An important piece of positive news this week from within the semiconductor industry, IDC's most recent report presents a balanced and positive, although modest, growth prospect for the industry, despite the continued negative pressures from macro-economic forces.
Continued growth – balancing positives and negatives
According to the report on July 29, IDC forecasts healthy growth in semiconductor revenue worldwide of 6.9% by mid-2013, reaching US $320 billion. Growth is seen through 2014 as well, at a pace of 2.9% year-over-year reaching "[US] $329 billion and log a compound annual growth rate (CAGR) of 4.2% from 2012-2017, reaching [US] $366 billion in 2017."
Comparing IDC's most recent report with the World Semiconductor Trade Statistics (WSTS) June report, we see a positive increase in the 2013 forecast. WSTS's June forecast for the worldwide semiconductor market was set at a 2.1% year-over-year increase, reaching US $298 billion, but then increasing a significant 5.1% year-over-year to US $313 billion in 2014, followed by an estimated 3.8% rise in 2015. The underlying critical assumption for the WSTS semiconductor market forecast, which covers all product categories and regions, is one of "continuing recovery of global economy throughout the forecast period." Given the ongoing macro-economic challenges since 2009, those are significant assumptions. However, current macroeconomic and corporate reports are lending support to the position that there is an easing in negative variables which will help spur corporate confidence and lead to more enterprise and consumer spending.
Rounding out the broader industry view, SEMI's most recent book-to-bill data, covering the North American semiconductor equipment industry, underscores the now six-month consecutive holding above parity, meaning that the levels are above 1.0 ratio of bookings of orders for product billed the same month. The June preliminary ratio is 1.10, an increase over April and May, and a return to the levels from the first quarter of 2013. While billings are down, month-over-month from May, they are still significantly stronger than the previous months in 2013, similarly bookings continue to rise steadily. These data only represent semiconductor equipment, however, that is considered an important indicator of overall semiconductor industry health and direction.
Notably though, the SEMI report cites Denny McGuirk, president and CEO of SEMI, as cautioning a temporary pull-back: "As recently announced, we anticipate that total worldwide equipment spending will decline by low single-digits this year and rebound with a double-digit growth rate in 2014." Some of the growth experienced directly relates to the strategic shifts undertaken and being finalized by memory manufacturers who have shifted their product mix away from DRAM to better meet the demands of the strong mobile market, as detailed in IC Insights' July research. These shifts have required semiconductor equipment purchases and with the shifts at or near completion, the SEMI forecast for reduced equipment demand in the second-half of the year is in line with what is happening in the industry itself. While this situation will drag down equipment revenues, there is a significant growth of 28% forecasted for the DRAM market along with a 40% ASP rise related to the resulting supply-demand situation.
Industry balances across sectors
Importantly, this growth is occurring during the ongoing and difficult PC-shift that is results in significant deceleration of PC sales, which is affecting entire supply chains and dictating ongoing strategic diversification for the industry. One lingering question is whether or not the PC-slowdown is solely the result of a transitional device shift toward tablets and upcoming hybrid tablet-PCs or if the macroeconomic negatives are still holding back enterprise refresh for devices that could rebound, though still very unlikely to reach previous PC-demand highs. IDC's report does indicate continued deceleration for PC demand but with "a return to positive growth in 2015."
While the economic and PC questions linger, it is the counter-weight of continued positive smartphone semiconductor demand for both high-end devices for the mature economies while low-cost smartphones are quickly growing in demand in emerging markets.
Importantly, it is not just demand for these devices alone that provides the underpinnings of semiconductor revenue growth forecasts, thankfully. Beyond the device demand for the array of smartphones and tablets worldwide, it is the required infrastructure improvements that solidify confidence in real (sustainable) semi growth. As the IDC report notes, the increasing demand for smartphone and tablet devices is supporting strong back-end growth: "Communication infrastructure across enterprise, data centers and service provider networks will experience a significant upgrade over the next five years to support the enormous growth in the amount of data and information that must be managed more efficiently, intelligently, and securely."
While the PC and computing sector are the hardest hit, and easily penned as the negative variables at least until 2015, IDC identified significant positives from a subset of sectors that buoy the industry: mobile wireless communications, an identified set of devices (i.e., smart wireless devices, blu-ray DVD players and set-top boxes), wired communications infrastructure, and semiconductor content in automobiles. The wireless communications segment is forecasted to experience the highest CAGR, 37.9% for 2012-2017, while the others range from roughly 4.3% to 7.5% with devices representing the highest and wired communications infrastructure the lowest.