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Chip industry on the
rebound
By Tony Sitathan
SINGAPORE - The Semiconductor Equipment and
Materials International (SEMI) exhibition held in
Singapore last week seemed to reflect the state of the
global semiconductor industry: global recovery on the
back of record sales. Indeed, the industry is expected
to outperform sales recorded in the previous two years
and post more than US$210 billion in global
semiconductor sales for 2004 alone.
This
recovery is largely based on a recent surge in demand
for semiconductor equipment and materials. As a sign of
what's to come, global semiconductor unit shipments
climbed to record-breaking highs of more than 100
billion units in the final quarter of 2003. And the
overall pick-up in sales has prompted semiconductor
equipment makers and materials manufacturers to increase
their capacity to meet the rising demand.
Stanley T Myers, president and chief executive
officer of SEMI, says the semiconductor market is
forecast to see double-digit growth this year, with the
equipment market expected to grow 39 percent and the
materials market forecast to expand by 11
percent.
"This year is no doubt a year of growth
as strong fundamentals are in place," Myers said.
"However, it's hard to predict strong growth for next
year as we may see [a] possible contraction in growth
for semicons by late 2005, but demand should still add
up positive."
For George T Lin, president of
SEMI Southeast Asia, the rebound in the semiconductor
industry already was evident by the number of companies
represented at the SEMI exhibition on May 4-6 and the
total stand space taken up for the show.
This
bodes well for those involved in the industry, but
analysts warn that riding the demand wave can be a
challenging task, not just for wafer foundries, but for
semiconductor equipment makers as well.
"In
2002-03, there was significant underutilization. Now
it's a reverse situation where there is almost a 95
percent fab-utilization capacity. There is currently
more demand than supply," said Len Jelinek, a principal
analyst for semiconductor manufacturing and supply at
iSuppli Corp, a market-research consultancy based in the
United States.
Jelinek pointed out that the
economic difficulties of the past have made the wafer
foundries lean, and there is now a lack of ready capital
to be mobilized for quick expansion. He predicted that
semiconductor factory utilizations will be limited to
about 5-7 percent in 2004, which could pose constraints
on the industry's ability to meet the growing demand.
However, the increased chip demand for the
consumer, wireless and personal-computer (PC) markets
has now become more widespread, and with worldwide
economic recovery fueled by soaring US and Chinese
imports, the market has shown some sustainable economic
growth.
Jelinek says China will play an
increasingly greater role in the global semiconductor
market. Last year it contributed close to 4 percent of
the world's semiconductor output, and by 2007 it is
expected to contribute closer to 9 percent. China's
overall capacity is set to increase as foundry service
providers expand their operations to meet forecast
global and domestic demand, especially for the
200-millimeter wafer technology.
This renewed
optimism also is being felt in Singapore. According to a
recent Economic Development Board (EDB) survey on
business expectations related to the state of the
manufacturing sector in Singapore, all signs point to
renewed optimism among electronic manufacturers; at
least 67 percent of manufacturers expect robust business
performances for the next six months of the year. This
positive outlook is broad-based, ranging from electronic
component to end-product makers. The semiconductor firms
are the most upbeat, as they expect orders to be boosted
by the rebound in chip demand, especially chips used in
communication and consumer electronics products.
From the survey of 400 manufacturing
respondents, which had a 93 percent response rate, 35
percent of the manufacturers foresee higher levels of
production, 27 percent anticipate more orders, and 24
percent expect higher exports in the second quarter of
2004. In addition, 82 percent of the manufacturers plan
to invest in plant and machinery over the next 12
months, while 31 percent have indicated intentions to
increase their capital expenditure. In terms of
employment, 10 percent of the manufacturers expect to
hire more workers in the second quarter of 2004. The
semiconductor segment in particular expects to increase
production to meet the rising export demand.
Within the infocomms and consumer electronics
companies, a higher output of mobile phones and
computers is expected. Singapore's demand for
semiconductor chips was worth an estimated $3.3 billion
in 2003 and may exceed $3.8 billion for 2004. It is
forecast to reach $4.7 billion by 2007.
Reginald
Wee, head of electronics and precision engineering for
EDB, says Singapore aims to take advantage of the boom
in the semiconductor industry. "We want to build a
front-end support industry that takes advantage of
Singapore's ability to provide cluster development
services, including infrastructure, logistics and
distribution support to the semiconductor industry," Wee
said. "Even if we get [only] 10 percent of the $30
billion semiconductor equipment manufacturing pie, we
would have succeeded in the long run."
But will
this bull run in the semiconductor industry last, or
even pick up more momentum? Several electronics analysts
and market-research companies warn of overcapacity, or
supply outstripping demand, in the second half of 2005.
Many of them, including iSuppli, maintain that there
could be some corrections in inventory levels, causing
the industry to slow down to reflect only 1.7 percent
growth by 2006. IC Insights, another market-research
firm in the US, has predicted a slowdown of negative 5.0
percent for the semiconductor industry as early as the
third quarter of 2005.
An accounts manager in
the device manufacturing systems department at Hitachi
High Technologies in Singapore maintained that it's good
to be optimistically cautious when it comes to the
semiconductor industry.
"The semiconductor
industry has cyclical highs and lows built into the
system. Now we seem to be enjoying a boom period, so we
must also anticipate the low period, and then anticipate
the turnaround. The trick is to anticipate the
turnaround, that is the period [when] we are all in
business. So for the time being, we seem to be riding a
strong wave in the semiconductor industry. Let's hope we
don't fall over too soon," he warned.
(Copyright
2004 Asia Times Online Co, Ltd. All rights reserved.
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