focused on “End Markets 2011: Highway to the Danger Zone”. He makes some assumptions. He says that consumers will continue to spend on electronics and end products will have richer semiconductor content. Feldhan says that aggregate IC ASPs will decrease due to market changes and increasing supply. He predicts 2010 annual growth of 31.8%; 2011 annual growth of 8% with a capex growing 10%. Capacity utilization for 2011 will be 90+% at the beginning the year and 87% at the end of the year.

Other speakers during the day discussed the implications of economic and industry trends on application drivers, supply chain dynamics and technology trends. Mario J. Paniccia, director of Photonics Technology Lab and an Intel Fellow, discussed the emergence of “Silicon Photonics” on high bandwidth chip-to-chip communications. Bjorn Ekelund, head of Ecosystems and Research, ST Ericsson, discussed “the Smartphone Disruption” explaining the disruptive forces now in play on large parts of the value chain. Dan Armbrust, president and CEO of SEMATECH, discussed semiconductor manufacturing technology and the role of collaboration, focusing in on how much more complex the industry structure is now vs. the “idealized IDM” of the past.

January 11, 2011