Happy New Year! 2009 is just beginning to unfold in the electronics industry and there is already uncertainty in the air based on recent industry data.
Industry forecasters seem to have different opinions about the overall outlook for the semiconductor and IC-equipment markets in 2009 and beyond.
To help sort out the confusion in the market, I have released my own chip forecasts--and other predictions--for 2009.
1. Downturn or depression?
I've had the luxury of seeing what the other IC forecasters are saying for 2009. In my opinion, most of those forecasts are too optimistic. Unfortunately, I see a 25 percent decline in the IC industry in 2009. That's slightly better than the horrific downturn in 2001, but not much better. It will feel worse than 2001.
Like 2008, memory will drag the industry down in 2009. Memory, including DRAM, NAND and NOR, could see a staggering 40 percent drop in worldwide sales in 2009. There is still too much capacity in a slow demand cycle. The remaining markets--analog, communications, DSP, logic and others--could see flat growth in 2009.
Some see a recovery starting in mid-2009. I don't. I myself see pockets of growth: Aerospace/military. GPS. Sub-notebook PCs. But I don't see that elusive ''killer app'' that will dig us out of the hole. Plus, of course, the sub-prime mess, credit crunch, bank scandals, housing crisis, car bail-out fiasco, and other macroeconomic issues are not going away anytime soon. Job losses and poor consumer spending will dominate the headlines in 2009.
2. The (fab-tool) sky is falling
Hold on to your seats and buckle up. The semiconductor equipment industry could see its worst year ever in 2009. My prediction: Minus 50 percent! I don't want to spread the news, but leading IDMs are simply not going to expand their fab capacities to any great extent in 2009--and for good reason: The IC market is falling like a rock. The memory guys will continue to cut back their capex. So will the foundries. The question marks are Intel and Samsung. Don't look for any major fab spending sprees among those two companies.
The front-end equipment market could be bad, but the backend will be worse. Like the foundries, the subcontractors, such as ASE, Amkor, STATS and SPIL, are seeing a glut of capacity. I see a 20-to-30 percent decline in the foundry business and a similar drop in the IC-packaging and test market.
3. EDA--Down and out?
Our crack reporter, Dylan McGrath, made these predictions about EDA: Obviously, EDA vendors will face a painful year in 2009. They will say that design is always the last area to suffer in a downturn because chip vendors can't stop the bleeding without the design tools to innovate. This may be true, but the reality is that EDA vendors face declining sales as consolidation and job cuts by chip companies means fewer seats of software. Expect EDA revenue to decline about 10 percent next year, possibly more.
Many of the smaller EDA startups will not weather this storm. There is some speculation that this has already happened with at least two companies, Blaze DFM and Knowlent Corp. There will be others. But that happens in EDA, even in good times.
EDA's four large vendors will more than likely survive the year intact. Synopsys, which is still showing profits and predicting growth for 2009, is a lock. Mentor Graphics has been losing money but has a lot of momentum and seems a safe bet to survive. Cadence Design Systems and Magma Design Automation are facing tougher challenges, but it's hard to see them going away. Despite Cadence's play for Mentor last year, consolidation among the big four is unlikely because of too much product line overlap.
A more intriguing possibility is that a company from an adjacent industry, or a distantly related industry, might take advantage of the low market capitalizations of EDA vendors and acquire one to expand its portfolio. The idea that TSMC might buy Cadence (or another large EDA vendor) has been floating around for years. But now that Cadence is on the ropes, is it more realistic? Offering a suite of EDA tools would make TSMC even more attractive to customers. But could TSMC charge as much for the tools as a standalone vendor? Not likely. Customers would push for EDA tools to be thrown in as part of a deal. Before you know it, TSMC would be expected to take on the R&D costs associated with developing new EDA tools as the price of doing business. The risk-reward dynamics don't seem to play out.
But what if a company from an entirely different space made a play for Cadence just to get its foot in the door in EDA? What if a software company like Autodesk or Oracle, both powerful and with historic ties to Cadence, decided to make a move? These companies and others continue to jump into new industries through acquisition. Why not EDA? Autodesk is a force in design software through many industries, and is already bumping up against Mentor and others in the automotive space. Could this happen? It makes for intriguing speculation, and it's not impossible. But it's a long shot at best. After all, who would want to get into the EDA business?
4. Here comes the sun
The growth prospects are enormous in solar, but I am a little disappointed with the adoption rates. In my opinion, green is somewhat overrated. Germany, Japan and a few other nations have embraced solar, but others, especially the United States, are still lagging. I see a 5 percent decline for the worldwide solar panel industry in 2009. For years, the problem in solar has been the polysilicon supply. Poly supply will shortly catch up with demand. But in 2009, growth will be stunted by the economic downturn. Corporations will slow their adoption of solar. Residences will continue to question the economics.
Here's what Robert Stone, an analyst with Cowen and Co., said in a recent report: ''The global PV market outlook is uncertain. In our view, continued growth depends on: more stable Euro/USD, a rebound in project credit, new sources of tax equity, and continued government support. We surveyed 50 dealers in 19 states (in the United States). While 80 percent cited a negative impact from the credit crunch, 50 percent also said the tone of biz had improved recently, likely due to the ITC extension, mentioned as a positive by 72 percent. In 2009, 40 dealers expect to increase kW installations by an average (of) 79 percent, up from 30 and 71 percent this year; just 3 see a decrease in 2009 vs. 7 in 2008. Most see 2009 module supply as balanced (20) or tight (19), verses excess (5) or uncertain (6).''
5. Bailout blues
I see 2009 as the ''Year of the Bailouts.'' U.S. car makers have already been successful in obtaining a bailout. So why not chip makers? In fact, the Taiwan DRAM houses, namely Powerchip and ProMOS, are seeking bailouts in one form or other from the island's cash-rich government. South Korea's Hynix claims it is not seeking a government bailout now, but it will over time. Hynix received a fresh infusion of cash from its creditors.
I see the bailouts going beyond Taiwan and Korea. Qimonda received a bailout. I even believe the European Union may have to intervene and provide cash infusions to NXP and ST. In China, I see a bailout for SMIC. I don't see a bailout in Japan, but rather look for more mergers in that nation. The same is true in the U.S., with the possible exception for Micron. As usual, Intel will rescue Micron. Every DRAM cycle, Intel funds Micron. This time, for DDR3.
So, in effect, will semis become a state-run enterprise?