Bill McClean: Don't broad-brush the semiconductor market

Interview conducted and edited by Suzanne Deffree, Managing Editor, Online -- EDN, December 12, 2011

2011 started off great, full of optimism and high growth expectations for the semiconductor industry. But that mellowed as the year progressed, and now, as 2011 comes to a close, recent estimates call for low-single-digit growth, which could appear meager compared with previous estimates for double-digit growth. What’s your take on that?

A: We have the total semiconductor market at 2% [growth] for this year. At the beginning of the year, we were at about 10%. A few things came along and hurt that higher scenario. One was all of the uprisings in the Arab world that served to raise oil prices. Our original forecast for the worldwide economy GDP growth was 3.9%, and it looks like it is going to come in at 3.3%. That [fact] is really the key to why the semiconductor market did not do better. Of course, there was the tsunami in Japan that disrupted the supply chain and created additional uncertainty out there. The US debt-ceiling fiasco this summer and the ongoing situation in Europe [created] more uncertainty.


Were there any areas of the market that did not do as well as expected in 2011?

A: One of the key areas that really took a beating this year was the DRAM market, going down 25% this year. If you look at the semiconductor market without DRAM, market growth would be close to 6% [for 2011]. Prices are starting to firm up in the DRAM market, which is a good sign going into 2012. The oversupply is likely to be gone. In general, there was an inventory issue [across the IC market in 2011]. … We see the IC market going into next year in somewhat of a steady state—not excess inventory [and] not a shortage of capacity. Our view for 2012 is really dependent on what the worldwide economy does, and our forecast for next year is 3.5% growth for worldwide GDP. Given that [situation], we are looking at a 7% increase for the semiconductor market next year. It’s pretty tied to what happens in the worldwide economy.

Going back to 2011, overall we may be looking at 2% growth, but there are semiconductor-industry companies that will outdo that. Companies on the IC Insights Top 20 list would show 6% growth if examined exclusively. Were there any markets that really shone in 2011?

A: The smartphone is going to increase 63% in units this year, and that [growth] was after a 64% increase last year. The smartphone market takes a lot of flash memory. The NAND flash market is doing pretty well this year. We have it going up 13% this year. Application processors that go into cell phones are doing very well this year. That market is going up more than 20%.

The microprocessor market is doing pretty well because average selling prices are holding up. The microprocessor market [should] be up 15% this year. Unit volume is up only 4%, but the average selling price is up 10%. The pricing for some of these microprocessors going into servers and even in some PCs is firm, and some have increased.

You definitely don’t want to broad-brush the entire market with a 2% brush because, as the Top 20 list shows, there are wild swings, [and] there are double-digit growth rates and double-digit declines.

As we conclude 2011 and move toward 2012, how do you feel overall? Are we happy with 2% growth?

A: Overall, it could have been better. There were a lot of things that conspired to create the low growth. We were really looking for a much better market this year. Given this state of the world economy, it’s holding its own and doing as well as can be expected.

Going into 2012, there’s not a lot of optimism. Most forecasts are around ours for GDP, but, again, those are forecasts. We started out last year with a lot of people pretty optimistic, so [2012] could go the other way, as well.

In the US economy, there’s 9% unemployment now, but what really matters to the economy is how the other 91% feel. If they have a scared attitude, an uncertain attitude, it is not going to do very well. If they feel confident, if the unemployment rate goes down and people start to say that it’s getting better or not getting worse, ... people will get off the fence. Once things start turning, purchases can do better than [estimates]. There’s some hope. Growth in the mid- to high-single digits is still very doable next year, even given the mediocre outlook.

Any thoughts on 2013?

A: We’re thinking it’s going to be a little slower than 2012. Again, as in the past, there is a postelection cycle. The United States has its presidential election next year, and things [such as unemployment-benefit extensions and payroll-tax cuts] will be extended because politicians want to be re-elected. Those [things] will give a little boost to the economy. The problem is that, if you extend that [move] through 2012, in 2013 after the elections, [politicians] start to get tougher. So, we’re looking to a slower market—not a disaster. We don’t think there will be a big overbuild or inventory issue in 2012 that will need to be adjusted in 2013. We’re looking at mid-single-digit growth for the semiconductor industry. As the world economy does recover, the housing market recovers, and all of these things get better over time, 2014 and 2015 could be really big years approaching and exceeding double-digit growth for the industry.