Is The Semiconductor Industry Healthy?

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.

I recently had my own anecdotal experience with the constraints surrounding the semiconductor industry. My main computing device is a notebook PC from 2007. The performance is certainly adequate while traveling and making presentations. However, this notebook is taxed when I am in the office working on my spreadsheets, statistical models, drawing packages and other programs. Contrary to the trends of moving to a netbook, my solution was to keep the notebook for traveling, and buy a high-performance desktop machine. On December 4th I ordered an HP quad core DDR3 machine. The scheduled ship date was December 11th. Seven days did not seem that unusual; however, on December 14th I received a delay notification. The e-mail informed me that due to product constraints HP will be unable to ship my order on the original estimated ship date. The revised estimated ship date is now December 18th.

Wow, desktop PCs are not supposed to be the hot item this year. Yet semiconductor components and possibly other components are in such tight supply for even the number one manufacturer that they can’t deliver a desktop machine in less than two weeks. Although this is just one data point, it does indicate that we will end the year with a very low inventory situation at both the box and component level.

Semico continues to expect that the first quarter of 2010 will experience its normal seasonal trends that will put the industry on track for a 20% growth.

Jim Feldhan
President
Semico Research