informa
/
4 min read
article

Is IC Business Stuck In Lull Or Slowdown?

Industry watchers wonder if the chip business is suffering from a cyclical downturn or something more serious.
SAN JOSE, Calif. — Is the semiconductor industry in the midst of a summer lull or headed towards a major slowdown?

Perhaps it's still too early to tell, but right now the IC market appears to be stuck in what some call a "muted" business environment.

To be sure, there are plenty of mixed signals in the market. On one hand, for example, Gartner Inc. (Stamford, Conn.) recently raised its semiconductor forecast to 10.9 percent growth for 2006, up from 10.6 percent in its previous forecast.

On the other hand, Gartner in a report also presented several key but conflicting indicators about state of the unpredictable IC industry:

* The silicon foundry outlook appears promising for the third quarter, but "softness should occur in the fourth quarter."

*Silicon wafer demand in area will grow 18 percent in 2006 and 4 percent in 2007, although polysilicon shortages persist and continue to be a major concern.

*Gartner's Dataquest Semiconductor Inventory index rose from 1.07 in the first quarter to 1.10 in the second quarter, "which puts it at the upper limit of the 'normal' range."

One analyst summarized the current business climate. "The industry is not in a typical downturn but is in a more muted adjustment, given that profitability metrics remain generally good and supply chain inventories remain at healthy levels, particularly at OEMs and EMS customers," said Craig Berger, an analyst with Wedbush Morgan Securities Inc. (Los Angeles).

Berger reiterated his outlook for 9 percent IC growth in 2006. Overall chip shipments peaked in July and will see a 13 percent year-over-year growth rate, "a relatively muted peak verses history," he said.

And as usual, it's a mixed bag among the various product sectors. In memories, for example, DRAMs are flying off the shelves. "We expect the industry to be in undersupply through 2H '06 and most of 2007," according to Gartner, a research firm.

Supply is tight for low-density, NOR-based flash-memory devices, but NAND remains in an oversupply mode — with demand expected to pick up by September, according to the firm. Pricing for NAND has been terrible in recent weeks.

Not all markets are seeing a potential uptick. PC-based microprocessors are seeing a seasonal lull. And blaming a slowdown in wireless, National Semiconductor Corp. this week raised eyebrows and lowered its quarterly forecast.

Analyst Doug Freedman of American Technology Research (Greewich, Conn.) believes National "may be cautious with forward guidance given the sharp decline in orders seen during the summer months."

"We," Freedman added, "believe some of the softness in wireless revenue is related to share loss in new handset models as both Freescale and Texas Instruments look to gain share at their tier one OEM accounts."

Others are also in the same slow boat for wireless, including the powerhouse in the sector. Satya Chillara, an analyst with Pacific Growth Equities (San Francisco), this week initiated a "neutral" rating on Texas Instrument Inc.'s stock based on "concerns over consumer/wireless demand going into Q4."

Discrete and power-management products remain in demand, especially at International Rectifier Inc. (IR). "Checks suggest IR's commodity chip supply remains very tight in the distribution channel, with recent double-digit price increases on FETs and leadtimes lengthening to 20-26 weeks on some parts," Berger said.

"IR's supply tightness reflects robust demand from ramping gaming consoles and Intel server platforms, but also reflects less than stellar planning or execution in ramping its new fabrication facility," he said in a report.

On the emerging medical front, Medtronic reported weaker than expected shipments of implantable defibrillators (ICDs), which could impact chip makers like Microsemi Corp.

"Microsemi's 15 percent revenue exposure to ICD chips could be concerning to some investors, though we believe this end market weakness is reasonably well known," Berger said.