There are a number of questions regarding the direction of semiconductor manufacturing as we move farther into 2011. Granted there are the top bill questions around DRAM and NAND production and ASPs, and related are the questions of the impact of tablets on other devices as well as the next wave of smartphones set to begin release in 2Q11, particularly.
What will have even greater impact than the above top-bill questions? Oil and labor wages. Oil prices continue to climb as do labor wages and along with both of these, inflation.
Why are these important to semiconductor manufacturing? Well, I'm sure you are already tallying up the reasons. At the top of the list is the issue of transportation of components and products from point of production/assembly to end-market. In 2008, when the price of oil skyrocketed, we saw a significant increase in 'localization', that is, the movement of manufacturing and assembly closer to the consumer market in order to improve margins by lowering the cost of freight (recall this article from MarketWatch Quarterly).
Considering the increased wages and the accelerating inflation in China (see this FT.com article), rising cost of the Taiwan dollar (see thisElectroIQ article) and adding higher costs of oil, the forecast for a renewed localization trend, particularly for the EMS sector, is strong. Eastern Europe, Mexico (see here from Reuters), Brazil (see this FT.com article ), Western China, and neighboring Asian and Indian manufacturing centers are poised to benefit from higher freight costs and localization trends. Adding to the list is the increasing importance of the emergent consumer base with new disposable income (in part from wage increases) in the emerging economies (see here and here for MarketWatch Quarterly insight). The trend then for moving semiconductor manufacturing bases, among other steps in the semiconductor supply chain, closer to these new consumers is further strengthened.
What will this mean for China? That remains to be seen (see this article from FT.com). Of course China itself holds a large, emerging consumer base - but note that increases in wages curiously push manufacturing farther away from this consumer base. Yet even within China, we have been monitoring (see here) for a while the emergent Western provinces' technology centers, such as Chongqing and Chengdu, both set to be linked to Europe with rail (eventually). While logistics are still being improved at many of the new and emerging manufacturing locations, the 2011 forecast is definitely strong for increased geographic diversification (that is, more localization). What will this mean for the semiconductor supply chain and the component and product forecasts? We at MarketWatch are exploring the dynamics of these variables and the emerging demand of the new consumer bases. We will be reporting on our findings in this Commentary section and in upcoming articles in the Quarterly.