2008: A Year of Cautious Optimism

Most analysts are expecting 2008 to be a good year for the semiconductor industry. It is a presidential election year in the United States and an Olympic year, both of which tend to spur global economic growth.

On the other hand, the United States is still feeling the effects of the subprime mortgage crisis, rising oil costs and the fear of a possible recession in 2008. This impacts consumer confidence and spending on products such as cell phones, MP3 players and high-definition TVs. More than 50% of semiconductors now go into products purchased by consumers, so this has a very real impact, which makes forecasting more of a challenge than usual.

In this issue's report, "2008 Economic Forecast: Fairly Unpredictable," Klaus Rinnen, managing vice president of semiconductor manufacturing at Gartner Dataquest (Stamford, Conn.), said that for 2008, "Our growth forecast has been revised downward from 8.2% last quarter to 6.2% now." Jim Feldhan of Semico Research Corp. (Phoenix) is predicting 11% growth in semiconductor revenues for the year, which is in line with the Semiconductor Industry Association's (SIA, San Jose) forecast of 11%. Mike Cowan, an independent analyst who uses linear regression analysis, said 8.15%. Gary Grandbois of iSuppli Corp. (El Segundo, Calif.) predicts 7.5%. Others are more negative: Carl Johnson of Infrastructure (Carrollton, Texas) expects a flat year and Moshe Handlesman of Advanced Forecasting (Saratoga, Calif.) expects negative growth, as does Steve Szirom of InsideChips.com (as stated in our 2008 Forecast Webcast).

How likely is a recession? The American National Bureau of Economic Research (NBER) defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." The last recession in the United States was in 2001. As Bill McClean of IC Insights (Scottsdale, Ariz.) notes in this issue, most economists put the chance for a U.S. recession in 2008 at ~40–50%, with the highest chance of occurrence in the first half of the year. McClean said that the last recession in the United States was eight months in length, starting in March 2001. However, the official announcement documenting the beginning of the March 2001 recession, released by the NBER was not made public until Nov. 26, 2001, just four days before the recession officially ended. "Thus, the American citizens were essentially out of the recession before they were even told it had started," McClean said.

Semiconductor revenues are also dependent, of course, on pricing, which is, in turn, a function of demand, capacity and inventory. In this month's feature, "Fab Spending Tapers in 2008," Christian Gregor Dieseldorff, a senior analyst in the industry research and statistics division of SEMI (San Jose), noted that prices for memory, especially DRAM and flash, have experienced a "shocking decline" since the beginning of 2007. Consumers are happy and, not surprisingly, demand for memory such as NAND flash is looking good.

As low prices also accelerate demand, some companies cannot keep up. In September 2007, Toshiba, for example, was unable to meet demand for its NAND flash devices, reportedly sold out through December 2007. They expect NAND bit growth to jump 120% in 2008 and 115% in 2009. Although unhappy with the lower sale prices, Toshiba plans a huge ramp up to meet soaring demand. In addition, Korean chipmakers will shift production capacity from DRAM to NAND. And, on top of all of this, memory companies are fueling the market with even larger fabs. Many fear this will accelerate a further decline in average selling price, Dieseldorff noted.

For this issue, we also asked industry executives to give us their outlook on business and technical trends for 2008. "Like a Silicon Valley day, the 2008 economic landscape will be cloudy early and clear later," said Franklin Kalk, CTO for Toppan Photomasks Inc. (Round Rock, Texas).

One realization in reading through various forecasts in this and past issues is that there is no one analyst (or executive) who is consistently right. In an email to me after our webcast, Steve Szirom noted, "Whether using correlation, inflection points, turning points, aeronometers or crystal balls, forecasting worldwide chip revenues even just one year out is still an elusive business."

A few final words on a change to the format of Semiconductor International's technology news section. We've moved to a single section with the latest news stories on technology and business; in this case, the top stories from the International Electron Devices Meeting (IEDM) held last month. The columns you've been used to seeing in print have morphed into technology "channels" on our website. Click on the "Technology Channels" tab at the top of any of our web pages, and then navigate to Wafer Processing, Lithography, Yield Management, Clean Processing, Semiconductor Packaging, Fab Facilities or the Business/Market channel of choice. As always, we'd like to know what you think!