Smith Market Blog

Understanding January's Barrage of Reports & Divergent Strategies


It's easy to feel like you're watching a ping-pong match these days if you are trying to keep up with the revenue, equipment investment, and market forecasts from semiconductor companies.

Certainly, the overall news from 4Q11 was that revenues were down both quarter-over-quarter and year-over-year, but at least there was momentum enough to clear out some inventory and lessen the concerns, somewhat, for inventory problems.  However, the buy down in inventory was not strong enough to encourage enough new orders, based on forecasts and reports thus far, and so utilization rates do not seem to have changed much, overall.  While we see some significant CAPEX spend forecasts (such as from the three titans, Samsung, Intel, and TSMC), for the most part, the lack of increased and/or strong demand, hence increased utilization rates, means that there will be a continuation of the 2011 wait-and-see by the majority of semiconductor manufacturers along the supply chain, especially for contract manufacturers.  Once the latest equipment and tool numbers are reported, we will have confirmation of this trend, but analysts and industry reports are pointing solidly in this direction.

Meanwhile, the financial analysts, and some larger semiconductor companies, are sounding the bell that the bottom has been hit and going forward will be a slow, but steady climb up to renewed volume, sales and profitability as global markets look to rebound over 2012 (see, for example, this general market view from CNBC, here from FT, here from iSuppli, and here from TI reported by ElectronicsWeekly).

Importantly, semiconductor and device manufacturers are looking very seriously and strategically at their product portfolios based on the continued strong demand for smartphones and tablet PCs, but the (quickly) waning demand for TVs and many other devices (see the following market news highlights: here from iSuppli on handset OEMs; here from FT on Phillips' sectors and the EU market; here from WSJ on Toshiba and Fujitsu; here from Reuters on Toshiba; here from ElectronicsWeekly on Altera and FPGAs; here from Gartner on PC decline; here from CNET on quad-core strength; and here from EETimes on Renesas cuts).

So, if Europe and the US, while (hopefully) beginning to see the light at the end of the macro-economic tunnel, are expected only to slowly rebound during 2012, what of all the hopes from the emerging market populations?  Yes, there is considerable demand in these markets and that has been an important part of the muted or slightly positive revenue and volume numbers.  However, as many companies have reported, the combined 2011 effects of the Japan and Thailand disruptions on the supply chain coupled with the weak and troubled macro-economic situation in the EU and US were more dominant than the positives from the emerging economies.  Targeting these newer, growing economies and their consumers and enterprise markets is an essential strategy and, eventually, may become a dominant force.  As of right now, the momentum of our industry continues to be dominated by the macro-economic situation facing the mature economies.

Lisa Ann Cairns, Ph.D.
Written on Tuesday, 31 January 2012 14:12 by Lisa Ann Cairns, Ph.D.

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