SIA maintains rosy 2008 semiconductor forecast, others expect recession

A panel of industry watchers chime in with their thoughts on what 2008 holds for the semiconductor industry.

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 12/20/2007

With 2008 shaping up to be an interesting year already -- with concerns of a recession in the U.S., a presidential election in November, Olympic games that should boost the global economy, and the sub-prime mortgage situation -- the impacts of the global economic climate on the semiconductor industry remain to be seen. In an attempt to decipher some of the signs and what it means for the semiconductor industry, EDN sister publication Semiconductor International held a roundtable discussion via webcast Wednesday to discuss just that.

Anne Craib, director of market research, international affairs and finance at the Semiconductor Industry Association (SIA) said the group is “looking at somewhat slower growth than we’ve seen in the past, but we are still confident we will reach 7 to 8 percent compounded annual growth …clearly in 2008, part of the underlying factor that we have taken into account is the global economic situation. One of the things that we have to be particularly concerned with right now is the impact on the consumer. Semiconductor demand is driven over 50 percent by consumer demand currently, so that is something we need to be increasingly aware of in areas like gas prices and the home mortgage market – things we previously would not have paid attention to, that we have had to take into account in our forecasting this cycle.”

2007 was a fairly flat year – or a correction year some are saying – with growth negative in the first half but overall a growth of approximately 3 percent, Craib added, “We believe we are going to come out closer to 4 percent.  Yes, it has been a slightly slower year driven by pretty extensive competition in a couple of very large sectors including memory and microprocessors. So what we’ve seen is really rapid unit demand growth and erosion on the other side on ASPs [average selling prices].”

A big change that is happening in the semiconductor industry is that now more than 50 percent of devices are going into consumer electronics, so increasingly, things like holiday spending over the Christmas season really does have an impact on the semiconductor industry. With the possibility of a recession in the U.S. in 2008, the webcast moderator, SI editor in chief Pete Singer asked the participants how this might impact the semiconductor industry.

Steve Szirom, president of market research firm InsideChips.com said, “The home equity ATM machine will no longer be available next year as a driver for consumer spending and that’s going to have a big impact. Many economists are predicting a greater probability of a recession in the U.S. next year and that has to impact the forecast to quite a big extent next year. I see the demand/supply balance better, so while the ASPs will be somewhat better than this year, we may be headed for a demand-driven recession. Although we’re not sure what the final impact will be, I think there will be a recession.”

Gary Grandbois, principal analyst at market research firm iSuppli Corp. agreed. “I think we have a high probability of a recession, and maybe it won’t happen but there’s enough nervousness around that we are already seeing some slowing in the market. Our input from Asia is that they are very nervous and they see the market slowing. At iSuppli, we have reduced our forecast to 7.5 percent for 2008 and think it might go lower than that. We’re seeing a more negative outlook for 2008 especially the first half, which is likely to repeat the problem we had in 2007. We think its going to be a negative first half. Certainly in the DRAM area, it’s looking very poor. We will have a very weak first half in 2008; we think it will improve in the second half – again – almost mirroring 2007, but giving us a far weaker year in 2008 than we’d expected in the past.”

Next, Richard Gordon, managing VP, semiconductors for Gartner Dataquest Research chimed in, pointing out that Gartner is also expecting a negative year on the DRAM side but believes it is driven by overcapacity and overinvestment in 2007 rather than any recession scenario, also noting that Gartner’s forecast for 2008 is about 6 percent, which doesn’t factor in a U.S. economic recession, that it believes has a 35 percent probability of coming to pass. Should a recession occur, Gartner believes it will impact the demand side of the semiconductor industry, both from consumers and the business side as well. “I think with a 6 percent forecast for next year, the only alternative scenario is a downside to that, and the industry could actually fall into negative growth next year if there is a serious problem on the demand side.”

On a more optimistic note, Jim Feldhan, president of Semico Research Corp. said he believes a recession is a little less likely – with about a 30 percent chance for a recession, however, “next year is an election year. We’ve already seen three interest rate reductions so I think the current administration is going to do as much as it can to improve the economy next year. It’s fairly unusual to have a recession during an election year but we have a historically reasonably good semiconductor years even with not a very good economy. When we look at the end markets, the notebook market looks very strong next year: we think there is some pent-up demand that developed in 2007 due to some battery shortage situations. The cell phone market was pretty weak this year and we think the cell phone market will grow stronger with new features like touch-screen and mobile TVs. HDTVs will do very well next year, and even the infrastructure for the TV market, particularly here in the U.S. as we get ready for the conversion to digital broadcasting at the beginning of 2009.”

“I think the real question is, ‘Where does the consumer spend their disposable income? Do they spend it on $4 cups of coffee at Starbucks or do they make the decision to buy HDTVs, iPods, or video players?’  Our forecast for 2008 is 11 percent. Even this year which had a 3 to 4 percent growth in revenues, the units have actually grown quite well and we’ll probably see a 14 percent unit growth and we’ll see a similar or slightly higher growth rate next year,” he continued.

The fundamental demand, as Feldhan pointed out, is there. “We’ve had some pricing issues but we think that will improve as we’ve seen some more disciplined investments coming through from the semiconductor side of the business, outside of the memory market, which looks like it will have some excess capacity next year. From a foundry perspective, they are quite tight and we believe that it will be tight next year as well.”