Semiconductor Update
January 2006
Global semiconductor sales will grow at a compound annual rate of nearly 10
percent from 2005 through 2008, reaching $309 billion in that year, according to
the annual forecast of the Semiconductor Industry Association (SIA). The
forecast projects worldwide sales of microchips to reach $309 billion in 2008,
an increase of 45 percent from the $213 billion record level of 2004.
The forecast calls for 2005 sales to increase by 6.8 percent to $227.6 billion,
followed by increases of 7.9 percent to $245.5 billion in 2006, 10.5 percent to
$271.3 billion in 2007, and 13.9 percent to $309.2 billion in 2008.
"While Information Technology products will continue to be the largest market
sectors for semiconductors, consumer products will be the major growth-drivers
in the years ahead," said SIA President George Scalise. He explained that
advances in microchip technology enable a wide array of new products that have
captured the imagination of consumers. He cited as examples, the rapid evolution
of cell phones, MP3 players, digital televisions and personal computers.
* * * *
Japanese-based semiconductor production equipment manufacturers posted a
book-to-bill ratio of 1.01 for October, up from 0.90 in September, according to
the Semiconductor Equipment Association of Japan (SEAJ).
The three-month average of worldwide bookings in October was 122.2 billion yen
($1.03 billion). The bookings figure is 4.6 percent up on the final September
2005 level and up 9.4 percent from the like period a year ago.
The three-month average of worldwide billings in October was 125.5 billion yen
($1.05 billion). The billings figure is down 6 percent on the final September
2005 level and 1.5 percent down from the October 2004 billings level.
The Semiconductor Equipment and Materials International (SEMI) trade group
disclosed that it has revised its chip-equipment book-to-bill ratio downwards
for two months.
* * * *
Chinese contract chip maker Hua Hong Group plans to spend roughly $1.6 billion
to build an advanced factory.
Hua Hong, based in Shanghai, intends to construct a factory, or fab that uses
300-millimeter silicon wafers for chip making, Reuters reported. The 300-mm fab
would greatly boost the company's production volume and enable it to better
compete with larger players in the foundry market.
Hua Hong's chip-making subsidiary and joint venture, Hua Hong NEC, will reach
about $400 million in sales this year.
Currently, the only company in China with a 300-mm fab is Semiconductor
Manufacturing International (SMIC), a Chinese foundry based in Shanghai. SMIC is
China's largest foundry and the third-largest in the world. It generated $310
million in sales in the third quarter of this year alone.
* * * *
The India Semiconductor Association (ISA) is drawing up plans for a
semiconductor fabrication complex it is calling "FabCity." The wafer fab
facility is expected to cost between $3 billion and $4 billion.
The plans include discussion of subsidy and tax incentives and are being written
without a particular location in mind to determine what steps are necessary to
establish Indian semiconductor manufacturing and the possible rewards.
The ISA expects FabCity to have the potential to support more than $50 billion
of global investment and create an electronic industry in excess of $100 billion
in the next 10 years. "This vision is inspired by an unprecedented growth in the
Indian electronics consumption, a vibrant chip design industry, increasing
semiconductor content in the electronic industry and significant export
potential," said Poornima Shenoy, president, ISA, Bangalore.
The blueprint is expected to be used by the Indian federal and regional
governments. In addition the federal government is looking for a 1,500-acre site
to accommodate FabCity and has said that it will invest in the setting up of the
complex.
* * * *
Intel Corp. announced that it is setting up a $250-million venture capital fund
to invest in technology companies in India. In addition, Intel chairman Craig
Barrett said that Intel plans to invest an additional $800 million to expand its
research and development activities in India over the next five years.
"We are still in discussion with the government on the possibility of
manufacturing in India," Barrett said, according to the Associated Press.
Barrett reportedly said Intel has invested $700 million in its R&D center in
Bangalore over the last ten years. The facility employs about 2,800 people, and
will continue to expand.
The new venture capital fund will be used to invest in companies that can
benefit from the rapid growth in the domestic IT market segment in India, and
provide local businesses with capital to help nurture technologies and products
developed for local use, Intel said. Examples of initial focus areas include
cellular communications, broadband applications, and wireless technologies.
Intel Capital made its first investment in India in 1998 and since then has
invested in more than 40 Indian companies. Several of these companies have since
gone public or have been acquired.
* * * *
Microsoft said on December 7 that it would invest $1.7 billion in the country of
India over the next four years.
"With more engineers graduating out of universities and colleges than anywhere
else in the world, we can learn from the growing developer and engineering
base," says Microsoft spokesman Matt Pilla. "India is emerging as a world-class
IT leader, and is supported by an increasingly healthy market and economic
outlook that offers tremendous growth opportunities for the company."
It's not like Microsoft hasn't invested in India already. The company first
opened shop in the country in 1990. Eight years later, it opened a
product-development center in Hyderabad, where most of its 3,000 India employees
work. That's about 5 percent of Microsoft's 63,000 employees worldwide. And
earlier this year, Microsoft opened a new research lab in Bangalore.
With the new round of investment, Microsoft plans to add 3,000 more employees,
Microsoft Chairman Bill Gates told journalists in New Delhi. “We are keen to
grow Microsoft activities in India,” Gates said, according to press reports.
“The growth in employment for Microsoft will be more in India than the United
States.”
* * * *
South Korean exports in the information technology industry recorded $7.24
billion in November, up 5.5 percent from a year ago, according to a report by
the Ministry of Information and Communication.
The November performance marked the third consecutive month exports broke
records. The previous highest was $7.13 billion in October, following $6.91
billion in September.
The report said imports of IT products, including semiconductors, mobile
handsets and flat display panels, reached $4.04 billion in November, producing a
trade surplus of $3.20 billion.
The surplus was largely attributed to a 5.8 percent year-on-year rise in
semiconductor shipments to $2.55 billion in the month. Semiconductor exports to
China reached $1.01 billion, a 53.1 percent increase from a year ago.
Another contributor was the mobile handset and parts sector, which saw a sharp
34.8 percent increase from a year earlier to $2.52 billion.
"The growth of November export volume resulted from a special seasonal demand in
the month. The growth rate is expected to slow down next month," said the
ministry. It forecast that Korea's yearly IT goods exports would reach $78
billion by the year's end.
* * * *
The integrated circuit (IC) dollar content per cellular phone is expected to increase from $38.54 in 2005 to $44.73 in 2009, according to the latest IC Insights semiconductor market forecast. As a result, the IC content percentage of the total handset price is forecast to rise from 28 percent in 2004 to 37 percent in 2009. IC Insights further believes that replacement handsets will tend to be "full-featured" and relatively expensive, and that the market for ultra-low-cost cellular phones will be rather limited.
In 2009, 80 percent of cellular phone unit sales are forecast to be replacement sales.
With full-featured/Smartphone handsets becoming more prevalent, IC Insights
believes that the IC value in a cell phone will decline slightly in 2009,
coinciding with the forecasted overall IC cycle slowdown and an associated fall
in IC average selling prices (ASPs) that year.
Increased IC integration, intense competition among IC producers, and a
relatively slow overall IC market (accompanied by lower IC ASPs) drove down the
IC dollar value per handset to a low of $31 in 2002. However, higher levels of IC
integration have also served to incorporate some of the handset functions
typically performed by passives and discrete devices. This movement from passive
and discrete devices to ICs, coupled with handset price declines, is forecast to
help boost the IC percentage content of a handset through 2009.
The average IC value in a cellular phone is expected to be over $38 in 2005.
However, there is almost a 3:1 difference in IC content in a high-end cellular
phone (including a camera) as compared to a “basic” model. The use of a camera
chip, Bluetooth module, and multimedia processor in a 2.5G-phone means more than
four times the memory device cost. Also, many high-end phones require
significantly more DRAM in addition to flash memory.
Throughout 2005, many handset vendors were researching the possibility of
producing ultra-low-end phones that would sell for under $40 and have a
bill-of-materials cost of about $25. The bill-of-materials cost for a low-end
handset in 2005 was about $39. Many handset producers believe that a $25 cost,
or lower, will be reached sometime in 2006, allowing them to offer
ultra-low-cost phones to emerging markets such as India, Africa, and China.
IC Insights believes that the market for ultra-low-cost cellular phones will be
rather limited. Considering that 80 percent of the cellular handset market in 2009 is
forecast to be higher-end replacement phones, and that many new subscribers will
prefer more full-featured phones, the market for ultra-low-cost phones is
expected to represent only 5-10 percent of the handset units shipped over the next five
years. As one handset manufacturer stated, “forget the $25 phone, give me a $5
per month service fee from the phone company!”
* * * *
Gartner says, "Worldwide Semiconductor Capital Equipment Market to Return to
Positive Growth in 2006."
While demand for capital equipment in 2005 softened, creating a decline in
overall spending, the worldwide semiconductor capital equipment market is poised
to grow 8.4 percent in 2006, with spending totaling $36.4 billion, according to
Gartner, Inc.
In 2005, capital equipment spending declined 10.6 percent, as
orders weakened in the first half of the year. However, by the second half of
the year, the market experienced a turnabout in orders, especially in the
back-end segments.
"The industry has managed to respond well to inventory fluctuations, slightly
excessive capacity levels, and rapidly changing market parameters," said Klaus
Rinnen, managing vice president for Gartner's semiconductor manufacturing and
design research group. "The industry appears to have a reasonable balance
between production levels and capacity and end-user demand."
"Looking further ahead, spending will rise in the first half of 2006, but
spending should flatten in the second half of the year before starting a
sustainable recovery into 2008," Mr. Rinnen said.
Worldwide wafer fab equipment spending is forecast to grow 3.3 percent in 2006,
after declining 8.8 percent in 2005. Worldwide semiconductor wafer fab
utilization rates in 2005 remained in a fairly narrow range of between 85
percent and 90 percent, and Gartner analysts expect this to continue, albeit on
a slightly upward trend, through 2007 when total utilization rates will break
into the 90 percent range.
"We expect to see capacity and wafer fab equipment market growth dictated by
increased device demand, and the increasingly costly transitions to new
technology nodes," Mr. Rinnen said. "With equipment costs increasing an
estimated 10 percent for each new technology node, manufacturers will manage
investments in new technology very carefully."
The packaging and assembly (P&A) equipment market will decline 11.1 percent in
2005, which is slightly better than Gartner's previous forecast in October for
a14.9 percent decline. The first half of 2005 was relatively slow, paralleling
the slowness in the overall packaging/assembly market. More positive conditions
developed late in the second quarter as industry utilization rates began to
tighten and move back near the 85 percent mark.
For the first half of 2005, revenue dropped significantly for many key automated
test equipment (ATE) providers. However, ATE spending picked up in the second
half of the year. "The current increase in ATE sales is primarily being driven
by increasing capacity requirements for memory and SOC testers," Mr. Rinnen
said. "Expanding demand for these semiconductor devices, coupled with the trend
toward further outsourcing of test to SATS companies, is sparking the latest ATE
market growth cycle."
Additional information is available in the Gartner report "Semiconductor Capital
Equipment Demand to Rise in 2006."
This research is produced by Gartner Dataquest's Semiconductors Manufacturing
and Design program. This research program, which is part of the overall
semiconductor research group, provides a comprehensive view of the entire
semiconductor industry, from manufacturing and design to device and application
market trends. More information on Gartner's semiconductor research can be found
in the Gartner Semiconductor Focus Area.