Future Horizons' CEO explains why the market watcher just increased a 2018 semiconductor forecast that was already the most bullish in the industry.
A recently-published chart from the SEMI trade group (below) summarizes the 2018 semiconductor revenue forecasts from the various industry watchdogs. This clearly shows the global collective received wisdom for 2018 chip revenues in the 7-8 percent range. Cowan’s linear regression model is the most bearish at 5.9 percent, and Future Horizons is out on a limb at a bullish 16.0 percent.
The overall forecast average was 8.3 percent, or 7.2 percent if you exclude our somewhat contrarian position, signalling the end of 2017’s boom. While other forecasters were blotting the ink on their single-digit growth numbers, we were revising our 2018 forecast up to 21 percent, significantly higher than the 16 percent we posted in September 2017. That now placed us almost three times higher than the overall industry view.
Readers familiar with Future Horizon’s research methodology will know that we base our industry analyses on the behavior of what we call the four horsemen of the semiconductor apocalypse--the global economy, IC unit demand, wafer capacity and semiconductor ASPs. These factors combine, albeit in a mathematically indeterminant way, to drive semiconductor revenue market growth. A strong economy stimulates demand for IC units, wafer fab capacity determines the supply and demand balance/imbalance which in turn sets the foundation for ASPs.
Following eight years of benign global economic growth, 2017 saw the long-awaited global economic recovery finally gain traction. More importantly, growth was sustained with the IMF increasing its GDP forecast twice during the year. This was contrary to all previous post-Lehman years which saw the January predictions revised down as the year rolled out. That set the back drop for a strong semiconductor unit demand which gained momentum as the year progressed as a direct result of the ensuing positive upswing in business and consumer confidence.
A roundup from SEMI in September 2017 already pegged Future Horizons as the most bullish market watcher on 2018. Click to enlarge. Source: SEMI
Industry capacity was caught completely unprepared with production run-rates and inventory levels all finely tuned to the past several years of below average unit and economic growth. Once die banks and consignment stocks were depleted, supply capacity started to come under significant pressure, causing shortages, allocations and, after a short delay, upward pressure on ASPs. Memory, as always, was the first to feel the impact due to the highly-tuned nature of semiconductor memory production.
As a result, for the first time since the financial crisis, last year saw all four horsemen perfectly aligned and pulling in the same direction. In what was to prove a perfect semiconductor market storm, the 2017 chip market grew almost 22 percent to $412 billion.
Future Horizons had been predicting this alignment and upswing as inevitable for the past several years but it was consistently undermined (pushed out) by a constantly stalling global economy. Not so last year, the economy held firm causing us to revise up our January 2017 forecast of 11 percent growth to 18 percent in April and 20 percent in September 2017. The final 2017 growth rate of almost 22 percent sets the stage for a robust 2018.
Barring a major economic disruption, the 2017 economic recovery will continue in 2018 further stimulating demand. No disruptions are currently anticipated. Quite the opposite, the IMF was already revising up its GDP growth outlook at the recent Davos Forum.
Given capacity is still very tight with shortages now rife and a minimum 12-month lead-time to bring new capacity on line, there is no chance 2018 will see an over-supply imbalance. That means units and ASPs will continue to both grow together. The combined effect of the two positive growth rates is a double-digit overall semiconductor revenue growth, hence our 21 percent forecast for 2018.
--Malcolm Penn is CEO of Future Horizons.