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On May 4th last week I moderated a panel at the GSA Silicon Series Luncheon. The topic was Next-Generation Networks: The Evolution of Mobile Connectivity.

GSA put together a great lineup of speakers and panelists. The keynote speaker was Arpit Joshipura, VP & Head of Strategy, Communications, Ericsson who gave a great review of mobile communications landscape. Mobile broadband is expected to connect over 50 billion devices by 2020. That translates into 10 connected devices per person. There’s a lot of speculation as to future uses. Arpit noted one application which he thought was bizarre, connected trees. I actually find that to be quite innovative. As a citrus tree owner, I would appreciate knowing when my fruit is ripe and when the birds are starting to attack my best fruit. Great application!

But getting back to the topic, the panel focused on mobile technology, 3G, 4G…Beyond 3G: 4G, WiMax, LTE...What Next?

Yesterday afternoon Intel reported first-quarter revenues of $10.3 billion with operating income of 3.4 billion and net income of 2.4 billion. Compared to first quarter 2009 revenues were up 44% operating income of 433% net income of 280% exemplifies the strength and intensity of the semiconductor recovery.

Gross margins have recovered to 64% indicating that companies efficiency and the strength of the overall electronics markets. Intel's strong 1Q 2010 performance does not come as a surprise to Semico.  The IPI results from one year ago indicated that the industry would see this kind of growth in 1Q 2010.  Intel is the largest chip vendor and a bell whether company. 

The Semico inflection point indicator, published in the Semico IPI monthly report has forecasted a strong 2010. Although final industry statistics for March have not been released, we fully expect that first-quarter 2010 will be between 45 and 50% above first quarter 2009. Our Outlook for second third and fourth quarter looks very realistic at just over 25%.

Inventories still remain tight and there is certainly some momentum in the order rates that indicate OEMs are trying to build some buffer inventory. This inventory build could quite easily drive revenue growth much closer to 30%. So far we have seen the IPI continue to remain at record high levels and have not seen any indications pointing to the beginning of a downturn for the next 12 months.

Micron continues its tradition of innovative business strategies by buying distressed assets and creating highly productive joint ventures.  For DRAM, the company is projecting 160% bit growth per wafer from Q4 2009 – Q4 2011.  NAND is forecasted to achieve 114% bit growth per wafer over the same time.

Their copper and leading edge process drives lower voltages and higher reliability.  Micron's goal is to be the lowest-cost manufacturer.

The ventures with Intel and Inotera provide 50% of both DRAM and NAND, which is a great strategic move.

Looking at fab tools, lead times for litho tools have extended to 10-12 months.  Micron claims that they have slots for the tools that they need; however, the overall industry may be limited.

One tool per month through 2011 at Inotera.  Inotera will ramp 50nm in 2010, with 42nm starting Q4 2010.  Moving to 42nm will bring a huge productivity improvement at Inotera, and will cost $2 billion.

On top of this, Micron is generating substantial cash.

-- Posted from Micron's winter analyst meeting

Since the beginning of the year, Semico has described the semiconductor inventory reduction as an overreaction and we forecasted the resulting the V-shaped recovery for 2009. This recovery started to occur in Q2 and has continued through Q4. It's hard to say how many times I was asked if this recovery truly has legs. Will 2010 result in another down cycle? All of the indicators we see point to a strong 2010. Semico's inflection point indicator, our analysis of capacity utilization, the low inventory situation at both the chip and box level and the continued demand for electronics are signaling a strong year for 2010.

Something very different happened in the semiconductor industry this past year. The sales downturn, although severe, was completely unlike any previous semiconductor industry downturn. Seeing the difference and understanding semiconductor industry dynamics leads to only one conclusion; Semico Research Corporation’s forecast: double digit increases in semiconductor sales, peaking in 2011, followed by a downturn starting in 2012.

The 2008/2009 downturn in total worldwide semiconductor sales was the first downturn in semiconductor industry history that was not driven by huge excess inventories leading to falling ASPs. It was also the first downturn that was not preceded by a year with an increase in annual sales of more 30%. Those facts have important implications.

Semico Research pops out the Champagne with a forecast that accurately pinpointed the industry turning point and magnitude.  Second quarter 2009 semiconductor revenues hit 17% growth over first quarter!  After a spectacular -24% plunge in Q4 2008 followed by a dismal -15% in Q1 2009, Q2 came roaring back! Semico never bought into the scenario of a semiconductor depression in 2009 where sales would fall 21-30% as many have forecasted. Our detailed analysis of the end markets combined with manufacturing capacity, investment strategies and the proven Inflection Point Model (IPI) clearly pointed to a V-shaped recovery that was even stronger that what we forecasted with December 2008 statistics.  The industry is clearly on the road to recovery and the semiconductor industry is leading the world economic recovery.

The two graphs below clearly show the accurate predictive nature of Semico’s tools.  The first graph was published in the February 2009 IPI report using December 2008 data.  The second graph was published in July 2009 using May 2009 data.  The pink line is actual worldwide semiconductor revenue and the green line is Semico’s forecast.  The Semico IPI pinpointed the month and level of the bottom of the down cycle.  The V-shape recovery actually has been a little stronger than forecasted.  Did anyone really believe that the semiconductor industry has ended its cyclical nature? No one at Semico!  The herd mentality can be a dangerous phenomenon.

At the Semico Summit in March my opening remarks covered the State-of-the-Industry and the unprecedented decline in the fourth quarter 2008. While many other market observers fell into the doom and gloom scenario predicting a 20-30% decline for 2009, Semico utilized it’s IPI, MAP Model and extensive industry experience to refute this conclusion.  Semico’s assertion  was that inventories were not grossly out of balance in Q3 2008 and the subsequent drop in sales was an over reaction resulting in below healthy inventory levels.

Some proclaimed that cell phones were going to experience dramatic drops due to the recession.  Our research and interviews showed just the opposite.  Cell phones are now considered a necessity.  It is the “land line” that is now viewed as an unnecessary extra! As far as the recession goes, consumers that we have interviewed who are looking to reduce their monthly expenditures are researching cell phone providers to pick a plan that reduces their monthly bill. In many cases this results in a change in carriers which requires a new phone! Any reduction in cell phone sales due to the rise in unemployment is overshadowed by consumers changing providers to save on monthly bills.  In December 2008, Semico forecasted cell phones to be down 10% in 2009 and we reaffirm this forecast.

The memory market continues to be plagued by excess capacity, however recently we began seeing improvements and stability even in this market segment.