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.