Riding the Wave: 2011 Cresting into a 2012 Cutback Move

At the Semico Summit this week Jim Feldhan said “2011 will see revenue growth of 8% however the Semico IPI indicates the second half of 2011 as the beginning of the next market slowdown.” What other evidence supports this hypothesis?

• Approximately 100 tablet models are being introduced this year, each with a market share goal of more than 1%.  There will be winners and losers.  The result will be excess capacity and inventory in the channel as these models shakeout. In terms of semiconductor ASP's, the supply chain only has to be few percent points out of equilibrium to cause prices to crash.  We’ve seen it in the memory market many times.
• The smart phone is considered the “promise land”. A market that continues to grow at double-digit rates with increasing semiconductor content is an irresistible market. However, there is a similar threat in the smart phone market.  Overbuilding of smart phones will result in a production pullback in 2012 contributing to excess capacity and inventory leading to falling ASP.

While we would expect a semiconductor downturn to produce negative semiconductor revenue, Semico has identified several factors that will dampen the severity of the downturn.

• The devastation in Japan from the earthquake and the tsunami left heavy damage in northern Japan. A number of production facilities were severely damaged.  Renesas was one of the company's hardest hit. In addition to plant closures, the Japanese automotive manufacturers have substantially reduced production rates.
• Some consumer products, particularly games and TVs are in a similar situation.
• Although this is bad news for the affected companies and potential revenue for 2011, Semico believes that there will be pent-up demand that will roll into 2012 helping to mitigate the downturn.

Other positive factors affecting 2012 include:

• A continuing growth in Internet activity and cloud computing is spawning a wave of upgrades in the communication back bone and server farms.
• The build-out of 4G wireless networks will require substantial investment that will spur demand from 2012 through 2015.

Jim Feldhan,

President