2009 Open Market Component Outlook

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As we did last year, we’ve polled the Commodity Managers at Smith & Associates and compiled their views of where the electronic components market is headed.  These views are based on current component trading, incoming requirements, inventory levels, open market product offerings and supplier data.  The responses are grouped by commodity family.  The following is Smith & Associates’ outlook for 2009, which we will update each quarter with the latest intelligence from the open market: 

Memory

  • The precarious position of some major DRAM suppliers, like the bankruptcy filing by Quimonda (January ’09), has been the big news in the memory sector.  This situation contributed to spot market price spikes in January and February because manufacturers used the open market to minimize risk.  Prices have since fallen and will continue to decline due to oversupply.   
  • Lengthy industry restructuring will do little to remedy oversupply in the short term.  In early March, the potential consolidation of Taiwan’s DRAM makers into a government established Taiwan Memory Company was announced.  Also, in the coming weeks, mergers will likely be finalized such as Micron’s merger with Nanya and Inotera, and Elpida’s deal with Powerchip and their Rexchip JV.  
  • DRAM oversupply can be mainly attributed to the outlook for the PC market.  Declining PC shipments and flattening growth in DRAM content per PC (Microsoft Vista shipments are declining as users anticipate Windows 7, which requires less memory) add up to diminishing demand.  Demand is further diminished by weakening markets for PC graphic cards and upgrade modules, supplementary markets for DRAM that have enjoyed significant growth in past years. 
  • Technology advances in DRAM should contribute to healthier financials for suppliers in the long term.  For example, Samsung has introduced a DDR2 chip using a 40nm process and is projecting a DDR3 chip using the same process by the end of 2009.
  • Much is being said about the growth of netbooks.  To the extent that this growth takes away from notebook demand, it doesn’t increase demand for DRAM.  Netbooks are typically loaded with less than half the DRAM of notebooks. 
  • NAND presents a more stabile picture.  In general, oversupply here is not as big of an issue thanks to supply cuts by Toshiba, Hynix and Samsung.  The tighter supply of NAND is tempered by weakening demand for the portable consumer electronics that utilize it.  Growth in smart phone shipments could outweigh weaknesses in other consumer electronics.
  • SSD innovation should drive demand growth for these devices.  A-Data recently introduced a 2.5 inch 512 GB SSD.
  • The NOR flash market is being effected by the bankruptcy of Spansion.  Demand for Numonyx, Macronix and Silicon Storage Technology (SST) is increasing and Spansion's bankruptcy should have a stabilizing effect on NOR prices.  Slight but discernable demand growth for consumer electronics (particularly in East Asia) will have positive effects on NOR demand.

CPUs

  • The push to PC mobility that began in 2008 will continue to be a primary driver for the PC market in 2009.
  • Intel expedited the introduction of its latest Atom CPI (N280) rolling it out in February. In early March, it announced a strategic partnership with TSMC to move production of the Atom processors to TSMC fabs.
  • The market for value line chips like the Atom is growing.  Several OEMs have announced increased demand for the lower-end systems using these processors.  Open market demand for these processors has been brisk.  Several large builders have turned to the open market on occasion because of competitive pricing and temporary shortages due in part to preferential delivery of parts to early adopters.  Pricing, however, seems somewhat stable across the board.  Intel has actually had to downplay the success of the Atom as it has taken some of the revenue stream away from their more profitable lines of mobile processors.
  • Intel invested $7 billion to go to 32nm and is on track to deliver these chips by the end of the year.
  • The economic downturn has caused both Intel and AMD to close fabs.  The resulting market uncertainty has slacked demand creating CPU excess inventory and interjecting unpredictability.  This unpredictability may have motivated companies to transition chips earlier and cut product life cycles with the result that some lines are harder to find.  For example, Intel recently transitioned the T3400 to end-of-life, pushing manufacturers to the T4200 earlier than expected.
  • Some computer OEMs are diversifying their sourcing strategies by pulling back a percentage of buying to play “wait and see”.  These companies cannot afford to carry excess inventory, but they need to have a stable supply for just in time (JIT) production.  By leveraging lower forecasted buys through their direct suppliers (Intel & AMD) and then waiting for more accurate demand numbers from actual production instead of forecasted production, they are able to order from the open market with better pricing for items that are readily available. They are also able to purchase the chips that are in higher demand once they know which models are selling and what chips are needed.
  • The companies that are currently most successful in the PC and laptop markets are the ones that are beating their competition to open market opportunities.  The Taiwanese, Korean, Chinese, and several American OEMs are taking advantage of opportunistic buys.  Excess processors with lower than official pricing allow a lower cost of materials for production.  While the primary open market players take advantage of this cost savings, the companies not engaging in these transactions are not only passing up potential savings, but are also having to compete with these companies that are regularly buying from the open market.
  • The largest growth segment for server processors for both Intel and AMD may be in server farms or clusters for cloud computing.  Rumors of giant server farms for Google, Amazon, Microsoft, SAS, and others point to a large usage of server CPUs.  Along these lines, Intel’s Nehalem Xeon 5500 line of server processors will be available starting March 30.

Analog

  • A different landscape for analog end users in 2009 will create oversupplies and spot shortages.  The decline of automotive production and communications infrastructure production will slacken demand.  Increased economic and regulatory pressures for energy efficiency, however, offer a bright spot for the growth of applications using analog devices, particularly analog-to-digital converters (ADC), sensors, and power management devices.
  • Reduced production by key analog manufacturers is increasing demand for product in the open market.  For example, Texas Instruments parts are increasingly scarce on the open market due to its production slow down.  Rush orders in February created growth for some analog houses, like Global Mixed-mode Technology (GMT), Macroblock and Advanced Analog Technology (AAT).  While these companies have said that sales in March will also show growth, demand is expected to level out for the rest of the year.
  • Maxim announced in February that it acquired the Wireless Control and Secured Transaction product lines from Zilog.

Peripherals

  • Notebook HDD:  160GB and 250GB hard drives (SATA 5400rpm) are still taking the lead in demand.  Fujitsu and Toshiba have signed a memorandum of understanding on the transfer of Fujitsu’s HDD business to Toshiba. This will enable Toshiba to bolster its already strong position as leading vendor of small form factor HDD (2.5 inch and smaller HDDs) for notebook PCs, mobile devices, automotive and consumer electronics. Toshiba aims to raise its shares in the overall HDD market over 20% by 2015.
  • Desktop HDD: The bigger capacity desktop drives (mostly SATA) are in demand for production: 320GB, 500GB, 640GB, 750GB and 1TB.  The small capacity (160GB SATA) is still in demand for repair and service.  The SCSI market has become a focal point for OEMs -- Seagate the main supplier.  Seagate has moved to mostly 15Krpm, and they are phasing out 10Krpm.  Seeing that Seagate is using less 10K speed, this has opened the market for Hitachi and Toshiba/Fujitsu to design the products and support the shortfall. There is more demand for 36GB through 300GB, 68pin and 80pin. Seagate is holding firm pricing as it exits the market.
  • The external storage market is heating up with the recent Fabrik acquisition by Hitachi GST.  Hitachi is now positioned to better compete with Seagate and Toshiba in the market.  Pressure on pricing is inevitable. 
  • LCD panel prices have continued to rebound in the first half of March, except for 37-inch and large LCD TV panels and 10.1-inch panels for netbooks, according to the latest pricing data released by DisplaySearch.  Much of the price increase is attributed to rush orders. 
  • Looking ahead, panel prices are expected to peak in the third quarter of 2009.

MEMS

  • From a design perspective sensors are being integrated into more and more end products.  The market for these microelectromechanical systems (MEMS)(cf., http://en.wikipedia.org/wiki/MEMS), is rapidly expanding due to their increased use in handsets, automobiles and gaming equipment and their integral role in cutting edge products like pico cameras and advanced surveillance equipment.
  • Freescale, Analog Devices, and STMicro have lowered prices for their accelerometers to compete with China-based MEMS providers.
  • More major players are getting into the MEMS market.  Hynix has been reported to be gearing up the development of CMOS image sensors (CISs) and will offer VGA, 2-megapixel, 3-megapixel and 5-megapixel models. CIS production could raise its fab utilization rate as the global market of DRAM and NAND flash is flat.  Samsung has already pursued a similar strategy.  Hynix’s entry into this market should put pressure on pricing.

If you would like to know more about Smith & Associates’ market analyses and forecasts, or have specific requirements that need to be addressed, please contact:

Memory: Todd Banker, +1.713.430.2152
CPUs: Todd Traylor, +1.713.430.3969
Peripherals: Layla Wright, +1.713.430.2168
Analog and MEMS: Jeff Crawford, +1.713.430.3944

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