It was just a month ago that stability was being heralded over a double-dip recession by economists, and the demand-sparse summer was hoped to be fading away. Today we look at a massive supply chain debacle due to the devastating floods in Thailand; continued poor unemployment numbers in the US and EU; sovereign debt crisis rocking not just the EU boat, but concerns for negative reverberations throughout the still frail, interwoven global economy; and the industry's pulse is good, but with many questions looming over diversification opportunities (geographically and vertically) once SWD penetration rates hit a plateau, as LCDs have now done.
A global snapshot
SIA recently released their quarter-over-quarter sales results for the semiconductor industry, and global semi sales growth is tracking at 3.5%, with September's 2.7% month-over-month growth providing a positive close to 3Q11, according to SIA here.
Meanwhile, SEMI's recent book-to-bill numbers for semiconductor equipment manufacturers raise a few eyebrows, particularly in the dip for bookings for September. The book-to-bill ratio for September equipment is a low 0.75, dragged down particularly by the bookings level of US $948.8 million (down 15.3% from August). According to Stanley T. Myers, president and CEO of SEMI, "While device makers are investing in advanced technology, broader investments await stability in the overall economic outlook."
Inventory numbers have been held at decent levels overall, particularly in light of market volatility. Lean management lessons learned from the global recession have, by and large, served our industry well this year, yet with the devastating floods in Thailand, the shortages along the HDD, optic and some test & assembly supply chains are causing problems for many in the industry. For the present 4Q11 period, and the holiday supplies, the forecasts are stable, but that is due, in part, to the unfortunate demand weakness. However, for 1Q12 and forward builds, while some sectors will be able to complete a sell-through cycle to flush backed-up inventory, for others, such as the traditional PC sector, there are serious shortages and product voids coupled with resulting price increases that may trickle down to sales price increases; something which may not be well-received by skittish consumers and enterprises.
The shortages which will be felt more intensely in 1H12 are the result of leaner inventory levels due to reduced orders, coupled with the damage and disruption of the HDD supply chain (well into 50% of builds are disrupted due to components, test & assembly, or entire finished product being lost to the flooding situation). There are few risk management strategies in place that could withstand this level of disruption, but certainly adjustments to supply chain sourcing (centralized vendors and/or locations) need to be re-evaluated after the reminders from Japan and Thailand this year (see, for example, this recent report from ElectroIQ).
Rounding out 2011 and thinking ahead
The extensive natural disasters in Japan and Thailand this year have negatively affected revenues for many in the semiconductor and electronics industry, from automotive to PCs, and optics to memory, for example. While industry and financial analysts are reviewing the 2011 numbers, most agree that overall, the data are likely to show that this was a low growth year for most. IC Insights for one, is forecasting roughly 6% year-over-year increase in sales for the top 20 semiconductor suppliers with only a 2% year-over-year increase for the worldwide semiconductor market, as reported here along with the individual company ranking estimates. However, according to IC Insights' research, those companies, such as Qualcomm and Intel, who are central to the wireless, smartphone and smart wireless device (SWD) sectors are forecasted to see well into double-digit results.
As the always-connected, always-on feature requirements of smartphone users extend into the automobile, we are seeing increases in semi content rates for the newer vehicles, from economy to luxury levels (see, however, this recent iSuppli report on inventory levels for automotive semi). This content increase is supporting the continued boom for MEMS components and adding new options for (touch-screen) panels and related IC drivers and components. Demand has increased to the point where these auto-infotainment features are driving sales and how major auto manufacturers are responding to their customers (see these recent upgrades to Ford's 'MyFord' technology in SeekingAlpha).
While smartphones and tablet PCs are forecasted to remain hot devices into 2012, spurring growth (and new features) for the related components, LCD TVs have reached a 90% penetration rate, so that market saturation shows little growth until possible refresh sometime beginning in 2013-14, according to recent analyses by CitiGroup (11-6-11). While the emerging markets are still in the uptick of the LCD TV adoption cycle, it will be interesting to see the market responses from the TV panel sector as 2012 harkens growth for the integrated TV experience in the home (see this interesting DisplaySearch market report).
Emerging markets, more generally, still hold many keys to the future growth opportunities for the semiconductor and electronics industry. As these new markets continue to open and expand, the industry will continue to move its focus more globally and inclusively, as further evidenced by this latest press release from SEMI. How the industry supports and facilitates both the adoption of technology and the manufacturing of components in the emerging economies is a critical question as we move forward.
Watch for more round ups and forecasts as we continue to move into the final weeks of 2011. There will be drill-downs into components and supply chains in Smith's forthcoming MarketWatch Quarterly due out mid-December (free subscription available here).