Radical change as semi industry moves to ‘fab-tight’ model.

The semiconductor industry is going through a radical change – instead of building new capacity in advance of demand, it now builds capacity which lags demand.

This will have a major, fundamental change on the way the industry operates, asserted Malcolm Penn, CEO of Future Horizons at the company’s Industry Forecast Seminar 2010 in London this morning.

“The industry is now into ‘fab-tight’ mode,” said Penn, “we’re no longer building capacity in advance of demand.”

Despite strong GDP growth of 4.8% in 2010 and 4.2% growth predicted for 2011, the industry is sitting on its cash.

For this caution, Penn blames the reduction in ASPs which bedevilled much of the past decade.

Penn blamed a number of factors in the last decade which combined to reduce ASPs: – the 130nm yield bust which destroyed a whole generation of the Moore’s Law price enhancement which normally follows the transition to a new node; the 300mm transition which reduced die cost; the 2/3 year memory price wars; and the Intel/AMD price war which saw processor ASPs fall from $100 t0 $70.

Now, however, things have changed, said Penn – ASPs have not been falling since Q4 2009.

“You see timidity everywhere,” said Penn, “it’s a very unhealthy situation.”

However, his forecast for 2011 is not exactly bold – he’s concurring with the SIA forecast figure of 6%.

“The upside for 2011-12 is huge,” said Penn, “but memory is the wildcard.”

His top-end forecast for 2011 is 10.5%.

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