Electronics Production | May 06, 2009

Market for key system semiconductors set for recovery

After seeing its revenue fall by nearly one-third over the past six months, the global core silicon market appears to have hit bottom, with sequential growth set to resume in the third quarter, according to iSuppli.
Global core silicon revenue is set to rise to $19 billion in the third quarter, up 8.3% from $17.6 billion in the second quarter. This will mark the first sequential rise since a year earlier, in the third quarter of 2008, when revenue increased by 6.7%.

Core silicon semiconductors are the key chips that implement the specific, individual functionality in an electronic system—that is, the Integrated Circuit (IC) that makes a DVD player a DVD player, and not some other type of system. In the core silicon category, iSuppli includes Application-Specific Integrated Circuits (ASICs), Application-Specific Standard Products (ASSPs) and Programmable Logic Devices (PLDs).

The attached figure presents iSuppli’s forecast of global quarterly core silicon revenue.

“The current downturn is fundamentally different from any previous semiconductor cycle,” said Jordan Selburn, principal analyst for core silicon at iSuppli. “This cycle is driven by forces external to the chip industry, primarily the global economy, that are impacting both business and consumer spending. It’s unclear even to economic experts and financial czars when the various bailouts and reductions in interest rates will turn the global economy around.”

However, there are clear signs of a resumption in demand for core silicon. “Core silicon suppliers are experiencing increasing demand from some of the market’s largest application drivers,” Selburn said. “The core silicon market hinges on a few major applications for most of its revenue. While some areas, most notably desktop PCs and 1G/2G mobile handsets, now are forecast to actually suffer a decline in unit shipments from 2008 to 2009, others, such as 3G wireless phones, netbook PCs and set-top boxes, are still expected to grow despite the crippled economy. These markets alone will be enough to keep the core silicon market moving down the tracks toward an expected expansion in 2010.”

Bottom’s up
The second quarter will mark the low point for the core silicon market during the current downturn. Revenue in the second quarter is set to decline by 33.9 percent from $26.6 billion in the third quarter of 2008.

While the return of sequential growth is an encouraging sign for the market, a more important metric is year-over-year growth, i.e. comparing quarterly revenue with the same period a year earlier. The core silicon market is not expected to resume quarterly year-over-year growth until the first three months of 2010. When this occurs, it means the core silicon market will be set to achieve annual revenue growth. After a 24.2% decline in 2009, revenue will bounce back to double-digit growth in 2010, with a 10.1% increase for the year.

Positive signs ahead
The electronics industry is giving other indications that a real recovery in demand is afoot. One of the latest positive signs is the recent announcement that the China Purchasing Manager’s Index (PMI) has rebounded to about the 50% level, indicating that in that country at least, the purchasing managers believe that we are already headed back into a period of expansion. The PMI in other countries has not yet surpassed the 50% mark, but the data from China certainly adds another few lumens to the light at the end of the tunnel.

Cautiously optimistic
It is possible that the timing of the core silicon recovery could be delayed if the economy degrades beyond current expectations, Mr Selburn warned. “However, This scenario seems unlikely, and the current signs of optimism—at least optimistic in relation to the past six months—are lighting the way toward the end of what remains a very gloomy, dark tunnel,” Mr Selburn observed.


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