Semiconductor industry revenue in 2012 is expected to reach $323.2 billion, up a slight 3.3 percent from last year’s revenue of $312.8 billion, according to an IHS iSuppli Global Manufacturing Market Tracker report from information and analysis provider IHS (NYSE: IHS).
While expansion this year is expected to be better than the paltry 1.25 percent increase of 2011, the overall picture could brighten considerably if the United States and the rest of the world recover in 2013. Under such a scenario, growth from 2013 to 2015 will average between a more encouraging 6.6 to 7.9 percent, as shown in the figure below, with total semiconductor revenue by 2015 rising to some $397.7 billion.
“Much of the weak performance in both 2011 and this year can be attributed to external circumstances over which the semiconductor industry has no control—the ambiguous state of the global economy, along with assorted troubles in the world’s major markets of the United States, Europe, Japan and China,” said Len Jelinek, director and chief analyst of semiconductor manufacturing research at IHS. “And because the world economy is not in a strong-enough position to drive growth, the semiconductor business is coming under pressure.”
Consumer spending is also a key factor determining conditions in the chip market.
Although consumer spending lowered the level of inventory of electronic devices and other items incorporating semiconductors during the 2011 holiday season, the reduction was insufficient to re-energize chip demand to replenish stockpiles. Worse, a deliberate decrease in manufacturing run rates by companies in the third quarter of 2011 proved unable to bring inventory down to levels that would have fired up additional orders and increased factory run rates. As a result, semiconductor demand for manufacturers will remain depressed until the second quarter of 2012.
Such developments will have a ripple effect throughout the industry. For instance, because factory utilization will not recover until the middle of 2012, the integrated device manufacturers (IDM) that both design and manufacture semiconductors in-house will experience even greater stress to simply maintain the viability of underperforming factories. And with current manufacturing capacity deemed acceptable for meeting demand, most capital expenditures to boost efficiency within the industry likely will be pushed out to 2013.
Memory Under Siege; Wireless to be a Winner
The most beleaguered semiconductor segment will be the memory space, especially in dynamic random access memory (DRAM), with revenue projected to decline to 16.1 percent in 2012 on top of a 26.8 percent fall in 2011. And a once-energetic performer in 2011—NAND flash—will see less rosy prospects this year because of additional capacity coming on to meet a surge of demand for the memory in devices like mobile handsets and media tablets.
In contrast, a strong market revenue driver this year will be the wireless communication segment, spurred by media tablets, smartphones and industrial electronics. For the semiconductor industry to revitalize, however, it is imperative that the core PC and peripheral markets experience a significant increase in demand, IHS believes.
The first half of 2012 is almost certain to be a challenging period for the industry, with negative growth being forecast for the historically slow first-quarter season. The industry will begin to rebound in the second quarter and then go on to a strong third quarter, as is normal for the business.
Foundries dedicated to manufacturing semiconductors as their main activity will continue to outperform the industry, while IDMs will have lower growth, especially as they have abdicated manufacturing in leading-edge technology—where the high margins are—to the foundries. The advice is for IDMs not to sit by idly and allow fabless or foundry companies to control leading-edge design or production on their own. Otherwise, they risk consolidation, which would have the unintended effect of providing rival foundries with even more opportunities for additional growth.