David Lammers

Stir $207B Into Your Coffee Cup
March 27, 2008

Count Bill McClean, president of IC Insights Inc. (Scottsdale, Ariz.), among the optimists.

His forecast calls for the overall semiconductor industry to reach ~$444B by 2012, up from $237B last year. That is a $207B increase in annual industry revenues over the next five years, a compound annual growth (CAGR) rate of ~11.5%.

“In general, when you look out the next five years, we see moderate growth forecasts compared with the previous cyclical upturns. We don’t see any 20%+ increases in the next five years, but we do see good demand-driven years in 2010, 2011, and 2012. Each of those years should have growth rates of 12% to as much as 16-18% each of those years.”

Coming against the backdrop of last night’s news, where Americans were told that gas prices would spike up 75 cents a gallon, that housing prices had yet to hit bottom, and that 4000 American soldiers have died so far in Iraq, McClean’s comments are welcome indeed.

McClean said the world economy is likely to grow 3% this year, despite problems in the United States. The U.S. economy should do “a little better next year, and then a little better each year after that. We don’t see any big upturns or down periods over the next five years, though that could be proven wrong,” he said.

Looking back at the 2002-2007 period, the semiconductor industry grew at an 11% CAGR, with a spike coming in 2004 when the industry had a 27% growth rate.

McClean’s analysis depends on demand continuing to grow. He has been pounding home the message that unit growth has exceeded 10% every year for seven years. In January 2008, that year-over-year growth rate was maintained, with 13% unit growth for the month.

McClean said the Internet will continue to be a strong driver, particularly as people in developing nations such as India and China spend to get on the digital highway. On a recent trip to Europe, McClean learned of the European hopes for 3-D television, new medical applications, and other market drivers.

The controversial part of McClean’s forecast comes on the supply side. He has argued that the major foundries are becoming more concerned with their bottom lines, and are keeping investments moderate in order to raise wafer selling prices.

Overall, chip makers are reducing their investments, dropping to capital investment rates from 23% historically to 17-18% in recent years, he said.

TSMC, for example, is investing about 20% of its revenues in additional capacity, and other companies also are setting conservative targets. With integrated device manufacturers turning to fab-lite manufacturing strategies, the stage is set for more moderate declines in average selling prices compared with the annual 5% declines seen in recent years.

“The key to this forecast is for the industry to get its supply issues under control,” McClean said.

Is there evidence of that? Large companies such as Samsung Electronics Co. are investing at about the rate demanded of their size, he said. “With 30% of the memory market, Samsung is spending for 30% or a little more,” he said, adding that the players to watch are the smaller memory manufacturers in Taiwan. If they moderate their investments instead of shooting for a doubling of their market share as in the recent past, then the memory market could return to a more healthy supply-demand balance.

“What Samsung and Toshiba and the other big companies are counting on is that they can outlast the smaller players. When technology gets to the 22 nm node, Toshiba and Samsung will still be standing. At that point, they will be more like Intel, getting a good price for their products.”

Posted by David Lammers on March 27, 2008 | Comments (0)