Chip makers would love to forget about the past semiconductor downturn, which began to rear its ugly head at the tail end of 2000 and lasted what seemed like forever.
Well, not forever. Thankfully, in 2003, there has been a slow, steady recovery in the semiconductor industry. The consensus among IC forecasters is the chip industry will grow 15-to-20 percent in 2003 over 2002. In 2002, the IC business was a non-event, as the market was flat.
Now, the question is whether the semiconductor industry had a mild or spicy recovery in 2003. G. Dan Hutcheson, president of market research firm VLSI Research Inc. in Santa Clara, Calif., said worldwide capacity utilization and chip demand began to reach the boiling point in the fourth quarter of 2003. "There's huge business out there," Hutcheson said. "It looks like 2000 all over again."
The semiconductor analyst was referring to the memorable boom cycle in 2000, where IC demand and fab-capacity shortages dominated the semiconductor landscape. However, the current IC landscape begets a sense of caution--if not concern--especially given the extending lead times and shortages of select components and process technologies heading into 2004.
"There's a clear sign that the IC industry is overheating," Hutcheson warned.
Chip forecasters also believe that the current upswing will continue into 2004, but on the other hand, there are some troubling signs right now. DRAM prices are falling. And a few companies--such as ATI, TriQuint, and others--are expecting a seasonal slowdown in the first quarter of 2004.
Predications all over the map
Going into 2003, meanwhile, the IC industry was prepared to see a recovery and the growth predications were all over the map. One bullish predication came from Future Horizons, which in late-2002 believed the IC industry would grow 17-to-35 percent in 2003 over 2002. The most conservative guess came from Gartner Inc., which in November of 2002 projected only 12.1 percent growth in 2003.
Some believe that the IC recovery actually started in the latter part of 2002. And one chip executive, Brian Halla, chairman, CEO and president of National Semiconductor Corp., made his famous prediction, by saying the semiconductor turn-around will happened at 2:15 p.m. PDT June 21--give or take a few minutes. Halla based his Nostradamus view on a complex model generated by a Stanford professor (see June 20 story).
Clearly, though, it was the tail of two semiconductor industries this year. The first half of 2003 turned into a dud, as the worldwide economy and the IC industry were adversely impacted by the SARs epidemic and the war in Iraq. Lackluster demand for PCs, cell phones, and other products did not help matters.
The events stalled the recovery and prompted most analysts to reduce their overly optimistic forecasts in the early stages of 2003. For example, citing what it called a state of "Iraqnophobia," Semico Research Corp. in February lowered its 2003 chip forecast for the second time in recent months. "Iraqnophobia" referred to the fear and uncertainty of a war with Iraq and its aftermath (see Feburary 25 story).
Tables turn for ICs
By the summer of 2003, however, the tables turned in the right direction. Chip demand was growing and capacity utilization at the leading edge reached 94 percent by June, said George Scalise, president of the Semiconductor Industry Association (SIA). "With seasonal third quarter patterns, such as consumer builds for back-to-school and the year-end holidays, we expect sequential increases from the consumer, computation, and communications sectors," Scalise said in September (see September 9, 2003 story).
Then, by the fall, the SIA and the World Semiconductor Trade Statistics (WSTS) organization raised their separate chip forecasts. With the threat from the respiratory illness SARS retreating, the WSTS saw double-digit percentage growth year-on-year for the worldwide market in 2003 through 2005.
In the WSTS forecast, the market is now tipped to grow 14.2 percent in 2003, to reach $160.7 billion. The market growth is expected to accelerate through 2004 to 19.4 percent, taking the annual market to $191.9 billion. And in 2005, the market should grow 12.6 percent, to $216.1 billion, finally beating the previous record market of $204.4 billion scored in 2000. A minor fallback is foreseen for 2006 but with total worldwide sales still remaining above the $200 billion mark and the previous 2000 high point (see October 28, 2003 story).
Meanwhile, the SIA is expecting global sales of semiconductors in 2003 to increase by 15.8 percent to $163 billion and it projects 2004 revenues to increase by 19.4 percent to $194.6 billion. It also projects 5.8 percent growth to $206.0 billion in 2005, and 6.6 percent to $219.6 billion in 2006. The compound annual growth rate for the IC industry will hit 9.8 percent for the period from 2003 through 2006, according to the SIA (see November 5, 2003 story).
Without a doubt, the semiconductor industry is back on track. Is it a mild or spicy upturn? "It's exploding," declared Steve Della Rocchetta, executive vice president of worldwide sales and marketing for foundry provider Silterra Malaysia Sdn. Bhd.
But there's always one Grinch in the crowd. One chip executive still does not see the huge IC upturn amid lackluster consumer demand. "I'm still pessimistic right now," according to the chip executive.
(Return to 2003 top ten list or go to No. 2).