27 September 2011
Short term variations hide the underlying growth in chip revenues
The semiconductor industry is anything but predictable, swinging between various 'boom' and 'bust' cycles, with the only differentiator being the severity of the swing. With its inherent ability to defy accepted economics, including the laws of supply and demand, the industry generally finds itself with too much inventory or too much capacity, but never in that happy land between the two.
Partly, that's to do with the sheer expense of making chips and the step function effect of building a fab. Apart from getting the timing right, building a 'bleeding edge' fab requires capacious pockets and the trend is to write such an investment off over 18 months. No wonder, to use a printing analogy, the presses thunder and no wonder the industry sometimes ends up with too many parts on the shelves.
Despite the industry's best intentions, it's the economy which dictates what happens: no surprise when consumer electronics is the dominant end market. At least one market watcher believes there is currently too much inventory and too much manufacturing capacity, with demand slowing due to economic uncertainty.
That market watcher is Gartner, which believes semiconductor sales will fall back by 0.1% compared to last year, having earlier predicted a 5% increase. Gartner isn't alone; Future Horizons, with one of the best track records amongst semiconductor analysts, has downgraded its prediction from 9% year on year growth to just 1%.
Historically, a plot of sales revenues looks like the progress of someone going home from the pub; while they take an interesting route, the destination remains in sight. For the electronics industry, that route is a wobble around a long term sales growth trend of something like 10% a year.
Author
Graham Pitcher
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