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2012's Industry Numbers Part 2: Time will tell but manufacturing changes afoot


As we discussed earlier this week, corporate earnings that have been released are showing stronger than expected results for the bell weathers, but the situation for the wider industry remains undetermined.  As forecasts continue to come in, there is certainly the macro-economic situation which will continue to act as a counter-weight to growth.  That being said, forecasts are positive for growth this year, albeit at a more modest level, overa.  As in 2011, some sectors will continue to see significant growth (e.g., smart- and superphones, tablet PCs and eReaders, and (hopefully) ultrabooks).

As iSuppli reported here earlier this week, the overall semiconductor industry is expected to see revenue grow 3.3% in 2012 (reaching an estimated US $323.3 billion).  This is somewhat discouraging news because of the limited amount of growth, as iSuppli notes in this report.  The slower growth is directly related to uncertainty and the constrained growth in the EU and possibly the US.  These constrained economic conditions are expected to negatively affect contract manufacturers which are expected to show a flat to 0.3% growth for EMS and ~2.3% for ODM.  The tough 2012 market for mature economies is echoed in the most recent issue of Manufacturing Market Insider (out today here for purchase), with the "European contagion" seen as a leading cause for the muted growth forecasts through 1H12, minimally (as quoted from this iSuppli report).

Looking at manufacturing in 2012, while there are significant CAPEX investments at the fab level, what will happen with contract manufacturing, as we can see, will be different.  The strategy of using a lull to pull ahead in the market is well-known, it is not one that we expect to see this year as a general trend, but is likely to occur at a targeted regional level.  As discussed in the 2012 forecast by MMI (for purchase here), regional manufacturing will see new opportunities particularly for the largest providers, "[who] are in a position to pursue domestic manufacturing for growing markets such as Brazil, China and India." (MMI Vol. 22:1, p.4)

It will take at least through 1H12 until we can begin to see some of the manufacturing regional shifts, because of the lingering effects of 2011's market and supply chain events that created inventory level concerns which must be worked through.  As iSuppli reported here the likelihood of a similar CAPEX budget for contract manufacturers and/or IDMs, as we have seen by the fabs, is unlikely, "And with current manufacturing capacity deemed acceptable for meeting demand, most capital expenditures to boost efficiency within the industry likely will be pushed out to 2013."  Beyond the industry internal mechanics of production and inventory balances to be worked through during 1H12, the demand growth for devices is forecasted to continue from emerging economies' consumers, enterprises and industries (see this iSuppli report).

Coupling Smith MarketWatch's earlier post this week here with the present discussion, there is quite a difference in the industry in terms of the effects of 2011 on various semiconductor supply chain partners.  These effects will push and pull the industry in different directions during 2012 as multiple variables are worked through (inventory, utilization, macro-economic variables (demand and confidence), etc.).  How consumers, enterprise, and industries react (demand-wise) to the new device offerings this year will, obviously, be the trigger that propels the growth we expect to see take hold by 2H12.

Lisa Ann Cairns, Ph.D.
Written on Friday, 27 January 2012 16:10 by Lisa Ann Cairns, Ph.D.

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