The semiconductor inventory-to-sales ratio is declining, indicating that the industry is on the verge of a substantial boom.
Although semiconductor inventories are falling, sales are going up. This is the result of soaring demand when capacity is full.
"Sales are going through the roof and there’s no capacity to build", says Malcolm Penn, CEO of Future Horizons, "sales are going up, lead times are going up, and inventories are going down because they can’t be replenished fast enough. The factories are full. The whole thing is being squeezed. The only thing that will save them is slowing seasonal demand in Q1."
The US Institute for Supply Management, a trade group of purchasing executives, said new orders rose above 60 for the third time in the past four months. The last time that happened was in 2005.
Reporting October sales figures, George Scalise, CEO of the SIA, pointed to a ‘very tight supply chain.’
The result is that the stock market analysts have woken up to the real condition of the semiconductor industry and have started marking up share prices.
Q409 figures from the chip companies are expected to be much better than forecast at the end of Q3, and company forecasts for 2010 are expected to be much more bullish than expected by the Wall Street people.
Underlying the impending surge in profitability, lengthening lead times and higher prices are recent figures from SICAS (Semiconductor Industry Capacity Statistics) and SEMI, showing the capacity and capex situations.
The SICAS figures for Q309, show the foundries running at 91.9% of capacity, industry-wide 300mm wafer production running at 96% of capacity, and leading-edge processes (those below 60nm) running at 93.5% of capacity.
SEMI expects the decline in equipment spending in 2009 to be 46%, the biggest decline since it started compiling market data 18 years ago. The 2009 decline follows a decline of 31% in 2008.
Asked why the device manufacturers aren’t expanding capacity like crazy, Penn replies: "Their logic goes like this: Q3 wafer loading (i.e. Q4’s IC shipments given the typical 3-month production cycle time) was great but this is the seasonal ‘peak’. Q1’s IC shipments (Q4 wafer starts) will be seasonally down on Q4 so if we managed to get by in Q3, albeit flat out, we’ll have enough capacity for Q4."
Penn added: "Q2’s sales (Q1’s wafers) are typically flat to slightly up on Q1, so that should be OK as well and this then leads us straight into the holiday season so any investment decisions can be postponed until after we get back. Q2 (Q3’s IC shipments) will grow nicely slopping up any remaining spare capacity but this will go largely unnoticed due to the seasonal holiday lull."
"It won’t be until Q3-2010 that the proverbial will hit the fan," reckons Penn, "back from the hols facing a seasonal Q3-Q4 growth challenge with a fab capacity cupboard that is exhausted and nothing new in the pipeline. By then it really is too late to do anything. The smart money would be building new capacity now."