IC Insights: What to watch for in the second half

Key issues for the second half of 2008 are the economy, system growth, IC ASPs and unit growth in the IC market.

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 6/20/2008

As the first half of the year comes to a close, the IC industry is still reeling from an eventful and turbulent first six months highlighted by joint ventures, reduced capex spending, high wafer fab utilization rate, a 450-mm wafer venture, and the rising price of oil, noted Scottsdale, Ariz.-based market research firm IC Insights Inc.

The market research company called attention to a number of significant events of the first half of the year including the formation of several joint ventures, particularly between memory suppliers -- Micron-Nanya and Intel-STMicroelectronics – that were forced to take drastic measures to survive the cut-throat pricing environment that continued to characterize the DRAM and flash memory markets in the first half.

In addition, capex budgets were reduced (or further reduced) for the year, which IC Insights said will lead to one of the smallest capital-spending-as-a-percent-of-sales ratios seen in many years, on an industry-wide basis.

At the same time, the capacity utilization rate was strong, averaging approximately 90% in the first half, with utilization at 300-mm wafer fabs hitting 96%, and Q1 earnings reports among many, mostly non-memory IC suppliers surprisingly favorable with several companies reporting strong bookings for Q2.

Next, Samsung, Intel and TSMC said are teaming to influence development for a path to the 450-mm wafer size with the goal of having a pilot production line running by the end of 2012.

On another front for Intel, in the battle for ultra-mobile platforms, the chip giant introduced its Atom processor series with aggressive competition coming from ARM and Nvidia.

Further, the price of oil spiked to above $135 per barrel, prompting IC Insights to forecast average price per barrel of oil for the year to be $126. The impact of this huge price increase will work its way through all facets of global economies in the second half and beyond.

What can be expected in the second half of 2008?

IC Insights said it is keeping its eyes on several issues, including the economy, system growth, IC ASPs and unit growth in the IC market.

In terms of the economy, growth in most Asia-Pacific economies will be equal to or slightly down this year compared to 2007, however growth in Asia-Pacific remains strong and will offset weak economic growth in the US, Europe, and Japan, with the WW GDP forecast to grow 3.2%, slightly below the 25-year average of 3.6%, the company said.

As far as system growth is concerned, seasonal growth in cell phones and PCs is likely to drive strong unit growth in these two applications in the second half and IC Insights forecasts cell phone shipments to grow 13% and PC shipments 11% this year. The company pointed out that Microsoft’s decision to ship only the Vista OS in new PCs and to end shipments of Windows XP-based systems should help boost DRAM unit and bit volume growth. Also, shipments of digital TVs forecast to increase in the second half, combined with the mandatory switch from analog to digital TV in the US in Q1 2009 is expected to create a surge in DTV sales in during the holiday season.

In a bright spot, since capex budgets were being trimmed at the same time that the global wafer fab capacity utilization is running 90% or more, IC Insights said it is highly likely that IC average selling prices will begin to increase as IC suppliers work to restore some level of profitability to their businesses.

However, although some segments of the IC industry are performing well this year, such as portions of the analog and special purpose logic markets and 32-bit MCUs, other segments, particularly the DRAM and flash memory markets, remain weak and volatile, the company concluded.