MONTEREY, Calif. There is a recovery underway in the semiconductor industry, and it is robust enough to survive seasonal variations and a war in Iraq, Doug Andrey, the Semiconductor Industry Association's (SIA) director of finance and principal industry analyst, said Monday (Feb. 24).
Despite projecting continued monthly declines in January and February, Andrey told a internatonal press gathering here that the industry has effectively returned to what he is projecting to be 8 percent annual growth for the next few years.
"We built considerable momentum coming out of 2002, with 23 percent quarter-to-quarter growth in the fourth quarter,'' Andrey said. "The monthly numbers for December were down a bit, and January and February will probably be down as well. But this is a weak part of the year historically, so that should not be a worry."
He pointed to gathering positive factors, including a huge reduction in inventories, about 4 days' worth currently, and a return to modest growth in demand for consumer goods, especially in Asia. "There has been an unprecedented shift in the global electronics market to Asia-Pacific, Andrey said. "While Europe and North America were showing 6 to 9 percent declines in demand, Asia rose 29 percent. As has been widely stated, China alone is adding 5 million cell phone customers per month at the moment."
But there are still issues to watch, Andrey admitted. For one, computers still consume over 40 percent of the semiconductor industry's output. If companies and individuals don't choose to replace aging PC hardware in mid-2003 to 2004, that would remove a large piece of the projected industry growth.
Another concern, Andrey said in response to a question, is that there is a limit to how much the Chinese market can boost the industry out of its prolonged slump. "It is a huge country, but there are only 100 million households with annual income above $4,000," he said. If penetration of electronic equipment exceeds the ability of households to pay for the services that come with them, there could be a backlash.
Finally, Andrey stressed the disaggregation of the electronics supply chain. He said there are so many different entities involved in moving from wafer to end-user now that forecasting demand has become extremely difficult. Especially in times of market uncertainty it is very hard to interpret forecasts from customers. For instance, Andrey asked, Are they low-balling, failing to anticipate demand or overestimating to preserve their relationships?
With half-a-dozen stages in the supply chain, a modest error in forecast at each stage can result in huge differences between inventories and demand. This problem could hamper not only the ability of forecasters to predict the recovery, but the ability of supply chains to respond to it, the SIA executive said.