As we approach earnings-call season, it appears that the power-management semiconductor market in the first quarter of 2005 shaped up to be pretty much as iSuppli Corp. had predicted, with a significant number of suppliers indicating that they will come in near the high end of their previously lowered guidance numbers.
Overall, the first quarter was not as bad as many had anticipated it would be, and the second quarter should serve as a stable springboard into a strong second half. However, iSuppli expects some companies will perform more poorly than others.
First, the good news
It was looking fairly gloomy for a while in January, when most semiconductor suppliers—and the World Semiconductor Trade Statistics (WSTS) organization—were talking about weakness in orders and negative book-to-bill ratios. These organizations also were anticipating more of the same, as Asia shut down for a couple of weeks during the lunar new year.
However, several positive developments have occurred more recently that have elicited sighs of relief from some segments of the power semiconductor market.
Firstly, the WSTS upwardly revised its semiconductor shipment figures for January. Subsequently, analysts realized that orders in January—while still somewhat weak—actually were close to December's and higher than orders during the same month in 2004. Secondly, February was seasonally stronger than usual for semiconductors, and March posted a decent finish.
In light of these events, iSuppli believes certain companies in the power-management semiconductor market are likely to report some pretty good news over the next few weeks.
Inventory's back to bite
However, some other companies may find their success mitigated by excess inventory. iSuppli recently reported that industry-wide semiconductor inventories were declining nicely, but that lingering stockpiles of power semiconductors—primarily in the distribution channel—were holding up a complete resurgence in shipment growth.
It is difficult to state at this point what the semiconductor supplier shipment numbers will be, but at least on the OEM/Original Design Manufacturer/Electronic Manufacturing Services (EMS) demand side, their sales have been better than average when factoring in seasonal effects.
iSuppli predicted the first quarter numbers very close to what is projected for those actuals. While most other pundits were projecting a seasonal revenue decrease in the first quarter, iSuppli stood virtually alone with its relatively bullish projection of virtually flat sales compared to the fourth quarter.
So, hopefully the accuracy of that forecast helps to lend some credibility to iSuppli's current second-quarter power management semiconductor forecast—which calls for greater than 11 percent revenue growth compared to the first quarter. This forecast is not adjusted for inventories, which may or may not be consequential by that time.
The Figure presents iSuppli's quarterly estimate and forecast of worldwide power-management semiconductor revenue from 2004 to 2006.
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Beyond the second quarter, then what?
This analyst believes that by late this year, a new round of turbulence will appear in parts of the power-management space. This turbulence will be marked by a surge in unit demand, and also by the renewed decline of Average Selling Prices (ASPs) in power MOSFETs, IGBTs and cheap commodity voltage regulators.
iSuppli is foreseeing an increase in end-equipment demand, combined with low inventories, as well as an inevitable ramp-up of power MOS production in 200mm wafer fabs that have tremendous new capacity. This combination of factors suggests that while revenues will appear to be relatively stable, underneath that picture the ASPs will be declining rapidly—just as unit demand is increasing.
It is difficult to say when the ASP decline will start, although some prices are starting to show signs of decreasing already. Those suppliers most dependent on the distribution channel for their revenues will be the first to reduce prices—and probably will pay most dearly for being in a commodity position.
Certainly, the power-semiconductor suppliers in general don't want to see prices drop anytime soon, having only recently begun to recover from the last ASP bloodbath. But once the decline does start, the price-slashing should be quite spectacular, even by the standards of 2001 to 2002, during which time ASPs declined by 30 percent.
More information on the power-management market, including a more detailed outlook for pricing trends, can be found in iSuppli's latest Power Management Market Tracker report, entitled: "A Quiet Q1, Intense Competition On The Horizon." Contact the author at firstname.lastname@example.org