By Mark Lapedus, SemiMD senior editor

Not long ago, the IC industry looked promising for 2011 and beyond. Demand for smartphones, tablets and other products were robust.  And consumer confidence was relatively high.

While the tablet PC market continues to surge, lackluster demand and bloating inventories for DRAMs and other chips have spoiled the party. Plus, the economic woes, coupled with the recent and natural disasters in Japan and Thailand, have put a damper on the overall market. Most recently, the flooding in Thailand has hit the disk drive supply chain.

For that reason and others, the World Semiconductor Trade Statistics (WSTS) group has lowered its IC forecast. In June, the WSTS forecasted the semiconductor market would grow by 7.6 percent to $338.4 billion in 2012, following an estimated 5.4 percent increase to $314.4 billion in 2011. In 2010, the industry recovery — driven by enterprise and consumer spending — resulted in 31.8 percent growth, totaling $298.3 billion.

In the latest forecast, the WSTS expects the worldwide IC market to surpass $300 billion by the end of 2011 for the first time in semiconductor history.  The total revenue in 2011 is projected to be $302 billion.

Now for the bad news: This figure reflects a less-than-average growth of 1.3 percent over 2010. Looking forward, WSTS forecasts the worldwide semiconductor market will grow by 2.6 percent to $310 billion in 2012 followed by 5.8 percent growth to top $328 billion in 2013.

“In 2011, the semiconductor industry had to weather the slowdown of world economies from financial turmoil due to European debts concerns, clear declines of industrial and consumer confidence, as well as the supply chain disruptions by the earthquake disaster in Japan and recent flooding in Thailand,” according to the WSTS.

“For product category, an oversupply in PC/notebook DRAM results in a sharp decline in memory revenue, though the overall market is offset by healthy growth in microcontroller ICs, sensors and discrete semiconductor segments,’’ according to the WSTS.

It’s not all doom and gloom in the market. “Order activity remained relatively flat due to the Thanksgiving holiday week in the U.S.  Retail sales grew 9 percent higher than last year’s, which indicates that holiday demand is off to a good start,” according to VLSI Research Inc.  “However, a lot depends on whether consumers can maintain the momentum until the end of the year when discounts might not be as big.”

The research firm recently raised its IC forecast to 2.3 percent growth in 2011, compared to 2.1 percent in the previous forecast. The firm also cut its IC forecast to 4.5 percent growth in 2012, compared to 4.8 percent in the previous forecast.

VLSI recently cut its fab tool forecast to 9 percent growth in 2011, compared to 10 percent in the previous forecast. The firm has cut its fab tool forecast to minus 21.6 percent in 2012, compared to minus 20.5 percent in the previous forecast.

On the bright side, the meteoric growth of touch-screen tablet computers has become a major force in the large consumer market. In 2011, total personal computer units (including tablets) is forecast to climb to 414 million systems worldwide, which would be a 13 percent increase over 366 million in 2010, according to IC Insights Inc.

However, if tablet computers are excluded from the market total, PC unit shipments are expected to grow by only a little more than 1 percent in 2011 to 353 million systems compared to 349 million in 2010, according to the firm.

Worldwide purchases of touch-screen tablet computers are expected to increase at a CAGR of 81 percent between 2010 and 2015, while standard notebook PCs (including netbooks) are forecast to grow an annual average rate of slightly more than 7 percent in this time period, according to IC Insights.

“The sharp upswing in tablet sales is undercutting growth of standard PCs.  The look and feel of tablets, along with slick marketing campaigns by Apple and competitors, has convinced a growing number of consumers to buy touch-screen systems instead of new standard notebooks,” according to IC Insights.

Hans Mosesmann, an analyst with Raymond James & Associates, agreed, prompting him to reduce his estimates for Intel. “We are reducing our estimates for Intel on what we suspect will be muted unit trends related to the flooding in Thailand,” he said. “While IDC estimates that the PC unit shipments will only be hurt by a mere 70 bp in 2012, this analysis assumes that the shortage is resolved by 2Q ‘12 and that demand trends return to normal (or better) when sufficient supply is returned.”

Lackluster PC demand has hit the DRAM business.  “Note that spot DDR3 pricing is down 20 percent plus on average quarter to date, which is likely due to unwillingness from OEMs to purchase products given HDD supply concerns. That said, this has prompted a number of DRAM suppliers such as Elpida and Promos to reduce DRAM production capacity, and we suspect that at least 5 percent of industry capacity has come offline,” said Mosesmann.

“While this will likely not be enough to alleviate pricing pressure in the face of lukewarm demand coupled with flood-related industry supply issues, it does bode well for pricing dynamics longer term,” he said.

Gregory Wong, principal analyst at Forward Insights, a research firm, said the picture is different for NAND. “Demand is softening as the holiday build is pretty much done.  Next year demand will be remain good with ultrabooks driving demand along with smartphones and tablets. And SSDs will see an uptick due to the HDD shortages.  However capacity and technology migration output coming out this quarter into first half of next year will result in price declines into the first half of 2012,” Wong said.

Shipments of DRAM for use in smartphones is set for triple-digit growth this year, outpacing the expansion of the entire DRAM market by a factor of three, according to IHS iSuppli.

DRAM shipments in smartphone handsets, as measured in 1 gigabit-equivalent units, are expected to rise to 1.7 billion in 2011, up 157.2 percent from 672.0 million in 2010, according to the firm. By 2015, shipments will increase to 13.9 billion units, up 700 percent from 2011, according to the firm.

Smartphones’ share of total DRAM consumption will grow to 7.6 percent this year, up from 4.4 percent in 2010. This will expand to 10.6 percent next year and then climb to 13.4 percent in 2013, 14.9 percent in 2014 and 16.0 percent in 2015, according to the firm.

Average DRAM density in smartphones is set to increase in the years to come. Projections call for the average smartphone DRAM density to reach 715MB next year, up 55 percent from 461MB in 2011, with no near-term limitations on growth.

Mobile DRAMs for smartphones are specialty DRAMs with low power features. These devices support faster processors, higher resolution displays and 3D graphics in high-end, next-generation mobile devices.

Vendors are now developing new LPDDR3 devices for good reason: Today’s mobile systems are expected to hit the bandwidth wall in the future, thereby requiring LPDDR3 or other next-generation memory technologies.

Samsung claims it has recently developed the industry’s first LPDDR3 (low power double-data-rate 3) device for the mobile DRAM market. Based on 30nm-class process technology, the monolithic, 4-gigabit (Gbit) LPDDR3 device is geared for mobile applications such as smartphones and tablet PCs, according to Samsung.

“DRAM usage in smartphones is rising at a rapid clip, as a result of high memory densities in these devices, along with ever-rising sales to consumers,” said Clifford Leimbach, analyst for memory demand forecasting at IHS.

“Compared to this year’s stunning DRAM growth in smartphones, a shipment expansion amounting to a much less spectacular 50 percent is expected for the total DRAM market, which is dominated by sales to the PC business,’’ he said. “The major growth disparity between the two sectors explains why DRAM manufacturers are aggressively vying for a bigger piece of the cellphone DRAM market. While DRAM also is used in devices like tablets and PCs, smartphones will continue to command an increasing portion of the DRAM market.”

Overall, however, DRAMs are mired in a slump. In total, DRAM capital spending is projected to hit $7.150 billion in 2011, down 41 percent over 2010, according to Barclays Capital. DRAM capital spending is projected to hit $6.689 billion in 2012, down 6 percent, according to Barclays Capital.

“For DRAM as a whole, we believe spending is unlikely to rise meaningfully from near-trough 2011 levels. We believe continued sluggish demand in PCs into 2012 coupled with minimal growth in bits per box is likely to drive DRAM bit demand growth in the low 40s in 2012, with potential downside to the high 30s,” said C.J. Muse, an analyst with Barclays.

“DRAM’s decline accelerated last week as traders cleared inventory on growing fears that demand in Q4 will be softer than expected, according to VLSI Research.

“The overall spot price-per-bit for DRAM fell 1.6 percent, following a 0.7 percent decline the previous week. Mainstream DDR3 led the decline with spot prices for 1-Gbit falling as much as 5 percent and those for 2-Gbit dropping nearly 3 percent,” according to the firm.

Sematech announced the speakers for the 2011 International Symposia on Extreme Ultraviolet Lithography (EUVL) and Lithography Extensions.

Jia Li of Nvidia, Han-ku Cho of Samsung Electronics; and Risto Puhakka of VLSI Research, will address the conference, planned for Oct. 17-21 at Miami’s JW Marriott Marquis Hotel. The EUVL event is organized by Sematech, in cooperation with EIDEC and Imec, while the Lithography Extensions Symposium is in cooperation with Imec.

Jia Li, director of wafer foundry operations at Nvidia, leads a team evaluating 20nm and 14nm process technologies, including the readiness of EUV for and the extendability of 193nm immersion lithography to the 14nm node. His speech will address lithography challenges, including critical dimension/line-edge roughness (LER) control, defect elimination, and throughput.

Han-ku Cho, vice president and head of the photomask team at Samsung Electronics, is the keynote speaker at the 2011 International Symposium on Extreme Ultraviolet Lithography. Cho joined Samsung’s Electronics Semiconductor Business in 1995 and has served as vice president and director since 2007, in charge of production, management, and technology development of the Photomask Team at the company’s  Semiconductor R&D Center. Cho led the Korean government program in EUV lithography for nine years.

Cho’s topic, “EUV Readiness and ASML NXE: 3100 Performance,” will look at the current status and readiness of EUVL as well as the EUV mask fabrication process from the viewpoint of a device manufacturer. He will include imaging performance and issues related to the NXE: 3100, as well as achievements and prospects in EUV resist development focused on line width roughness reduction.

Risto Puhakka, president of VLSI Research, Inc., is the keynote speaker at the 2011 International Symposium on Lithography Extensions. He will explore the conditions that enable innovative lithography technologies to be introduced into mainstream semiconductor manufacturing.

IHS iSuppli has cut its semiconductor revenue growth forecast for 2011.

The latest forecast predicts semiconductor revenue will rise by a mere 2.9 percent in 2011 to reach $313.3 billion, up from $304.5 billion in 2010. This compares to the previous forecast issued in August of 4.6 percent growth.

“Mounting economic weakness is taking its toll on the worldwide electronics and semiconductor industries just as these markets are entering the critical pre-holiday sales season,” said Dale Ford, vice president of electronics supply chain and semiconductors for IHS.

“While economic challenges have persisted into 2011, consumer spending could have still sustained a reasonable level of growth in electronics demand if conditions had remained reasonably stable,’’ he said.

“Unfortunately, the accelerating decline and instability of the economy has reasserted itself as the primary driver of tepid electronics and semiconductor revenue growth in 2011,’’ he said. “The continuing impact of a weakened and stagnant economy is expected to continue to drag on the semiconductor market in 2012, limiting revenue growth to 3.4 percent.”

Propelled by growth in smartphone and media tablet shipments, semiconductor revenue in the wireless market is expected to jump by 16.7 percent in 2011, according to the firm.

In spite of pressures on the notebook PC market by media tablets, expected mid-single-digit growth in PC shipments should enable semiconductor revenues in data processing markets also to expand in the low single-digit range, according to the firm.

NAND flash, image sensors, light-emitting diodes (LEDs) and other sensors are expected to achieve strong double-digit growth, while DRAM revenue is set to fall by more than 18 percent.

Others have also lower their IC forecasts. In comparison, Semico recently released its industry forecast outlook for the balance of 2011 and 2012. Semiconductor sales will end the year 1.6 percent lower than 2010, according to Semico.

The semiconductor market is on pace to have revenue total of $299 billion, a decline of 0.1 percent from 2010, according to Gartner Inc., a market research firm. This outlook is down from Gartner’s previous projection in the second quarter for 5.1 percent growth this year.

The deteriorating fundamentals in the silicon foundry arena, along with ongoing weakness in DRAM, have prompted VLSI Research to cut its worldwide chip forecast to 3 percent revenue growth in 2011, compared to its previous forecast of 8 percent.