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Will You Be Able To Handle Recovery?

The semiconductor industry has taken a real battering during the past couple of years and few are willing to put their head above the parapet. This means that most companies won't be able to handle the faster pace needed in a recovery. Mike Cooke reports on the view from Future Horizons' mid-term forecast

With the semiconductor industry management and infrastructure 100% recession-oriented, it'll be tough going for some moving into the next recovery, according to Malcolm Penn, chairman and CEO of Future Horizons. He predicts restructuring of the industry next year as some won't be able to handle the pace of the turn-around.

Organisation structures have been cut back to the bone. Equipment suppliers are still cutting staff and facilities. Companies are increasingly dependent on outsourcing. But can these outsourced supply channels respond at the speed that will be required?

The semiconductor industry is particularly prone to market changes. Excess investment and market collapse quickly leads to plummeting sales figures and over supply of parts. The other side of the coin, is under-investment and clamouring demand triggering tightened capacity, extended lead times and product shortages.

Future Horizons' mid-year update meeting in London, UK, heard how in H1 2003 decreases in IC average selling prices (ASPs) have been offset to some extent by increased unit shipments. The market researcher's H1 forecast made in January 2003 was $63.9bn, while Future Horizons' current estimates put sales at $63.8bn, a 0.3% difference. Forecast unit shipments were 40.7bn and the estimate 43.3bn. ASPs were therefore forecast at $1.56 and the estimate came in at $1.47.

For the coming period, semiconductor sale growth forecasts are put at 13.1%, 25.0%, 28.0%, -7.5% and 8.6% for the period 2003-2007. This revises the previous predictions of 18.0%, 35.2%, 2.6%, 10.6% and 22.3%. For this year, Future Horizons' 13.1% forecast is given a 70% likelihood. Pessimistic (10%) and optimistic (18.0%) views are given 10% and 20% probabilities.

Projections have also been updated for capital spending and sales of semiconductor equipment and materials. Capital spending is now expected to increase 8% compared with the January forecast of 0%. Equipment spending is put up 10% compared with 0% in January. The materials expectation is unchanged at up 6%.

On process technology, Penn comments that while the 0.13micron node is now apparently stable in terms of yield it has taken 18 months of hard slog by engineers to achieve this. The prospect is that 90nm and 65nm will be "tougher than tough . . . and different". Currently, 0.13microns represents the high performance market while 0.18micron is the low-cost option. During the coming boom, technology work will slow as manufacturers squeeze as much production as possible from the fabs and the existing technology.

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