As we move into the high season for semiconductor revenue, volume and sales, back-to-school inventories and seasonal demand drivers are now in sight; but there are questions as to how good of a third quarter (3Q11) we will see, what demand trends will reign, and where the volume versus high ASP sales will be found.
Along the supply chain, the final corrections from the Japan earthquake and tsunami in March are forecasted to complete in September, even for those companies who suffered physical damage to structures (buildings and equipment), according to this recent iSuppli report. Importantly for these affected facilities, is the fortunate coincidence with the higher 3Q cycle time for their shipment restoration trend.
The cycle timing becomes important as another, less favorable set of numbers looms: "modest growth" trending for 2011 is set to continue globally due to continued economic uncertainty at the macro-level and inventory builds worry those along the electronics supply chain at the micro-level (see this recent report on inventory builds from iSuppli).
The Semiconductor Industry Association (SIA) finally released 1Q11 data from the Semiconductor International Capacity Statistics (SICA) for wafer manufacturing capacity. The importance of this (late and revised) release is the availability of utilization data for the industry for 1Q11, and its comparisons with previous quarter (quarter-over-quarter) and year (year-over-year) data. The data show the utilization levels averaged 93.7% which means that "[i]n effect the semiconductor industry continued to be close to sold out during the first quarter," according to this summary by EETimes.
While utilization numbers have been good, the tough questions are downstream where inventory has seen a slight increase during 2Q11 because consumers in the US and Europe battle higher gasoline prices and uncertainty is at the fore due to the weakest economic recovery since the 1930s in US history, coupled with continued fears over impacts from Greece's troubles in the EU. What all that economic data mean is that confidence levels are lower and feeling downward pressures while job creation is not as high nor as favoring of higher level jobs as hoped (see this Manufacturing Business Technology article). The corporate aspect of this situation also translates into lower refresh demands and continued holds on major purchases; the 'wait and see' approach still dominates corporate mindsets presently.
The bottom line? Well, single digits seem to be the new normal with WSTS data still pointing to global industry sales of 5.4% for 2011 rising to 7.6% in 2012 with a return to 2011 levels for 2013, as reported here by SIA. These data were provided in SIA's May 2011 semiconductor sales data released this week and confirm the modest 1.8% rise in May over April, as a three-month moving average (3MMA). SIA finds hope in these low numbers though, according to Brian Toohey, president, SIA: "Taking into consideration macroeconomic factors impacting consumer confidence, the steady but modest growth that the industry demonstrated in May is encouraging."
The sectors that are hopeful of double digits still for 2011 include those that support the cloud computing trend that is building steam and seeing good spends by "web giants who are fueling the public cloud," according to Barclays Capital Global Technology Outlook: Selective Approach into 2H11, 20 June 2011 (p. 9, and p. 52ff). With server spending increasing and consumer demand continuing for smart wireless devices (SWDs) in addition to high-demand auto infotainment, both supported by cloud-based apps, the related semi sectors (servers, networking, auto semi, consumer and handheld electronics) are forecasted to see not only streamlining and consolidation but also healthy growth levels. Other sectors to benefit from cloud services and IT-hardware requirements are health care and energy (smart meters, energy efficiency solutions from technology, and solar taking the front stage).
The last lifeline for 2011 numbers is in the still growing emerging markets where demand for a wider variety of devices and components is still prevalent and thankfully continues to help pare down inventory. The emerging markets are still outpacing developed markets and the averaged global markets, real GDP for 2011 for the emerging markets is forecasted to experience an annual change of 6.6% and BRIC 7.6% while the developed markets are only forecasted to see 1.9% change over 2010. More information about the emerging market opportunities can be found in our most recent MarketWatch Quarterly issue here, available immediately with a free subscription, or later this month to the general public.
So, we are set for a possible bumpy ride for the second half of 2011. Luckily there are some hot sectors that have a decent reach through the semiconductor component value chain, meaning that modest growth is relatively certain and double digits are within reach for those sectors.