This year is likely to deliver only a modest recovery when viewed from a longer-term perspective even though conditions in the global semiconductor industry are set to improve dramatically this year compared to a dismal 2009, according to market research company iSuppli.
The company predicts global semiconductor revenue will reach $279.7 billion this year, which represents an impressive 21.5% rise from $230 million in 2009, it pointed out that it only amounts to an modest 8% increase from $258.9 billion in 2008, and a minimal 2.3% expansion from $273.4 billion in 2007.
Macroeconomic factors last year dictated market conditions that were independent of the technology business, so comparisons with 2007 and 2008 provide a more accurate depiction of 2010 semiconductor market conditions, iSuppli believes.
See also: 3D TV Glasses May Cost $300
“Amid double-digit growth in revenue, rising prices, supply constraints and soaring capital equipment purchases, enthusiasm over the semiconductor industry’s 2010 outlook has hit a fever pitch. However, conditions in 2010 appear so fantastic only in comparison of 2009. In reality, 2010 is likely to simply be a year when semiconductor industry growth on a sequential quarterly basis returns to a more normal pattern,” Dale Ford, senior VP, market intelligence services, for iSuppli, said in a statement.
Understandably, it’s hard for semiconductor suppliers to not get caught up in the current optimism since when viewed as a 12-month rolling average, monthly semiconductor revenue in 2010 is set to recover at the strongest rate in history, the company said.
But this growth comes only in comparison to the depressed levels of 2009, when semiconductor market conditions faced an unprecedented type of downturn.
“Downturns in the semiconductor business historically have been driven by supply and demand dynamics within the technology market. For example, the downturn of 2001 was spurred by factors such as the dot-com bust, a strong drop in PC sales and semiconductor manufacturing excess capacity. However, 2009 marked the first time a downturn in the semiconductor industry was driven primarily by the macroeconomic environment. Seen in this context, the 21.5% annual rise in semiconductor revenue expected in 2010 actually represents a return to demand levels of 2007 rather than a dramatic growth surge,” Ford observed.
iSuppli noted that other positive indicators for the semiconductor industry in 2010 should also be viewed with some caution.
For example, mobile phone makers have reported some supply constraints for key semiconductor components but these shortfalls reflect supply bottlenecks spurred by production constraints, rather than an extraordinary increase in sales, iSuppli said. Semiconductor suppliers cut production capacity and halted purchases of manufacturing equipment last year in order to adjust to weak market conditions. As demand has returned to normal seasonal levels, supplies have been constrained in some cases, iSuppli reminded.
In another positive sign, semiconductor suppliers at present are striving to raise prices to recapture margins to make as profit as possible but iSuppli reminds that pricing trends actually have returned to historical norms this year. iSuppli said its Procurement Pricing Index predicts average prices for electronic components, including most categories of semiconductors, will decline at about a 2% sequential rate in Q1 and Q2, which is a typical rate of decline for the semiconductor industry and certainly doesn’t reflect a surge in pricing.
A third positive sign for the global semiconductor industry is the resumption of capital spending among chipmakers on chip production equipment with global spending on semiconductor manufacturing equipment expected to rise by 46.8% this year compared in 2009, bringing an end to three consecutive years of decline.
However, iSuppli said, capital spending this year will remain at very depressed levels -- less than half of what they were in 2007 and 2008 – and the planned spending by semiconductor manufacturers is primarily oriented at implementing advanced technologies to support competitive positioning, rather than at investments in expansion of capacity to meet growing market demand.
Finally, iSuppli sees other factors that could limit the ability of the semiconductor supply chain to support stronger growth are the need to restore assembly and test equipment production capacity, along with the capability of semiconductor equipment suppliers to restore capacity in order to meet demand for equipment.
By Ann Steffora Mutschler, Contributing Editor - Electronic News