The semiconductor industry is showing signs it could be emerging from a slump that has plagued it this year.
The Asian economic crisis, coupled with a glut of semiconductor products in the market, has led the industry into one of its most sluggish years ever. The industry is expected to post only $122.2 billion this year in global sales, a decrease of nearly 11 percent from last year’s sales of $137.2 billion, according to World Semiconductor Trade Statistics, a nonprofit corporation representing semiconductor companies.
Earlier this year, WSTS had predicted sales would fall only about 1.8 percent for 1998. The Semiconductor Industry Association said 1998 is the first business year since 1985 that the entire industry, rather than specific product markets, absorbed a general decline in sales.
Semiconductor industry experts say the industry follows a cyclical pattern, which bottomed out sometime during the summer and has been showing signs of a rebound since. During the second half of 1998, the industry is expected to grow .6 percent from the first half of the year, according to WSTS. World growth should resume next year at 6.6-percent growth to reach total sales of $130 billion.
SIA said global semiconductor sales increased 6.2 percent in October, the latest month for which it has compiled statistics.
“Sales increased by more than 5 percent in all markets,” said SIA President George Scalise. “That’s a great indicator of the semiconductor market’s emerging strength in the fourth quarter.”
Through 2001, the global semiconductor market should grow at a compound rate of 12 percent, an improvement from this year but still a shortfall from the traditional long-term trend of 15.5 percent, said WSTS.
“The semiconductor market is a $122 billion industry this year, but we should hit $182 billion by the year 2001,” said Steven Appleton, chairman, chief executive officer and president of Micron Technology. Appleton last month presented the results of SIA’s semiannual economic forecast.
“That’s a growth rate of 42 percent in the next three years,” added Appleton. “The underlying fundamentals of the semiconductor business are strong.”
The memory market has been one of the hardest-hit segments of the industry, with overcapacity causing prices to fall for nearly three years. Sales of memory products are expected to fall 25.7 percent from 1997 to $21.8 billion, according to SIA. The memory market is expected to recover with sales exceeding $40.5 billion by 2001.
The difficulties in the memory market may have contributed to some large players opting out of the memory business. Motorola Inc. phased out its dynamic random access memory business, and Texas Instruments Inc. sold its memory business to Micron Technology in order to focus on the digital signal processor and analog semiconductor markets.
While most semiconductor product segments experienced declines this year, the DSP market fared relatively well, largely because of the success of wireless products in which they are used.
Forward Concepts, a DSP market research firm, estimated the market for programmable DSP chips will grow about 20 percent this year to $3.9 billion.
“The positive growth of DSPs in a chip market that will experience negative overall growth this year is principally because of the healthy market for digital wireless communications, which continues to grow well on a worldwide basis,” said Forward Concepts’ report “DSP Strategies 2002” authored by Will Strauss, president of the firm.
The report also forecasts a 32-percent growth rate for programmable DSP chips next year because of a healthier Asian economy as well as new DSP markets, including digital cameras, satellite phones, smart antennas and others.
“Digital signal processors continue to be one of the fastest-growing segments of the semiconductor industry and are a definite bright spot for the years ahead,” said Micron’s Appleton. “This product sector should continue to show explosive growth over the next three years with the market predicted to grow another 77.2 percent. Telecommunication users are fueling this huge demand.
“The computer and communications markets account for 64 percent of the end-use products for semiconductors,” said Appleton. “Over the next five years, the communications and computer markets will continue to increase until more than 70 percent of the semiconductors we produce are used in products such as cell phones, pagers and computers.”
The overall industry improvements are mirrored in the third-quarter results of several large players. Motorola’s Semiconductor Products Segment, for instance, saw its sales decrease 14 percent to $1.8 billion and orders were down 10 percent from a year ago. However, a Warburg Dillon Read report authored by analyst Jeffrey A. Schlesinger, indicates Motorola’s semiconductor business is improving because of a stabilizing pricing environment and an increase in orders and backlog from the prior quarter.
TI also showed declines in revenues from last year of 8 percent. However, orders for semiconductors were up 8 percent from the second quarter and revenues from its DSP business increased 17 percent from the third quarter of 1997, said TI.
