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Cautious Growth Ahead
By Ed Sperling -- Electronic News, 7/13/2005
SAN FRANCISCO-The worst is over for most sectors of the semiconductor industry.
That seems to be the overriding sentiment among industry analysts, who presented their market data at Semiconductor International’s Annual Forecast gathering this morning. And while not everyone is bullish on the sale of capital equipment used to make semiconductors over the next year-usually a trailing indicator behind the overall semiconductor market-the demand for chips and new uses for technology should add fuel for the chip industry for at least the next several years.
Dan Niles, CEO of Neuberger Berman, said there are still question marks along the way, including low personal savings rate, the U.S. budget deficit and rising oil prices. But he said interest rates are still low enough to keep business liquid, and the overall GDP is rising.
“GDP growth drives business growth,” Niles said. “Both are about the same. GDP growth drives the S&P profit picture.”
He said that in 2001, S&P earnings growth was down more than 20 percent, but as earnings growth increased over the next several years so did business spending. “The U.S. economy is growing more than 3 percent a year. While we had a brutal inventory correction in late 2004 and early 2005, we will see unit growth in the back half of this year and it will be some multiple of GDP.”
Niles said capacity utilization at fabs also has stopped declining and is starting to turn up, with TSMC expecting more than 90 percent utilization rates over the next couple of quarters.
The outlook was unusually bullish for Niles, who is regarded as one of the more bearish analysts in the industry. Other leading analysts were equally upbeat. Jim Feldhan, president of Semico Research, likewise predicts a sustained recovery in the second half of this year that will continue, with a couple of minor blips, for the next several years. Feldhan said there are all sorts of new opportunities opening up for semiconductors, including security, new markets in developing countries, fuel cells and portability.
“Capacity utilization has been decreasing, but in the second half of the year it will slowly start to increase,” he said. “All the foundries have been running at less than 80 percent. That will continue to rise through 2006.”
Feldhan is calling for a 2 percent growth in revenue this year for the chip industry and 8 percent in 2006. He said that will increase even further in 2007 and 2008, with an end to the run-up in 2009.
Dean Freeman, principal analyst at Gartner Dataquest, believes 2006 and 2007 will be relatively sluggish, with 5 percent to 6 percent growth per year, will the numbers will increase dramatically in 2008 to 14.7 percent. He doesn’t predict a slowdown until 2010.
While these numbers are all subject to a number of factors, and typically get modified over time as new data points are established, they stand in stark contrast to the numbers being issued by analysts a year ago when cell phone manufacturers in China began canceling orders due to falling demand. That triggered an inventory correction, which most industry executives believe was completed by early last quarter.
