Market Improvement?
James Haughey, Director of Economics, Reed Business Information -- Semiconductor International, 7/1/2005
The weak market for semiconductors showed signs of improvement in April, even though world shipments were nearly unchanged from March. The annual sales pace in April reached $219B, up only slightly from last year's $213B. Sales will not edge much above the April pace until the end of the summer.
There are three signs of an imminent market improvement in the past few months' sales reports. Overall, IC average selling prices have declined and unit sales volume has increased, unit volume has increased for low-price standard parts, and prices have declined for high-price commodity parts.
The 7.5% decline in IC prices in April was approximately offset by higher unit sales. Together, the IC price and volume changes suggest that fundamental demand is rising again, even as the tail end of inventory reductions keeps prices depressed. The recent sales volume increases for discretes, standard analog and standard logic parts confirm this. These high-volume, low-price parts, heavily sold through distribution, usually are more impacted by inventory swings than are other parts. Steady seasonally adjusted circuit sales revenue in April in spite of 7% price declines for DRAM and microprocessors is evidence of rising parts demand outside of the always volatile PC market. The 20% price drop from early 2005 for the main components of PCs is a mini-cycle within a broader market cycle and not caused by a weak computer market. In the United States, the largest market, factory computer shipments, increased 14% since the end of last year.
These hints of market expansion have prompted the upward revision of many 2005-2006 semiconductor shipments forecasts. Several prominent forecasts for 2005 have been marked up from near 0% to about 5%. We still expect a 7% sales gain this year, an 8% rise in 2006, and more growth in 2007. Persistent cheap credit threatens to push spending past current GDP forecasts in the United States and China.
Market recovery continues to lag in Japan. Circuit shipments to Japanese buyers fell 5.5% in April, while buyers in all other regions increased their purchases. Shipments of electronic systems from Japanese factories dropped 7.5% in April while inventories rose nearly 4%. Japanese manufacturers are again responding late to a buildup of surplus inventories. The inventory problem is being aggravated by an abrupt growth slowdown in the domestic Japanese economy. GDP growth spurted to a 5.3% annual pace in the first quarter, but now appears to be back in the 0-1% range, based on early spring reports of weak retail sales and the return of the deflation rate to over 3%.
April sales were approximately unchanged from March but weaker in Japan, off 10% and slightly weaker in Europe; also handsets and DSP (prices) both depreciated ~2% vs. the U.S. dollar in April through May; that trend has held in Japan but reversed in Europe.
