Electronics Production | January 21, 2005

Analysts see soft landing in 2005

The 2005 downturn in the semiconductor market will be short and relatively painless thanks to the lessons learned from the past, according to a panel of analysts at SEMI ISS 2005.
The consensus is for semiconductor device sales growth to be flat in 2005, while chip equipment sales will be down from 10 to 15 percent, said analysts participating in the ISS 2005 press conference here today. Excess inventory currently in the supply chain will be worked out of the system by the second quarter (Q2), and the second half of 2005 will be better, they said.
Semico Research Corp. forecasts a 4.7 percent decline in the semiconductor device market this year after 28 percent growth in 2004. "Although we’re calling for a decline, we don’t believe it’s going to be as steep or as long as what we saw in the previous decline," said Jim Feldhan, president of Semicon. Double digit semiconductor growth will resume in 2006, at 14.6 percent, he added.

Longer term, Feldan is optimistic over the prospects for capital equipment market growth because of the rapid move towards more advanced semiconductor manufacturing technologies. In 2004, only 3 percent of wafer demand was for 90 nanometer technology, whereas the 90-and 65-nanometer nodes would account for 27 percent of wafers in 2008, according to Semico.
Moshe Handelsman, president of Advanced Forecasting Inc., said the softness experienced in late 2004 would continue into Q2 this year, after which growth will resume. In terms of wafer shipments, Advanced Forecasting sees a continued decline in shipments going into 2005, although the decline will be mild. Handelsman said the industry has learned valuable lessons from the last downturn which will help it weather future periods of slow market growth. The recession of 2001 "frightened all the players", and they are now more lean and mean, he explained.
IC Insights is forecasting a decline of 2 percent in device sales this year, and 8 to 9 percent growth next year. "We are actually very encouraged about 2006,” said Bill McClean, president of IC Insights. “We think most of the correction in this IC industry cycle will happen in the first half of 2005."

Structural changes in the industry – such as the increasing role of wafer foundries and a lengthening of the period between technology nodes – would lead to more efficient capital spending and decrease the magnitude of overspending in the chip industry, according to McClean.
IC Insights also predicts that in 2005 China will emerge as the world’s largest consumer of ICs, surpassing Japan and North America, account for more than 20 percent of global IC consumption. That’s up from 7 percent in 2001.

The semiconductor materials market will continue to grow over the next several years, from $28 billion in 2004 to an estimated $34 billion in 2007, noted Dan Tracy, senior director, industry research and statistics for SEMI. In 2005, the market for packaging materials will grow 8 percent to just over $11 billion, while wafer fab materials will grow 6 percent to almost $17 billion, according to a SEMI forecast.

Double digit growth will be experienced by some materials sectors, including low-k dielectrics, SOI, solder balls, CMP and laminate substrates. In the period from 2004 to 2007, compound annual growth rates for silicon wafers shipments will be 4.5 percent globally, and 10 percent in Asia Pacific, according to Tracy.

Gartner Dataquest is forecasting about 5 percent growth in semiconductor device sales this year, and negative 15 percent for capital equipment. Klaus-Dieter Rinnen, managing vice president, semiconductors for Gartner Dataquest, said the downturn in 2005 will be "shallower and shorter" than 2001. "By the end of Q1 [2005] we should be moving out of the [current] excess inventory situation," he said.

Rinnen noted that, unlike during the last down cycle, the industry this time has two weapons to defend itself. "Cost control will be its shield protecting companies against market pressures, but innovation will be its sword with which companies can actively defend and stimulate and open new markets," he said.


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