Although conditions in the global semiconductor industry in 2010 are set to improve dramatically, the reality is that this year will deliver only a modest recovery, iSuppli has warned.
Global semiconductor revenue in 2010 is set to amount to US$279.7 billion, iSuppli predicts. While this represents a striking 21.5pc rise from US$230 million in 2009, it amounts to only an 8 pc increase from US$258.9 billion in 2008, and a scant 2.3 expansion compared to US$273.4 billion in 2007.
Semiconductor market conditions in previous years
With market conditions in 2009 dictated by macroeconomic factors that were independent of the technology business, comparisons with 2007 and 2008 provide a more accurate depiction of 2010 semiconductor market conditions, iSuppli believes.
“Amid double-digit growth in revenue, rising prices, supply constraints and soaring capital equipment purchases, enthusiasm over the semiconductor industry’s 2010 outlook has hit a fever pitch,” said Dale Ford, senior vice-president, market intelligence services, for iSuppli.
“However, conditions in 2010 appear so fantastic only in comparison of 2009. In reality, 2010 is likely to simply be a year when semiconductor industry growth on a sequential quarterly basis returns to a more normal pattern.”
For semiconductor suppliers, it’s hard not to get caught up in the current optimism.
When viewed as a 12-month rolling average, monthly semiconductor revenue in 2010 is set to recover at the strongest rate in history, according to iSuppli.
However, this growth comes only in comparison to the depressed levels of 2009, a year when semiconductor market conditions faced an unprecedented type of downturn.
Downturn in semiconductor business
“Downturns in the semiconductor business historically have been driven by supply-and-demand dynamics within the technology market,” Ford observed.
“For example, the downturn of 2001 was spurred by factors such as the dot-com bust, a strong drop in PC sales and semiconductor manufacturing excess capacity. However, 2009 marked the first time a downturn in the semiconductor industry was driven primarily by the macroeconomic environment.
“Seen in this context, the 21.5 pc annual rise in semiconductor revenue expected in 2010 actually represents a return to demand levels of 2007 rather than a dramatic growth surge.”
Other positive indicators for the semiconductor industry in 2010 also should be viewed with some caution.
Mobile phone makers have reported some supply constraints for key semiconductor components. However, these shortfalls reflect supply bottlenecks spurred by production constraints, rather than an extraordinary increase in sales, iSuppli believes.
Semiconductor suppliers in 2009 cut production capacity and halted purchases of manufacturing equipment in order to adjust to weak market conditions. As demand has returned to normal seasonal levels, supplies have been constrained in some cases.
In another positive sign, semiconductor suppliers at present are striving to raise prices to recapture margins to make as profit as possible.
Pricing trends in electronic components
However, pricing trends actually have returned to historical norms in 2010. iSuppli’s Procurement Pricing Index predicts average prices for electronic components, including most categories of semiconductors, will decline at about a 2 pc sequential rate in the first and second quarters of 2010.
Such a rate of decline is a typical for the semiconductor industry and certainly doesn’t reflect a surge in pricing.
Another positive sign for the global semiconductor industry is the resumption of capital spending among chipmakers on chip production equipment.
Global spending on semiconductor manufacturing equipment is expected to rise by 46.8 pc in 2010 compared in 2009, bringing an end to three consecutive years of decline.
By John Kennedy
Photo: The semiconductor industry looks set for a modest recovery in 2010, iSuppli has predicted