MarketWatch Commentary

The lynchpin necessary to avoid such a double dip is not the US, but China.  It is the Chinese monetary and fiscal policies that are critical to the continued forward momentum for the global economy, as seen expressed by The World Economic Forum, which held it's annual meeting last week in Davos, Switzerland. 

The Davos Forum was a critical event not just for the global economy but also for semi: China reaffirmed that it is committed to "continue with accommodating fiscal and monetary policy, and make sure we have smooth macro-management, [...]. We are shooting for roughly 8% or 9% GDP growth rates," according to Zhu Min, Deputy Governor of the People's Bank of China as quoted in this transcript from the Davos Forum.

It is China's continued stimulus policies that support the broader trends in the global economy presently.  Particularly important is the driving role of emerging markets such as China and India with their significant consumer demand for handsets, computers, networks, and the infrastructure that promotes increased overall semiconductor demand, according to yesterday's SIA release.  As George Scalise, President of SIA, stated, "with improving consumer confidence and signs of economic recovery around the world, the semiconductor industry is well positioned for growth in 2010." (Ibid)

For more information and Smith's perspectives on these topics, including our recently  released MarketWatch Quarterly, consider our discussion of the semiconductor industry and the latest news about the global economic rebound here in this MarketWatch Commentary section.  In the last issue of MarketWatch Quarterly, we provided a more detailed review of China's geo-economic policies and role in the semiconductor industry here, and in this earlier piece, a review of the US stimulus policies.  Finally, we considered the role of new consumers and new electronics products for consumers in the latest MarketWatch Quarterly released last week to subscribers and next week to the public here. 

Comment (0)

EMS companies have been faring well, relatively speaking, and the strategic moves to diversify into new markets with important core capability links has analysts and market researchers generally more bullish than conservative. 

What is particularly interesting, as we continue to watch the ongoing EMS-ODM turf war (cf. MarketWatch Quarterly Vol. 1:1, "EMS/ODM a Mixed Market;" and Vol. 2:2, "Co-Evolution and Organic Growth"), is the varied strategies EMS companies are embracing.  As well presented in the latest MMI (Vol. 20:1, pp. 1-4) report, some EMS companies are following a new, retail path (e.g., Hon Hai's retail outlets); some are expanding to sister industries (e.g., Jabil's venture into solar panels and medical disposables); some are supporting new supply chains for the still fragmented clean/smart technologies (cf. the latest MarketWatch Quarterly Vol. 3:4, now available to subscribers and next week to the public); and some are engaging in more traditional M&A deals to expand their market reach and capabilities (e.g., Celestica's acquisition of Invec Solutions, as reported in MMI Vol. 20:1, pp. 2, 7).

Among the other trends forecasted by market analysts, we should see a resumption of more normal consolidation numbers for small- to mid-sized companies, renewed momentum for regionalization/localization (cf. MarketWatch Quarterly Vol. 2:3, "An Expanding European Microcosm" for more discussions on localization), and continued distinctions between EMS and ODM businesses but with increased "credibility to a hybrid strategy" (MMI Vol. 20:1, p.4).

The next one to three years hold promise for the EMS sector, and based on early analysts' reports for 2010, the new market opportunities may provide important growth for EMS in directions beyond the past 'turf wars' with ODMs.

Comment (0)

The semiconductor industry has been faring better than many industries based on 4Q09 reports.  The 1H10 forecasts continue to show the tendency for pent up demand to be strong from consumer and corporate sales alike.  However, with the loss of almost two years of CAPEX investments to support fabs, the growth that we're engaging now may prove to be a tough challenge for the industry because of these "missed investments," as underscored by Bill McClean, President of IC Insights.

According to McClean, IC Insights research and data show that despite the "worst recession in 63 years (since 1946) in 2009, flat PC unit shipments were quite an amazing accomplishment. Moreover, cellphone unit shipments were down only 5%.  Now consider that both PC and cellphone unit volume shipments are forecast to increase at double-digit rates in 2010."  This begs the following questions from the recent McClean Report: "What effect will this have on the IC industry? Are we on the cusp of an all-out IC market boom for 2010?"

IC CAGRs are forecasted in the 9% range; ASPs and revenue are set to rise across the board for memory, even for DRAM;  increased demand is expected for PCs; and emerging economies' consumers are hungry for electronics.  Underscoring this positive reality is the recently released, strong, 9%  increase in North American-based semiconductor equipment manufacturers book-to-bill ratios, now at 1.03 for December, holding onto a 6-month rise. 

The 2010 forecasts are no longer just New Year's dreams.  While exciting and welcomed news, these forecasts pose interesting challenges for the industry that must now grapple with being able to meet what TSMC calls "urgent recent increases in customer demand."  TSMC has begun both new construction and capacity expansions at their fabs in Taiwan, increased R&D spending for 2010 by 25%, and plan to hire 3,000 new staff, "primarily engineers." 

Those companies who remain from the last round of survival of the fittest now have a new, positive battle ahead.  Economic indicators are up 1.1% for December 2009 and point to economic growth this Spring.  Are we really ready?!

Comment (0)

EMS for Europe has been very important, and therein are found some significant opportunities.  EMS forecasts are not stellar though (as reported in Manufacturing Market Insider (Vol. 19:11, November 2009) and citing forecasts from InForum market research).   Growth has started for EMS worldwide and looks to hold steady around the 5% range +/- from 2010 through 2013; it's just going to take three years to recuperate the losses from 2008-09. 

The lag in an EMS rebound needn't be seen as negative for Europe though; growth is growth, after all.  With EMS rebounding, albeit slowly, and Europe being heavily invested in EMS, particularly specialty or niche markets, there are noteworthy opportunities for European EMS to lead in new markets and sectors.  These opportunities and markets will be explored more closely in the upcoming MarketWatch Quarterly edition due out later this month!  Subscribe here to get your copy before public release.

The EU reaffirmed it's commitment to green policies at all levels during the UNFCCC's COP15 conference in Copenhagen, Denmark in December (see here for our commentary from COP15).  While that makes for nice political talk, it does have bearing on business markets, particularly semi.  One of the important ways in which Europe continues to be a world leader is in the consumer purchase power of highly efficient appliances and consumer electronics products. 

European governments are now providing reduced or no taxes on electric cars (meaning up to 180% reduction in high tax countries such as Denmark).  Couple this incentive with eager consumers for smaller, greener autos in light of the European auto sector having a better footing than, for example, the American auto sector, you realize quickly that there is ample opportunity for European auto to lead the global electric vehicle market.  Electric vehicles are an important market for semi, moving the percent of chips per vehicle significantly higher than traditional autos.

Will European semi rebound?  That's an interesting and very important question for many companies and for both the semiconductor and electronics industries.  There is vacillating investment in Russia, there are politico-economic reasons (see above) to believe new markets hold opportunities, and there is existing consumer support for products.  Although the pace will be staid, don't they say, "slow and steady wins the race"?

Comment (0)

Comment (0)

Broad based optimism at CES, from the exhibitors, attendees and commentators, points to a strong 2010 for the electronics industry.  As Smith's CPU Commodity Manager, I've been particularly impressed with the diverse end-products I'm seeing that will fuel strong CPU demand.  Common among such diverse products as tablets, smart phones, handhelds, e-readers and even automobiles (check out the Lamborghini below) is the push for "always-on" functionality.  Connecting devices to the web for continual and immediate web-browsing looks to be standard for a range of devices.  At the component level, this of course means that cellular chipsets that combine processing and broadband connectivity are poised for significant growth.

Comment (0)

The CES show opened this morning with the same high-level of excitement we've come to expect. Tablet devices have been getting a lot of attention and I can say that what I've seen so far seems to be living up to the hype. I've attached some shots of the VILV, Hanvon and Cynovo handhelds. The notable thing about all of these is that they run on the Intel Atom processor (that's it next to my business card). Recent concerns in the press that Intel may not be competitive in this market may be underestimating Intel.

Comment (0)

Beyond the human safety and impact concerns, also of importance for the semiconductor and electronics industry, is the impact that the earthquake and aftershocks will have on the local manufacturing.  With supply already short for netbook/laptop panels, as MarketWatch Commentary posted here last week, the impact of this earthquake looks to be significant for the TFT-LCD production lines and will likely result in pricing increases due to an already forecasted tight 1Q10 supply.  The best details available thus far, are found in this very informative article from DisplaySearch:

"In the middle and southern parts of Taiwan-where several AUO, CMO and HannStar fabs are located-the earthquake interrupted production for one day. Many work-in-process panels fell and broke, so they will be scrapped. The transportation systems and cassettes in clean rooms were shaken violently, and some were damaged, which will affect the throughput of the production lines. Although there is no known damage to the major in-line equipment, several production lines had to be stopped and the calibration checked.

As engineers complete their assessments, fabs resumed production gradually starting Monday (December 21), and are expected to recover completely within a few days. We estimate that roughly 1.0-1.2% of TFT LCD supply will be lost, and Taiwan accounts for 38-40% of global capacity."

Comment (0)

Yesterday's Mayors' Summit was easily among the most collaborative events wherein mayors from many of the world's largest urban centers gathered alongside of academics and leaders from business and industry to meet and share ideas in the old halls of The University of Copenhagen, established in the 15^th century.  ARC3 researchers and mayors agree that while COP15 debates continue, urban centers represent a central variable not just to climate discussions, but also to be the loci of change because of the population densities and increased public health, energy and transportation issues taxing these cities' infrastructure.

So, what does all this have to do with semiconductors?  Quite a lot, actually.  One of the critical issues to climate debates at these levels is people's behavior around energy use and 'smart metering' systems are agreed to be a turnkey device; particularly in the ability to facilitate behavioral change by allowing people to self-regulate, for whatever reasons they choose, their energy use. 

The heart of smart meters?  Yup, semiconductor chips.  These smart meters, along with the necessary investments beginning to roll into 'smart grids', especially in the US, are effective opportunities for improving energy efficiency and reducing energy waste, along distribution lines (the grid) as well as at the consumer level.

What's smart about the new bidirectional meters and bidirectional grid systems? Hardware, middleware and software.  We are in the midst of a new, green economy, as many leading economists here report in personal interviews conducted this week.  For the semi and electronics industry, advanced metering systems (hardware and bidirectional communication grid devices) are likely to be as important to our bright future as mobile phones and laptops have been.  Watch for more details in this Commentary space from all that's being learned by Smith & Associates' COP15 attendance over the next few weeks, and in the January edition of MarketWatch Quarterly.

Comment (0)

Comment (0)