It's official, 2012 was a tough year, we all know it, but as the numbers previewing the yearly round-up start coming in, there is little wiggle room to argue – save for the ever-green sectors still the domain of tablets and smartphones alone. Last week, iSuppli published the news that their parent company, IHS, had officially downgraded the 2012 global semiconductor market forecast to a decrease of US $303 billion. That represents a 2.3% drop from 2011's US $310 billion in semi chip sales globally, according to the release.
Consensus not always a positive
Where NOT to point fingers is the unfortunate question because most market sectors contributed to this decline. One saving grace moment is that understanding the macro-economic situation and the worldwide drop in spending tells much of the story, rather than there being a problem internal to the semiconductor and electronics industry itself (e.g., utilization, capacity, inventory, pricing, or other).
Importantly, these negative data forecasts find support from other analysts, including Databeans and Citi Research, to name a couple. Databeans reports a similar percent drop in overall semiconductor revenue for 2012, with an expectation of a 2 percent fall to US $292.6 billion, down $6.9 billion from 2011. These drops are in spite of the positive holiday purchasing that continues to be recorded, with Databeans expecting this quarter, 4Q12, to come in 4 percent higher than the same quarter last year, 4Q11. The report provides details by region and sector as to the stable with slight decline market trending for 2012.
Similar results resound in the major financial analysts' reporting coming in for 2012, such as the most recent data from Citi Research's "Electronics Supply Chain Inventory Update, 29 November 2012." This report takes a drill-down approach to understanding the trends in our supply chain at this point as well as providing initial forecasting. While Citi importantly notes that "it appears the supply chain is working down more inventories into the Dec quarter on continued softness in end markets. […] We would expect to see positive inventory movement in relation to sequential outlook […]."(ibid, p. 1; cf. 2-6)
This slowing in growth, even with inventory balancing, is still giving cause for some concern among the financial analysts. As Citi comments:
Projected annual sales growth in the Supply Chain has slowed significantly & is expected to increase only 0.8% y/y in the December quarter, well below the 5-year and 10-year averages of +2% y/y & +6% y/y, respectively. Year over year, if we remove Apple, the tech supply chain is actually shrinking, -2% y/y. […] We remain cautious on the Supply Chain until we are able to identify meaningful growth which would translate into increased OEM orders & additional outsourcing opportunities […]. [emphasis original] (ibid., p.1, ff.)
The sun will come out tomorrow
As all three reports note, we are seeing positive December growth of +10.7%, above 5-year and 10-year seasonality in a range of +4.4% to +2.1%, respectively, based on Citi's data (ibid., p.4). The issue is that the sales are coming from inventory work downs rather than new production, so these sales are not presently adding to the revenue base in the same way as if these were sales for new inventory. The reasons behind this trend falls back to the uneasy macro-economic situation that we have contended with all year, but that holds promise for more stability in 2013 with major economies, such as the US, having completed an election cycle, and more consensus for solutions to deal with the EU debt crises.
Looking ahead, there is also agreement among analysts more generally that 2013 will bring a slight rebound for the semiconductor market. Databeans suggests the level to be "in line with the 5 year compound annual growth average of 10 percent. […] The recovery we expect will be led by the Asia Pacific region that will see positive growth as early as Q1 of 2013."
Utilization rates and lead-times, as noted by Citi (ibid., p.5, ff.), are coming in-line with historical averages, off of the 2010 highs, but this does also forecast periods of tight supply during 2013. One take-away, beyond the positive expectations of a 2013 slight rebound, is that the semiconductor supply chain continues to show increases in operating efficiencies, which are showing in the data as "higher sales on similar inventory levels when compared to previous years." (Citi, ibid., p.7) The supply chain has consistently maintained inventory levels well in-line with 5-year averages.
Solutions from strategic partners
What these inventory and supply chain efficiencies also speak to, is the increased reliance on supply chain partners to provide various, customized inventory management solutions and related services (e.g., hubbing, component lifecycle management, PPV programs, consolidate vendors, and similar).
Agility and quick-response to market changes is increasingly essential to successful navigation of the market challenges, particularly when faced with tight margins and a shrinking supply chain. Trusted partners are a central component of these dedicated strategic market plans for 2013, as we see based on the successes experienced thus far. Learn more about our SmithSecure framework of programs to get your 2013 off to the best start.