SIA Bullish on 2003-2004; Focused Companies Will Prevail

Despite the seemingly unremitting downturn, "the long-awaited recovery is underway," said Jerry Sanders, founder and chairman of Advanced Micro Devices (AMD, Sunnyvale, Calif.). "This is not the beginning of the end, but rather the end of the beginning."

Sanders was referring to the maturing of the industry, which is causing Semiconductor Industry Association (SIA) members to expect an overall growth rate of 8-10% in 2001-2005, down from the historic >18% compound annual growth rate (CAGR) of the past. Sanders presented the SIA's Semiconductor Forecast for 2003-2005 via webcast from Semiconductor International's Web site in early November.

The recovery appears to be underway (Fig. 1). SIA member companies are bullish on the future, expecting 19% growth in 2003 (to $168B) and 22% growth in 2004, to >$200B. There has been gradual resurgence in personal computer demand — the market that most device manufacturers still depend on for growth. In the past year, the industry saw the largest one-year shift in consumption patterns in history, where Asia-Pacific consumption jumped from 29% to 37%.

1. Steady improvement in quarterly semiconductor revenues reaffirms the beginning of a long-awaited recovery. (Source: SIA)

Profit margins also are not what they used to be. Though unit volume shipments of chips have increased nicely in recent months, "there is little pricing power," which is suppressing market growth, Sanders said.

During the Q&A session that followed the forecast, some members of the press pointed to the poor track record of various forecasts in this industry, including the failure to foresee the magnitude and duration of the latest downturn. Sanders defended the effort nonetheless. "At AMD, we update our forecast every 90 days. A forecast is a living thing," he said, referring to necessary alterations in this extremely volatile market. The important thing lies in accurately identifying trends and continuing to deliver desirable products to one's customers, he added.

The success of semiconductor suppliers also depends on continued innovation. "We need to maintain high investment in R&D to remain competitive," Sanders said.

2. The greatest change in semiconductor consumption patterns has occurred in the last year. Purchases by Asia-Pacific grew 30%, while all other regions were plagued with excess inventory. (Source: SIA)

The price of memory devices will play a pivotal role in the market recovery, with DRAMs expected to become a $30B market by 2004. The fastest-growing segment of the logic market is DSPs, which SIA forecasts to grow by 22% CAGR through 2005. This is followed by ~10% growth in microcontrollers and general-purpose MOS logic, while microprocessors should grow by ~8%. Other highlights include a strong analog device market (12% CAGR) and continued demand for optoelectronic devices (9%).