2008 Semiconductor Industry Growth and 2007 Rankings and Revenues - iSuppli. 

The semiconductor growth cycle is entering a period when traditionally an acceleration in revenue growth would be expected. However, with the current cycle delivering such weak growth and with economic worries mounting, concerns are rising over whether the semiconductor industry can regain its momentum and manage to expand this year.

iSuppli's current forecast calls for the global semiconductor industry to achieve revenue growth of 7.5% in 2008, up from 4.1% in 2007. But amid signs of weakening pricing and reduced demand for NAND flash, as evidenced by Apple's recent slashing of its expected 2008 order levels for the memory and Intel's financial warning, iSuppli expects to modestly trim its 2008 semiconductor growth forecast later this month.

With the current growth cycle having hit bottom in February 2006, the semiconductor market normally would be expected to undergo a robust rebound in early 2008, following the industry's normal cyclical pattern. However, the current cycle is generating so little growth that a strong market expansion is not expected this year.

Despite this, factors including tighter inventory controls and a limited economic downturn are expected to keep semiconductor growth positive for the year, noted Dale Ford, senior vice president, market intelligence at iSuppli.

Inventory on the wane

Ford noted that semiconductor cycles tend to lose momentum due to supply/demand balance factors within the electronics value chain, rather than because of overall end-demand issues. An imbalance in supply/demand is most easily seen through an analysis of excess inventory levels.

"In the early stage of the expansion, we see the sales momentum return, we see the growth come back and we see companies eager to capture market share," Ford said. "Thus, we have over production and over capacity. Then, later on, the market must bring things back into balance, which leads to a correction."

However, Ford noted that the inventory situation shows that the industry is currently in a reasonably healthy balance at this point in the semiconductor growth cycle.

"The last major downturn (in 2001) had a perfect storm of over-build of capacity, a collapse in demand and out-of-control inventory levels," Ford said. "The industry has gone through a learning period on how to manage capacity more tightly. We're now getting an earlier warning signal for excess inventories. Once there was a signal that inventories were out of balance, the industry responded quickly to get them back into balance. Once the inventories stabilize, we will see a return to balance between production and demand."

Ford noted that excess semiconductor inventories in the electronics value chain are expected to fall to the US$3.3 billion range in the first quarter. This will be down dramatically from its peak of US$6.1 billion in the first quarter of 2006.

Meanwhile, semiconductor makers plan to manage overall factory utilization in 2008 at levels comparable to 2007, helping to restrain supply growth and to keep pricing from falling too much for many semiconductor part types.

Furthermore, Ford said that most economists predict the US economy will show either slow growth or experience a mild recession in 2008 but will avoid a major recession this year. With global electronics manufacturing growth projected to drop modestly in 2008 compared to 2007, this will limit the negative economic impact on the semiconductor industry.

A shrinking cycle

The lack of a major increase in semiconductor revenue growth momentum reflects a long-term trend in the chip industry toward more restrained expansion.

"It's interesting to go back 20 years and see the shifts in long-term growth rates," Ford said. "Years ago, the global semiconductor market maintained a 27% compound annual growth rate (CAGR), then it slowed to 17%, and now we are in a period of approximately 7% long-term CAGR. These are maturing dynamics. This is a larger and more mature industry-and it's acting like a larger and more mature industry."

Second quarter showdown

Whether the semiconductor market can shake off its woes and achieve growth in 2008 will hinge largely upon the industry's performance in the second quarter, Ford predicted.

The first quarter will be seasonally slow, with revenue declining by 7.5% compared to the fourth quarter of 2007. However, revenue growth will rebound in the second quarter, rising by 4.6% sequentially.

With flat growth of 0.1% in the fourth quarter and an 11.8% increase in the seasonally-strong third quarter, the second quarter performance will be a key indicator of market momentum for the second half of 2008.

"This is where the fate of the year lies," Ford said. "Whether the year turns out well or not, the second quarter is the best indication of what will happen this year."

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2. Surprising weakness in the memory chip market in the fourth quarter of 2007, says iSuppli

Press release, March 19; Esther Lam, DIGITIMES                                                                                                           [Thursday 20 March 2008]

Surprising weakness in the memory chip market in the fourth quarter of 2007 took the wind out of the sails of the global semiconductor market, causing growth in 2007 to fall short of expectations, according to research firm iSuppli.

The research firm estimates that global semiconductor market revenues grew by only 3.3% in 2007, versus a 4.1% growth the firm projected in November 2007. Worldwide DRAM revenues fell by 19.1% on quarter in the fourth quarter, versus iSuppli's earlier forecast of a 4.7% decline. Meanwhile, NAND flash revenues declined by 3.9% in the same quarter, well below iSuppli's previous forecast of a 3% growth.

Lower-than-expected memory (both DRAM and NAND flash) revenues in the fourth quarter caused overall memory revenues to decline by 11% sequentially, down from iSuppli's prediction of a 1.2% growth. The previous growth estimates presented by iSuppli were heavily influenced by the fourth-quarter revenue guidance presented by semiconductor suppliers in their communications with the investment community in October and November. Clearly, this poor performance in the memory market was significantly below industry expectations for the fourth quarter, iSuppli noted.

"This was a complete role reversal for memory semiconductors compared to 2006," said Dale Ford, senior vice president, market intelligence, for iSuppli. "During the second half of 2006, memory IC revenues helped to prop up the growth of the overall semiconductor industry. In 2007, the poor results for memory chips restrained overall market growth. If memory were excluded from the revenue total, the semiconductor market would have grown by 2.4% in the fourth quarter. However, due to the influence of the weak memory market, total semiconductor market revenues fell by 0.5% in the fourth quarter."

Memory divergence

Weak market conditions had a major impact on most memory suppliers in 2007, including Nanya Technology and Qimonda, which saw their memory IC revenues fall by 32.4% and 26%, respectively, for the year.

The world's leading supplier of memory chips, Samsung Electronics, experienced a decline of 3.3% in its memory semiconductor revenues in 2007, contributing to a 0.8% decline in total chip revenues for the year.

However, there were some exceptions to the weak conditions in the memory segment. Hynix Semiconductor and Toshiba and Elpida Memory achieved memory-chip revenue growth of 15%, 14.5% and 8.8%, respectively, in 2007.

Source: iSuppli, compiled by Digitimes, March 2008

Semiconductor standouts

Outside of the memory segment, several companies and product categories posted impressive performances, iSuppli noted.

Infineon Technologies in 2007 jumped to the world's number-nine ranking among global semiconductor suppliers, up from fifteenth in 2006. During 2007, Infineon acquired the DSL customer premise equipment (CPE) chip business and wireless baseband semiconductor unit of Texas Instruments, adding a boost to its revenues. Infineon had fallen out of the Top-10 ranking in 2006 after it split out its memory unit to form Qimonda.

Infineon in 2007 returned to the Top-10 rankings with a revenue rise of 21.1% compared to 2006 due a combination of organic expansion and new revenues from its acquisitions.

Sony achieved extraordinary growth of 55.5% in 2007, propelling it to number-eight in the global rankings, up from fourteenth in 2006. However, it must be noted that this growth was driven by business within Sony. The key factor behind this growth was demand for chips for Sony's own PlayStation 3 (PS3) video-game console.

Toshiba also benefited from supplying chips for the PS3 as well as its success in NAND flash memory. The Tokyo-based semiconductor supplier attained the third-highest revenue growth among the Top-10 suppliers in 2007 with an increase of 20.2% from 2006. This has positioned Toshiba to vie with TI for the world's number-three rank in 2008.

Fabless is fabulous

With the exception of Sony, it was two US fabless semiconductor supplier – Qualcomm and Nvidia – that led the growth among the Top-25 chip companies during 2007. Qualcomm's revenues grew by 24.1% as it moved up three positions in the rankings to reach thirteenth place. For the first time, a position in the Top-10 is within reach of a fabless semiconductor supplier. Nvidia achieved revenue growth of 34.4% and leaped from number 25 to number 20 in the rankings. Nvidia's revenues also received an additional boost from its acquisition of PortalPlayer during 2007.

The big get bigger

Overall, the Top-25 semiconductor suppliers significantly outperformed the combined performance of companies ranked lower than them in 2007. The Top-25 as a group achieved revenue growth of 4.5% in 2007 while the combined growth of all other semiconductor suppliers was only 0.8%.

Chip highlights

Other notable developments in the 2007 semiconductor market included:

Logic application specific integrated circuits (application specific standard products and ASICs) enjoyed the strongest performance of all semiconductor segments in 2007 with growth of 12.9%. Sony and Toshiba were the key drivers of growth in this segment due to their sales of semiconductors for the PS3. Among the Top-10 suppliers in this market, Nvidia also achieved an outstanding year.

Other product categories that enjoyed above-average revenue growth in 2007 were optical semiconductors, with a 7.4% rise and sensors and actuators with a 7.3% expansion. Discrete semiconductors even managed growth of 4.2%.

In the microcomponent category, Intel enjoyed a return to healthy growth in its microprocessor revenue, with an 8% rise in 2007. This growth came at the expense of fellow US-based firm AMD, which saw a significant decline in its microprocessor revenues. Overall, microprocessor revenues grew by 2.1% in 2007.

Global revenue growth for analog ICs amounted to 2.9% in 2007. Among the Top-10 suppliers of analog ICs, Qualcomm and Infineon delivered notably strong revenue growth with increases of greater than 20% for the year.

Among applications for semiconductors, automotive electronics drove the highest growth opportunities in 2007 with 11.2% growth. Regionally, Asia/Pacific accounted for the highest regional growth as it expanded by 6.6% in 2007.

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