MarketWatch Commentary

As the Winter Olympics is in its final days, and we've been awed by the skill, endurance, speed, and precision of the athletes, I came across this interesting blog from cnet news here about the relationship of high-tech electronics equipment and the Olympics.

The ability to correctly and accurately determine races and competitions is essential.  We are also now well beyond the early 20^th century games where stopwatches and pieces of paper were the gold standard; see here for a nice history of Omega and the Olympics.  Now it is the passing through a light beam that triggers a start and finish based on highly precise electronic timing and digital information from sensors, cameras shooting at 2,000 frames per second, and timers that provide judges with an important data set sent directly to their laptops in order for them to make their decisions and place the athletes (see here for some of Omega's photo finishes).

Even those not competing based on speed, but on precision or completion of required routines, find their sports well grounded in high-tech electonics.  Skaters are filmed and photographed digitally so that it is not a judge's memory, attention, or perspective upon which their medaling rises or falls.  Judges can now immediately review what just happened while also providing their qualitative assessment of the athletes' performance.  Similarly, we, the audience, are now treated to the "ghost" imagery of multiple athletes on the same course to compare the differences in performance and technique, or moving digital lines to show what's needed to attain a spot on the podium; these data are, again, provided by advances in electronics and wireless communication.

So, as the games begin to wind down, remember that the semiconductor and electronics industries have been playing critical roles in the Olympics; from the years of training where athletes and coaches monitored and improved their daily performance all the way through to recording the finish lines and last routines to provide critical data to the judges' decision trees.  But, as the cnet author points out, you still have to make sure the judges know how to read these new data, now that "a pixel of difference" can be the difference between a gold, silver or bronze medal.

Comment (0)

There are many bright chip forecasts out there right now, and with good reason; the data from multiple sources indicate that these positive forecasts are warranted.  Yet, there are financial analysts and some economists still leery of a double dip recession (cf. here (IMF), here (Roubini), and here (SeekingAlpha) for some recent views), which, yes, would logically negatively affect the semiconductor industry.

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)

With the climb out of global economic recession still stressing the muscle of many leading countries and markets, this year's holiday shopping season will be closely monitored by most industries.

For the semiconductors and electronics industries, the agility of the otherwise conservative consumer to overcome continued poor, but improving unemployment numbers, albeit very modest.  According to The Wall Street Journal, "consumer spending increased in October by 0.7% as incomes rose and inflation remained low, boding well for economic growth. Personal income rose by 0.2% for the second straight month." (cf also here)  Furthermore, as reported in WSJ, US GDP forecasts for 4Q09 are also on the rise by almost one-half a percent, from 2.7% to 3.1%.

These are important economic indicators because we need to see improvements in consumers' economic health to support the positive forecasts for semiconductor growth today and over the coming three years.  As many analysts have identified, and as we all were painfully reminded during the past 18 months of recession especially, the consumer IS the key to health and growth in our industry.  To underscore this importance, the five growth areas in semis as identified by analysts cited here, here and here are all oriented around the daily lifestyle improvements of the consumer:  netbooks, portable navigation devices (PNDs), digital televisions (DTVs), DVD recorders, and video game consoles.

The direct correlate for improved consumer sales is the critical health of the IC sector in semi.  Sales for ICs seen as remaining at low inventory levels, according to DigiTimes earlier this week ("Taiwan IC designers expect low inventories through January," 11-24-09), but with the requirement of respectable holiday sales, globally.  Beyond inventories is the important compound annual growth rates (CAGR) which are also presently forecasted in the 20 to 30-percent range for the above listed five consumer product areas.  Those are respectable numbers but need the bolstering of consumers who have shed their skittishness and are also looking forward into a more prosperous next decade.

Meanwhile, let's keep our fingers crossed for this holiday weekend's sales results and hope that it is a good sign that Chinese New Year and Valentine's Day fall on the same day in 2010...  Why not, after all analysts and soothsayers all love numerological alignments.  Here's wishing for a happy holiday season.

Comment (0)

We originally asked the question, 'The $787+ Billion Question: Will semi be stimulated?' with the answer being paraphrased as 'likely, but in due time.' 

As stimulus (ARRA) money continues to fund projects intended to stimulate the US economy and workforce, and with the project mandates, particularly from the Department of Energy (DOE) and the Department of Labor (DOL), including the requirement to show measurable, positive economic impact in the short-term as well as long-term, it's time for MarketWatch to review the 'when' answer provided above.

Some of the larger grants from DOE are co-funding critical 'Smart Grid' and 'Smart Meter' projects that are not only moving the US more quickly on a renewable energy track, but are having significant stimulating effects on the semiconductor and electronics industries.

The Smart Grid, and the requisite smart meters to enable the Smart Grid, is, for semiconductor interests, essentially, a bidirectional communication system.  This entails not only an increase in hardware that now is no longer an analog device, but a bidirectional digital device, the smart meter, that also opens the floodgates to the consumer market in the form of various in-home and business devices which allow the energy consumer to directly govern their energy use in real, or near-real time.  The interactive devices, the ability of new consumer devices that can be governed, as well as the meters themselves all point in one direction:  Semi is quite certainly being stimulated and the clock has now been quite certainly started.

A cautionary note:  with SEMI's book-to-bill numbers just out, and the outlook holding steadily in positive territory (happily) but with only slow capital expenditures (CAPEX) increases, will the industry be ready and able to handle these stimulating events?

In the next issue of MarketWatch Quarterly, due out in January, watch for a focused analysis of the effects of the enactment of the smart grid and smart metering technology on the semiconductor and electronics industry. 

Comment (0)

With the 3Q09 data rolling in, there are strong data supporting the initial 2Q09 signs of recovery having been valid and been the seeds for what will be a 4Q09 positive growth period for global semiconductor shipment revenue, according to iSuppli and SIA, in particular.

3Q09 was still down YoY, but that trend will finally cease come 4Q09, according to iSuppli's recent statement, "global semiconductor revenue is set to contract by 16.5 percent in 2009.  This follows a 5.4 percent decrease in 2008.  However, revenue is expected to rise by 10.6 percent in the fourth quarter of 2009 compared to the same period in 2008."

SIA echoed these data in its long-term forecast released today for 2009-2011, "projecting worldwide sales of $219.7 billion for 2009, a decline of 11.6 percent from the $248.6 billion reported in 2008.  The forecast projects that sales will grow by 10.2 percent to $242.1 billion in 2010 and by 8.4 percent to $262.3 billion in 2011."

The continued strong sales for the largest semiconductor sectors, PCs and cell phones, in addition to the recovery beginning for industrial sectors is fuelling the positive short- and long-term forecasts for the industry by SIA. 

Other analysts are even more bullish and attribute the trepidation by many in the chip sector to disbelief and uncertainty around the durability of the recovery.  However, as the numbers continue to come in, it is more likely that the next major event to strike the industry will be shortages...

Comment (0)

China is one of four featured geo-economies in Smith's most recent MarketWatch Quarterly.  There are so many obvious reasons to continue to monitor China, but for the semiconductor and electronics industries, China is particularly important because its increasing importance as a major consumer market. 

Yes, traditionally in the West, one thinks about China as an export heavy nation.  Based on that perspective, some analysts marvel at China's economic recovery.  It is important to note that while China was hit with negative numbers across the economic board, as almost every other nation, the underlying reason that China was able to rebound quickly and strongly is not due to strong exports. 

How was China able to recover so quickly and sustainably, i.e., show resiliency in the face of global economic meltdowns?  As discussed in the Quarterly article, there are many reasons.  One important reason is the significant government stimulus packages aimed at the Chinese consumer and targeting China's most critical industries, semiconductors and electronics, in particular.  Herein lies the oft forgotten critical variable: the Chinese consumer.  The Chinese consumer has been and will increasingly be extremely important to China's GDP and to most major global industries (cf. also here for a broader Asian perspective).  China is not as heavy an export nation as many assume, and the Chinese consumer is responsible for roughly 33% of China's GDP today and set to expand to 50% over the next 5 years, according to The China Market Research Group.

With a current GDP for 3Q09 growing by 8.9%, and set to continue to rise, understanding the importance of the Chinese consumer is vital to business success.  As a result of the Chinese consumers' positive response to the government stimulus packages, the Chinese semiconductor market, while down 6.7% from 2008, is still almost 10% better than the global semiconductor market, as estimated by iSuppli.  Furthermore, the ability to curtail the economic fall through the stimulus packages, a "recovery in semiconductor demand [...] limited the decline in 2009 and set the stage for a return to double-digit percentage growth in 2010," according to Kevin Wang, Director, China research for iSuppli.

Of importance for the entire semiconductor and electronics industry is that China's resiliency is based on an increasingly active domestic consumer hungry for products across all markets, from automotive, personal electronics, white boxes, and mobile devices.  While there is variability in the 2009 rates of rebound among these sectors, the 2010 forecasts are all double digit.

Comment (0)

Today was the release of the Windows 7 Operating System from Microsoft.  As the Smith & Associate CPU Commodity Manager, I'm not a big follower of software, but an advancement in Operating Systems has traditionally been a boon for sales and production in PCs.  It's pretty widely recognized that Vista never caught on and with that the normal life cycle and turnover of systems missed a beat.  A successful new OS is more than due at this time.  A new OS should help push companies and individuals towards upgrades to their systems, and new systems.  As I watched the Microsoft pep rally and product release this morning, several things caught my ear.  As anyone with an iPhone or Mac knows, the ease of use from Apple products is amazing, and it seems as if Microsoft has finally accepted consumer encouragement, and made the new OS much simpler.  As great as Apple may be, it still has a slim piece of the computer market compared to the Windows based platforms that rule the market.  It seems like the advancements in hardware are finally being met on a larger scale by the king of software.  This should lead to a much stronger product and increased sales of overall systems.  During the demonstrations, I watched as a new Nikon camera was wirelessly connected with a Dell PC.  I watched the same PC control a Toshiba LCD, a Western Digital DVR, and a small picture frame.  Microsoft has partnered with thousands of manufacturers to make their new products Windows 7 compatible, and recognizable wirelessly...  To see a person running his PC with this ease is refreshing.  The combination of Windows Media (think DVR menu on your PC), Multi-touch (think iPod or iPhone on an LCD), Play2 (think Netflix streaming to any TV in your house from your PC), and other breakthroughs that should make this OS everything that Vista wasn't...  Accepted.  And with it, strong demand for all the components that go into the PC.

Comment (0)

As we have been gauging the health and recovery of the industry, sub-sectors, and data that indicate the path forward, now that we are in the final quarter (4Q09), it is a good time to take a look back at the EMS and ODM sector, the 'mid-stream' section of the semiconductor and electronics supply chain.

As 3Q09 reports begin to trickle in there are positive indicators that indeed, the recovery is upon us, though no one is expecting a spike that is sustainable just yet. With the retrenchment of so many along the supply chain to reign in inventory numbers, protect margins and safeguard company health, there were also the opportunities for acquisition, mergers and JVs, as discussed here and here in earlier MarketWatch Commentary posts.

In sum, both the EMS and ODM sectors are down in double digits YoY, but ODMs appear to be doing better overall, as nicely summarized in Manufacturing Market Insider's recent September 2009 issue (Vol. 19:9, pp. 1-6). 'Doing better' doesn't mean positive numbers just yet, rather, not as down as EMS. "Large Taiwan-Based ODMs" are down -9.9% for 1H09, while the "largest EMS providers" were down -19.2% for the similar time period, including Hon Hai in the group (MMI 19:9 p. 3, 1); without Hon Hai, the decline would be -27.1%.

Why the difference between ODMs and EMS? One critical variable is the inventory realignments. EMS companies certainly felt considerable stress from both sides of their supply chains as inventory management issues left many EMS companies with difficult strategic decisions: working with OEMs and their downstream channel partners simultaneously, both of whom wanted inventory off of their books and docks. ODMs too felt the pinch this year, but of course with new market demands from consumers and OEMs having to reconsider margins, redesigns and innovative designs are in demand.

Those EMS companies faring the best, most notably Hon Hai, continue to do so based on "blue-chip" customers, diversification (i.e., not being a pure-play EMS) and supporting subsidiary units that can contribute and off-set other units' downturn periods. As MMI notes, though, one question about the outlier, Hon Hai, is whether it can continue to be considered an EMS or will it become more of a conglomerate? (ibid., p.3).

Comment (0)

The short version of SIA's results for July 2009:  numbers are good, some better than expected, with semiconductor industry revenues for July at US $18.9 billion (down month-over-month (MoM), but above normal seasonal drop).  If we look at the three month moving averages (3MMA) on a MoM basis, then we see stronger indication of the rebound: revenues were up +5.3%, units were also up by +6%, BUT ASPs were down by -0.6%.  All numbers were more than expected with seasonality, both the positives and the negatives.

Breaking down the data further, Credit Suisse's analysis of the July 2009 SIA Data (in their report titled thusly, 31 August 2009), we find the steepest revenue declines in 3MMA year-over-year (YoY) numbers in the following sectors:

1. DRAM (-30.8% YoY)
2. MCU (-26.3% YoY)
3. DSP (-25.4% YoY)

On the positive side, according to the same Credit Suisse report, those sectors showing the most positive revenue increases YoY on a 3MMA were:

1. Flash memory (-1.5% YoY)
2. MPU (-10.8% YoY)

Considering how units tracked across the sectors YoY on a 3MMA, Credit Suisse found that Flash memory showed the most gains (+9.9% YoY), followed by DSP and Memory (the only others to be in positive territory); while Logic suffered the most decline (-17.8% YoY), followed by MCU and Analog (both in the lower, negative teens).

Finally, ASPs had an inverse effect, pulling DSPs down to the largest declines YoY (-32.0%), followed by DRAM and Memory (both in the mid- to upper -20% ranges).  On the other hand, Logic actually had the best ASP recovery (-2.2% YoY), followed by Micro and Analog (skirting just above -6% YoY).

Below is SIA's graph of their data, and it is a welcome sign to see what, for now, in the short-term we could actually call a "V" - but don't get too excited just yet, there'll always be the cyclicity to contend with and there are quiet rumblings of the Eurozone's possibility of facing a double-dip recession... (see this Economist article regarding Germany).

 

Source: SIA.com (click HERE for the data source from SIA)

Curious trending here.  What does it mean?  There are some geographic and end-market trends that shed light on who is spending on what (see also the upcoming MarketWatch Quarterly, out in just over a week to subscribers, which will detail the geo-economics of the semiconductor industry in APAC+Japan!).

According to the Credit Suisse data (ibid, p.7), geographically we can see the dramatic effect that the stimulus packages have had on rebounding the semiconductor industry:  APAC minus Japan, accounted for US $9.94 billion in overall revenues (52.6% of overall revenues).  Japan itself was next at US $3.5 billion (18.3%) and followed by the Americas (US $3.1bn, 16.5%) and Europe (US $2.4bn, 12.6%). 

Finally, by sector, we see further evidence of which sectors are gaining momentum and how various stimulus monies and geo-economic trends are affecting the industry:  Wireless communication revenues showed dramatic rebound with MoM revenues at US $2.1bn (7.9% of overall revenues) followed by computer revenues (US $1.81bn, 23.5%) and consumer revenue (US $1.54bn, 20.0%).  MarketWatch Quarterly's upcoming issue will also provide readers with a new installment in the Sector Brief series, this one focusing on the computing sector and the state of recovery for the semiconductor industry.  Watch for it or subscribe now to receive a pre-public release copy.

Comment (0)

Yes, it's true, we can compare to 2007 again (sort of)!  SEMI's preliminary July book-to-bill (B:B) numbers came out in mid-August.  As the following weeks' data still look to support those numbers, it's time to revisit B:B because it is an important variable, one of a series we track regularly at Smith & Associates.

During the interim in B:B reporting, while we were quietly watching the upward B:B climb and reminding you of important stops along the way here, here and here, to name a few posts, momentum has increased and is now finally rebounding steadily. 

Remember that to get really excited by these numbers, we were waiting to see the actual three month moving average (3MMA) dollar amounts get back into better territory.  The B:B ratio is, after all, just that - a ratio.  So, without strong billings AND bookings numbers, we could see a good ratio but it wouldn't herald the type of recovery we'd like.

So, enough of the tutorial.  While I must remind you these numbers are still down YoY by more than half, yes, more than half, they are at least finally getting into better territory and the bumps between months are more compelling - all good news, finally.

The preliminary July B:B is 1.06, which, as SEMI reminds us, "means that [US] $106 worth of orders were received for every $100 of product billed for the month."

Here is a copy of SEMI's data in tabular form (cf.  here):

	Billings (Three-month avg.)	Bookings (Three-month avg.)	Book-to-Bill
January 2009	584.2	277.2	0.47
February 2009	525.5	258.4	0.49
March 2009	438.3	245.6	0.56
April 2009	385.7	249.0	0.65
May 2009	392.6	287.8	0.73
June 2009 (final)	440.5	351.7	0.80
July 2009 (prelim.)	538.0	569.7	1.06

Source: SEMI August 2009

And don't forget to read up on and watch the effect on consumer confidence and the industry (also through investments) as a result of the US government's announcement this morning of the non-farm payroll numbers showing some slowing in job cuts, but unemployment numbers, like elsewhere around the globe, were up into severe territory.  You can start by reading more here from The Wall Street Journal, which is based on these US Department of Labor numbers, here from Reuters, or here from Kathy Lien of FX360.

Comment (0)