TOKYO Recovery for the global semiconductor business will occur next summer, an analyst predicted this week during a seminar on prospects for the world electronics and chip industries. Akira Minamikawa, senior analyst at WestLB Securities Pacific Ltd.'s Tokyo office, was one of the few to warn of disaster for the industry last summer.
Now, Minamikawa is already predicting 11 percent growth for the world semiconductor and electronics market in 2002, based on increased consumer demand and a sharp reversal in the supply-demand balance. "Basically, our prediction is more positive than that of others and it's more than double the consensus of 5 percent for 2002," he said.
Minamikawa cautioned that he still saw lots of problems for this year, however. PC and mobile phone inventories will not burn off until Christmas, he said. But longer term, he saw important indicators that will fuel a rebound next year.
First, he said, is the continuing fall in component prices for such key digital consumer products as CD and DVD players. More generally, savage cuts in memory pricing over the last few quarters will spur sharp price cuts for notebook and desktop PCs, Minamikawa said. He also sees gold in plummeting prices for 15-inch, thin-film-transistor (TFT) LCDs. They should dip to $200 by year's end, adding to the boost in PC demand, he said.
Some analysts expect the rollout of Windows XP and the traditional back-to-school and Christmas selling seasons as jolting the market into short-lived activity this year. But most, such as Kanae Maita, PC analyst at Gartner Dataquest Japan, don't see much consumer interest in updating to XP, which requires a minimum of 128 Mbits of PC memory, so soon after buying Windows 2000.
But Minamikawa sees the emergence of $1,300 notebooks stuffed with 1-GHz or faster processors, 128 Mbits of memory, 60 Gbytes of hard-disk drive, and CD and DVD players packaged with cheap TFTs as a consumer hit this Christmas and a key driver to burn off inventory.
"This kind of all-in-one hardware will drive the market. These price cuts will stimulate demand and next year's electronic equipment market will be much, much better," Minamikawa said. "And next year's soccer World Cup and winter Olympics are good for the consumer electronics market and will boost demand further."
Minamikawa told his audience he believed worldwide global PC growth will hit 13.5 percent in 2002, driven by a strong 17 growth in Europe and 16 percent in Asia, excluding Japan.
LBWest's predictions about demand in the United States and Japan are more modest, however. Minamikawa said the United States should see PC demand rise only 8.9 percent next year.
On a global level, pent-up consumer demand for broadband communications infrastructure should also help boost the industry next year, Minamikawa said. While he did not provide figures, he predicted "high growth" for the industry starting in 2002, particularly in Japan.
Moreover, he went on, this year's plummeting capital expenditures will lead to a dramatic swing in the supply-demand balance as soon as next spring. This year, WestLB predicts capital expenditures across the electronics and semiconductor industry will free-fall, dropping at least 40 percent from last year.
In 2000 the world's 27 top electronics and semiconductor makers shelled out about $48 billion to $49 billion on capital expenditures, he said. Historically, whenever the ratio of capital spending to semiconductor sales surpasses 20 percent, a glut in supply ensues, he said. That ratio hit 25.3 percent last year.
Minamikawa predicted that the industry will be lucky to hit a level of $35 billion for capital expenditures in 2001. Capacity should grow about 10 percent. And it's possible more semiconductor companies will delay 300-mm fab deployment, he said. "As a result, next year there will be effectively little capex. Capacity will grow only about 10 percent. I predict by next summer we will see shortages," he said.
Last, Minamikawa is convinced that the badly burned electrical manufacturing services industry has learned lessons from what he called the "crazy" double- and triple-billing practices that reached their peak about a year ago, creating today's mountain of inventory. "Solectron and SCI Systems and Celestica for example were all very new to the industry last year. They now recognize the EMS industry has a problem. There will be no inventory problem next year," he said.
Minamikawa said he was one of the first analysts to spot the danger signs pointing to this year's crash. Last August, in a research note titled "Clouds on the Horizon," he cited weakening PC shipments and predicted a "disaster post-Olympics and U.S. presidential election."
This time around, Minamikawa said he wants to be an early bearer of good news. He is even optimistic about mobile phone, which are now facing a second quarter of disastrous sales. He sees the huge seesaw of production vs. demand balancing in the second half of this year. On top of that the Chinese market will continue to contribute to new demand, he said.
"Last year there were orders for about 470 million phones and only about 400 million phones were shipped. This year I see demand for 430 million phones but component orders for only 360 million. China's mobile phone market surpassed 100 million units this March. It will soon surpass America. The chip makers' view is just too conservative," he said.