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2012's Industry Numbers Reveal Interesting Dynamics


Recent earnings reports and forecasts offer insights for gauging market dynamics, trends, and longer range supply/demand issues based on CAPEX, equipment, and other types of investment spending (also M&A activity). Interestingly, the major semiconductor manufacturers are showing rather bullish signs and putting significant capital behind those signals.

News of the CAPEX intentions by Intel, Samsung, and TSMC has captured the spotlight.  Combined, these three companies have said they will spend a record US $30.7 billion between them, and of that sum, only 20% to be spent by TSMC (see here, here, and here for just a few versions of this news).

What makes this news interesting, beyond the incredible high budget numbers, are both the signals of strong growth expectations (otherwise one would expect a delay in such CAPEX spending) coupled with the growing intensity of the competition between Intel and Samsung with TSMC actually pulling back on their CAPEX spends after a lower 4Q11 report than expected (see this recent discussion of TSMC). TSMC lowered its 2012 CAPEX investment by 18% from initial estimates based on these earnings report, according to the same EETimes article.

Meanwhile, Intel's 4Q11 reports were strong overall, as discussed here by ComputerWorld, despite a significant lowering in Atom chip revenue. Intel's recent acquisitions, especially that of Infineon, will certainly help promote its smartphone market penetration strategy in 2012, as many analysts are echoing. Furthermore, it is obvious that Intel is very strongly supporting the Ultrabook push and likely the major fab and CAPEX investments for 2012 are the tangible expressions of this push (see also here from FT regarding their new US fabs). However, the effects of the hard drive shortage from the Thailand flooding are still expected to negatively affect many companies during 1Q12, Intel included (see also here for more about this from ComputerWorld).

Samsung is certainly throwing down the gauntlet in its market battle with Intel, as it has its sights set on becoming the leader in the semiconductor space. The present massive investment is an unequivocal signal of this strategy, particularly if we look at the company's overall investment budget which is US $41.7 billion for operations in 2012, as reported here by EETimes). Beyond the investment in new nanometer architectures, Samsung is also investing heavily in OLED and logic chips (as Intel pushes farther into smartphone and mobile chipsets), as IC Insights recently reported here (for sale here) (and reviewed here by ElectroIQ).

One note of concern is the fact that these tremendous capital investments, while exciting for pushing the industry and technology further, are also closing out competition by smaller manufacturers who simply cannot compete with the financial powerhouses. With this comes concerns related to supply and pricing should the market be whittled to just a couple of manufacturers. While generally there is a systemic balance that comes into play, given the cost of the smaller architectures, it is uncertain that we can rely on that market mechanism to have the (desired) effect of opening new avenues for competition at these manufacturing scales.

As analysts are beginning to agree, 4Q11 results while mixed and somewhat down for many, at a detailed level, are showing signs of promising growth for 2012 with the potential for a return to market (and hopefully macro-economic) stability (see, for example, here from EETimes, this exciting trend review here by ISS reported by ElectroIQ, and here from FT looking at a little broader market perspective).

Let's hope that 2012 does prove to be the true rebound the electronics sector needs. Later this week we will look at the architecture spends and shifts representing where all this money is going to and which are boosting the anticipated rebound.

Lisa Ann Cairns, Ph.D.
Written on Tuesday, 24 January 2012 13:16 by Lisa Ann Cairns, Ph.D.

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