IC unit slowdown to restore industry trend line
IC Insights believes an inventory adjustment period is needed to bring unit-volume shipments back down to the industry's long-term trend line, which historically grows at a 9.5% annual rate. While most concerns about excess semiconductor shipments have been focused on the personal computer segment, the inventory build is occurring in other areas as well, observed Bill McClean, president of IC Insights, during the research firm's 2006 Mid-Year Web Conference.
IC unit-volume shipments increased 25% in the first half of 2006 compared to the same period in 2005. For the entire year, integrated circuit shipments are expected to be up by 15% in 2006, according to IC Insights' mid-year outlook, which raises the forecast for unit volume growth from the 10% level projected in January. Lower average selling prices (ASPs) are offsetting the higher unit volumes, and as a result, the 2006 forecast for IC revenue growth remains unchanged since the start of the year at 8%, noted McClean, who also reviewed capital spending trends, global economic conditions, China's status, silicon foundry conditions, and why 2008 will be the next cyclical peak year. Telltale signs of overheating in IC markets can be seen in the strong growth of unit shipments, which have placed integrated circuit volumes above the long-term trend line for four quarters, starting in 3Q05. IC unit-volume shipments were 10% above the long-term trend line in the first half of the year, heading into 3Q06. In the boom year of 2004, IC unit-volume shipments were 8% above the trend line before an inventory adjustment period occurred in late 2004 and early 2005, McClean pointed out in the 40-minute Web Conference.
IC Insights' analysis of standard analogue and general-purpose logic shipments in the first half of 2006 shows unit-volume growth rates above those in the last cyclical peak year (2004).
"We believe there are some inventory issues that the integrate circuit industry will need to work out…But overall, we do not believe there is an excessive amount of capacity being built up," McClean added, referring to what IC Insights believes is a healthy level of capital expenditures being planned by IC makers worldwide.
However, there are some areas of overspending and concern. For example, flash memory capital spending as a percent of forecasted sales is expected to end up at 48% in 2006 compared to 21% for the entire IC industry. DRAM capital spending is at 37% of projected 2006 sales. The current average annual capital spending level for the entire integrated circuit industry has moved down to about 21% of sales from 25% in the 1990s, based on IC Insights' analysis. IC Insights' mid-year forecast for IC revenues remains unchanged from the start of the year with worldwide sales growing 8% to $206 billion.
The forecast for total semiconductor revenues—including optoelectronics, sensor/actuator devices, and discretes (OSD)—also remains at 8% growth and about $246 billion worldwide in 2006.
