REDWOOD CITY, Calif. - Coming off the worst year in its history, the worldwide semiconductor industry will grow by 3.1 percent this year, and revenues will pick up at an even faster pace over the following two years, the Semiconductor Industry Association said Wednesday (June 5).
Semiconductor sales in 2002 are expected to reach $143 billion, $177 billion next year (up 23.2 percent) and $213 billion in 2004(up 20.9 percent), according to the trade group's forecasts.
But this year's increases will come solely from the Asia-Pacific region, which is expected to grow 27 percent over last year. Other geographic regions - the Americas, Europe and Japan - are expected to show revenue declines in 2002.
"We are now in the early stages of a cyclical recovery," said Dwight W. Decker, chairman and chief executive officer of Conexant Systems Inc. and SIA board member. Application drivers will include sales of cellular handsets, PCs and consumer electronics, he added. "While there is still a great deal of economic uncertainty, we currently believe that the semiconductor industry as a whole will grow significantly over the next 10 quarters," he added.
Decker, while noting the overall forecast is little changed from the group's preliminary outlook last winter because of currency fluctuation, said the sequential growth the industry has seen and will see this year is encouraging. The first quarter was up 5.6 percent over Q4 2001, while the second, third and fourth quarters are expected to grow 4.7, 9.1 and 9.6 percent sequentially he said.
Capital spending is still off the historical norm of 24 percent of overall sales. This year, capex is expected to total 20.9 percent of total sales and grow to 22.7 percent next year, Decker said.
Two other encouraging sign come from the factories, where capacity utilization is on the rise, and the shelves, where inventory is dwindling. Utilization for the first quarter of this year is estimated at about 72 percent (compared with 95 percent, or effectively full capacity, at the peak of 2000. Utilization is forecast to grow to 85 percent by year's end, Decker said.
On the shelves, there is an estimated $2.6 billion in excess inventory, down significantly from $15 billion in the fourth quarter of 2000, he said. "The industry has gone from having a month of inventory to a week of inventory," Decker added.
Breaking down the overall revenue numbers, sales in the Americas region are expected to fall 4 percent to $35 billion this year; in Europe, revenues will dip 2 percent to $30 billion; Japan will take the biggest hit of any region, falling 14 percent to $28 billion this year. Asia Pacific's total take will be $51 billion this year, the SIA said. A increasingly significant portion of the AsiaPac region is China, where sales are expected to grow vigorously in semiconductors (up 21.4 percent), PCs (20 percent), Software and services (up 20 percent), telecommunications and networking (9 percent) and mobile (12.5 percent), according to People's Republic of China government estimates.
"There is quite a dramatic shift" in consumption in Asia Pacific, Decker said.
High flyers among technologies include DSPs (forecast to grow 9 percent to $5 billion this year); DRAMs (up 39 percent to $16 billion); Microprocessors (up 14 percent to $27 billion); and analog (up 3 percent to $24 billion).
Big losers include opto components (off 15 percent this year to $6 billion); MOS logic (down 4 percent to $32 billion; and microcontrollers (down 5 percent to $9 billion).
John Hodge, an analyst with Credit Suisse/First Boston, attempted to buoy investor confidence in the semiconductor sector by saying intellectual property, by many measures, continues to flow in the silicon world. Semiconductors, he noted, comprised 8.8 percent of the market cap in the tech sector in 1990. This year, the figure is 24 percent. Gross margins of the SOX semiconductor companies as tracked by the Philadelphia Stock Exchange, have risen from 37 percent in the period from 1978-85 to 48 percent in the period from 1996-2002, he said.
"It's the only industry that's made Wall Street money," he said.
But Hodge cautioned that by historical measures, the downturn in the tech-sector equities markets will linger. During the last stocks downturn in the 1980s, shares over time fell an average of one day for every two days they rose. This cycle, there have been 103 months of stock market growth but only 36 down-market months so far, he said, suggesting that as many as another 15 months of down-market conditions may be in the wings.
"Macroeconomic issues will continue to impact technology, and the government is getting much more involved" in business, Hodge said.
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