SIA Predicts Broad-Based Recovery in 2004

The Semiconductor Industry Association (SIA) is calling for a strong recovery across all semiconductor end markets next year. The industry organization predicts the 2003 global semiconductor market will come in at $163B, and will surge to $195B in 2004. John Daane, SIA board member and chairman, president and CEO of Altera Corp. (San Jose), presented the forecast to more than 800 executives at SIA's 26th annual forecast and award dinner in San Jose. Semiconductor International webcast the presentation live to an additional 450+ viewers worldwide.

It is the combination of renewed demand for computers, consumer products and cell phones, combined with tight fab capacity (Fig. 1 ) and a steady increase in semiconductor content that together will bring about tremendous growth in 2004, Daane commented. In particular, he pointed to renewed spending by corporations on information technology (IT), which in the United States grew by 18% in the second quarter of 2003, and by 15% in the third quarter.

Factory utilization reached its lowest value (63%) in 2001, which recovered to 86% in mid-2003. "VLSI Research expects the utilization rate to be at least 90% by the end of 2003, perhaps as high as 95% in the leading-edge products, 0.15 µm and below," Daane said. "When utilization reaches around 90%, pricing power generally improves, especially for commodity suppliers."

1. Capacity utilization has reached a critical level where additional investment is needed to meet demand requirements. (Source: SICAS)

While the DRAM market is only expected to grow 8% in 2003 over 2002 to $16.5B, SIA expects it to rocket 35% in 2004 to $22B before shrinking by 20% in 2005 to $18B and rebounding again by 30% to $23B in 2006.

Despite the positive outlook, Daane made a strong statement about rapidly accelerating development costs and how companies must more carefully evaluate the return on investment of each chip it produces. For example, if a company wants to develop a chip, it costs roughly $30M for 90 nm design, testing, software, engineering work and photomask costs (Fig. 2 ), Daane noted. "If your company is spending 20% of its revenues on R&D, you have to make $150M on that chip. So if you have 10% of the market for that device, the market size has to be $1.5B. There are very few markets that can achieve this revenue level, so there is a trend leading away from application-specific chips to programmable devices that can be leveraged across several markets."

2. The cost of developing advanced chip technology is rising rapidly, especially in the areas of design and critical mask costs. (Source: IBS/Altera)

Reasons for optimism

Consumers are expected to purchase more electronic products in 2004, including DVDs (+30% units) and digital cameras (+14%), while consumers and businesses will purchase more cell phones (+10%) and personal computers (+11%), and companies will replace long overdue servers (+15%).

While some viewers commented that the SIA forecast seems somewhat overly optimistic, Daane responded by saying that this forecast is actually more conservative than many of the forecasts announced by industry analysts. "There is a tremendous amount of work that goes into this forecast," he said. "We take a close look at what is happening in the end markets and the actual semiconductor products, and there is a lot of back and forth activity to arrive at the numbers we are presenting today." SIA President George Scalise added, "The pricing power that is emerging is due to capacity utilization, and we haven't had that for the better part of three years, so that is a momentum builder."

It is important to note that the 15.8% overall semiconductor growth for 2003 includes a ~3% growth due to currency fluctuations; specifically, the weak dollar against the euro and yen. The SIA forecast calls for a 19.4% growth in 2004 to $195B, followed by 5.8% growth in 2005 to $206B and 6.6% growth in 2006 to $220B.

Flash memory, found in communications and digital photography equipment, will grow the fastest in 2004 at 36% to $15B, followed by DRAM at 35% and MOS memory at 32% to $42B. The next fastest growing market is DSPs at 27% in 2004 to $7.8B, followed by microprocessors at 18% to $32B, MOS logic at 15% to $41B, and analog at 15% to $30B.

To view an archive of the SIA webcast presentation, register online at www.semiconductor.net/webcasts.