The global electronics industry has caught the cold of the worldwide economic slowdown. Which are the sectors that will be sneezing first and how long will it take the industry to recover?
By: EFY News Network
Friday, February 18, 2009: The world is getting caught in the economic winter, which was triggered by the collapse of two major finanical glaciers—Layman Brothers and Merly Lync. The temperature had been dropping for a while, but these two glaciers sent a wave of chill throughout the globe. How will the electronics industry perform in the coming year? After doc.com boom, electronics and telecom caught everyone’s attention. Whether it was Apple reincarnating with its iPods and iPhone, or Mac making a comeback with Windows Vista—it all turned out to be a massive failure.
Sony Playstations, WII, Xbox 360 and many such gaming platforms evolved in the last decade. Mobile industry went through a churning process, thanks to iPhone, within a year almost all the big companies sitting in a comfort zone were on their toes to bring out versions of iPhone Killers. Well, it would have been better had they come out with something Apple would try to kill. But Apple has Jobs, others have people at job.
Coming back to some of the concerns clouding the electronics industry in 2009, let’s see what are the trends that are building up. According to a report by SpendingPusle, a unit of Mastercard, “Electronics and appliance sales had some of the steepest drops of the sectors. For the first two weeks of November, sales posted a year-to-year decline of 22.1 per cent.”
Decline in semiconductor sales
Semiconductor Industry Association (SIA) conducted a survey, which shows a worldwide decline in sales of semiconductors by 2.4 per cent in October to $22.5 billion compared to sales of $23.0 billion in October 2007. However, in the month of September, sales increased by 1.6 per cent to $23 billion compared to sales of $22.6 billion in September 2007.
Sales of both DRAMs and NAND flash declined significantly year-on-year due to pricing pressure. DRAM sales in October were 14 per cent lower than a year ago, while NAND flash sales were off by nearly 41 per cent. Over the same time period, DRAM 1 Gigabit equivalent units increased 73 per cent, while sales of 2 Gigabit equivalent NAND units grew 123 per cent.
“The worldwide slowdown in semiconductor sales that was evident in September continued in October,” said George Scalise, president, SIA. “The worldwide financial turmoil is expected to continue to impact demand for semiconductors as we enter 2009. PC unit shipments are forecast to decline by 5 per cent and cell phone unit shipments are projected to be down by 9 per cent in 2009. PCs and cellphones account for approximately 60 per cent of the total demand for semiconductors.”
“An economic recession of unknown proportion, combined with supply-side issues, sees semiconductor manufacturers going into panic mode for the first half of 2009, cutting capital spending even more deeply than in 2008, according to Gartner, Inc. Worldwide semiconductor capital equipment spending is expected to decline 30.6 per cent in 2008 and total $31.1 billion. This is down from Gartner’s October forecast of a 25.2 per cent decline. Worldwide capital equipment spending in 2009 is forecast to decline 31.7 per cent. This is down from Gartner’s earlier projection of 2009 spending declining 12.8 per cent.”
“The recession has come at a time when the overall semiconductor and semiconductor equipment industries were already in a vulnerable position,” said Klaus Rinnen, managing vice-president, semiconductor manufacturing group, Gartner. “Device makers across all segments and even in the NAND and DRAM industry have begun to take steps to lower production rates and shutter fabs that are not cost-effective. We are seeing fabs postponed and what little capital expenditure there is, it is selectively focussed on new technologies.”
Worldwide wafer fab equipment spending declined a 30.9 per cent in 2008 and 33.1 per cent in 2009. Lithography continued to be the strongest segment in 2008, with only a 22 per cent revenue decline expected as the increased adoption of 193 immersion continues to take more share than older technologies. However, in 2009, lithography will decline 38 per cent as memory manufacturers slow the adoption of new immersion steppers and continue to work with older models.
Worldwide packaging and assembly equipment (PAE) spending will fall nearly 30 per cent, both in 2008 and 2009. Equipment for advanced processes, such as wafer-level packaging, and 3-D processes like TSV, will outperform the general PAE market. Inspection tools for these advanced processes will also grow above the market as they move into volume production levels that require higher wafer yields. Traditional packaging tools, such as die and wire-bonding tools, will be industry laggards in the coming years.
After declining nearly 30 per cent in 2008, the automated test equipment (ATE) market will fall nearly 20 per cent in 2009. This drop will bring three consecutive years of double-digit declines for the ATE market. For 2009, Gartner projects that tester sales will fall below the $2 billion mark. At these spending levels, test capacity is being taken out of the system. While this destroys any positive view of 2009, it will open up 2010 for potentially more than 20 per cent growth if macroeconomic conditions meet or exceed expectations.
Never before has the semiconductor industry experienced revenue declines in back-to-back years, but this will occur in 2009 as worldwide semiconductor revenue is forecast to total $219.2 billion, a 16.3 per cent decline from 2008 revenue, according to Gartner Inc. Gartner’s preliminary 2008 market share results released last week show 2008 revenue reaching $261.9 billion, a 4.4 per cent decline from 2007.
Gartner’s last official forecast issued in mid-November had expected worldwide semiconductor revenue in 2008 to grow 0.2 per cent and the market to decline 2.2 per cent in 2009. However, financial crisis had an unprecedented negative impact on the fourth quarter of 2008 sales and profits. Gartner expects semiconductor sales in the fourth quarter of 2008 to show a record quarter-on-quarter decline of 24.4 per cent, surpassing the 20 per cent decline record set in the second quarter of 2001.
“While many executives may try to compare this downturn to the 2001 tech bubble, this decline is different in many ways,” said Bryan Lewis, research vice-president at Gartner. “This downturn is broad-based, not limited to technology only and has a much different growth profile. It has far less inventory buildup. Inventory levels have been monitored and more tightly controlled throughout the entire food chain and this will help the market come back more quickly than in 2001.”
In 2001, the semiconductor industry experienced its worst revenue downturn in history, with sales declining 32.5 per cent from the previous year. However, that collapse was following two strong revenue growth years in 1999 and 2000, when revenue grew 22 per cent and 34 per cent, respectively.
According to Gartner analysts, the wild card for the semiconductor industry in 2009 is DRAM. The DRAM industry has been in a downturn for 18 months and losses are now approaching $12 billion.
Gartner expects the semiconductor industry to bounce back in 2010 and 2011, with worldwide semiconductor revenue reaching $251.2 billion in 2010, a 14.6 per cent increase from 2009 and in 2011 revenue reaching $274.9 billion, a 9.4 per cent increase from the previous year.
Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine
