One question we frequently are asked at MarketWatch is, "how can you keep saying the industry numbers are good if the forecasts keep getting downgraded?!"
It's a great question. Put simply, last year was SO terrible, that even downgrading a few percentage points in unit volume, or even in revenue, is still going to mean that industry-wide, unit sales and revenues are good, really good.
iSuppli was one of the more recent industry analyst houses to downgrade chip forecasts in general. This report from 10/21/10, represents a 3.1% downgrade in the revenue forecast for 2010, moving from 35.1% growth to 32% YoY. That is still US $302 billion for 2010, up $74 billion over the previous year. Even more important, to underscore why the numbers remain great for 2010, the revenue growth represents US $28 billion above the previous record high in 2007! To understand more about this growth, read our recent in depth reports in the latest MarketWatch Quarterly, just out to subscribers, and to be released in early November to the general public.
Drilling down into the numbers we can understand what is driving some of this growth. Forecasts for the broader IC sector are, obviously, good for those end market devices that have strong momentum, particularly, smart phones and tablets. While there was some speculation of a slow-down in the IC sector because of a not-as-above average September, as the rest of 2010 has been thus far, the IC sector is still forecasted by most analysts to grow in the mid 30% range year-over-year (YoY).
A more 'normal' growth year for IC overall is projected for 2011, with more normalized demand and healthy ordering based on the economic indicators for true end-demand (versus double ordering as we saw by some earlier in the year). However, given the surge of smart wireless devices (SWDs) starting to hit now through 1H11, such as the recent Android, Blackberry and Windows based smart phones and upcoming tablets (intended to compete with iPad). The forecasts unequivocally estimate high tablet penetration and increased smart phone demand, coupled with an anticipated watershed of smart phones as they drop in price and become more available to a wider end-user base.
Those more popular IC device sectors (i.e., handsets, NAND, the related SWD processors, analog ICs, and LED driver ICs) will likely off-set the problems seen in DRAM, particularly for DDR3. While DRAM is experiencing a new bout of pressures, it should not be enough to offset even a weighted IC forecast for 4Q10 nor Y11E. Along with these forecasts, it is important to remember that while there's been a curious downdraft from a record high 2Q10 as we moved into 3Q10, a significant number of DRAM manufacturers, particularly Tier 1, are on pace to earn a record net profit this year. (cf. Samsung forecasts here from WSJ.com; Hynix estimates here in Korea IT Times; Micron estimates here from EETimes.com; and this analysis of Elpida's moves to keep pace in Bloomberg)
The best off-set to these dips is the forward looking analysis that CAPEX investments should improve margins and therewith revenue, as new technologies enable better margin earnings. One example of this sentiment found among leading manufacturers was recorded by, Hynix executive James Kim, in this article in FT.com, where he was cited as offering that "improving production technology means 'we can expect reasonable margins next year'."
Underscoring the fact that the data for semi are primarily up, is the recent 3Q10 earnings from industry bellweather, Intel who "posted a 59% jump in third-quarter earnings and issued upbeat comments about technology spending." (cf. this article from WSJ.com)