Research firm Semico (Phoenix, AZ, U.S.) forecasts that both the U.S. economy and the worldwide semiconductor industry will experience a slowdown in 2005.
Semico’s Inflection Point Indicator (IPI) showed a dramatic dip in January, indicating an increased risk of weakness in the third quarter of 2005. The November IPI reading of 14.23 was down 5.8 percent from the October IPI of 15.12. This was the largest percentage drop in over 3 years, when the August 2001 IPI fell 8.0 percent.
Since the IPI is designed to forecast the semiconductor market 8 to 9 months in advance, this is a predictor of the market conditions for the July/August timeframe. The significant drop in the IPI brings to question the length and depth of the 2005 downturn. With this latest reading, it now appears that the third quarter of 2005 will be weaker than originally expected. This would indicate a delayed market recovery, pushing the start of the recovery out one quarter -- from the third quarter of 2005 to the fourth quarter of 2005.
Continued decline in hardware sales and a sharp weakness in the printed circuit board (PCB) industry have impacted the semiconductor industry. Notably, in November 2004, the North American PCB book-to-bill ratio, which includes both rigid PCB and flexible circuits, was 0.96. This was the first month it has been below 1.00 since April 2003.
Semico reiterates the anticipated market weakness in 2005 as the industry faces an overcapacity situation when the 300mm capacity added in 2003 approaches full production. Additionally, there appears to be some inventory remaining in the channel. Combined with perpetual falling prices in 2005, the market will struggle to minimize the revenue decline expected this year, the research firm reported.
The Semico IPI peaked in March 2004 at 15.83, and (with the exception of July) has been on a steady decline. If this trend continues, an overall 2005 revenue forecast of -4.7 percent may too optimistic. The firm said it will closely monitor the IPI over the next few months, and reassess its forecast, if necessary.
Worldwide semiconductor revenue shipments released by the SIA showed November 2004 shipments finished at $18.3 billion, a boost of 6.2 percent. Together with an October revenue decline of 19.2 percent, Semico forecasts the fourth quarter of 2004 will finish with a slight revenue increase of 1.9 percent over the third quarter.
November unit shipments fell a moderate 1.6 percent, from October’s reading of 33.6 billion units. This translates into a weekly run rate of 8.4 billion units, down significantly from July’s run rate of 9.4 billion—the high point in 2004.
Geographically, revenue growth was distributed relatively evenly among the four regions. Europe emerged as the stronghold in November, posting a growth of 7.7 percent, and edging out second-place Japan, which registered a 6.7-percent increase for the month. Third-place Asia Pacific was not far behind, increasing 6.3 percent, while semiconductor revenue grew by 3.7 percent in the Americas.
Although 2004 is officially over, final SIA numbers are not yet available. Semico forecasts 2004 will finish with a respectable revenue growth of 28.9 percent, with revenues topping U.S. $214.6 billion. The firm said the strong economy in 2004 created favorable conditions for the semiconductor market. Expansion that was fueled by tax cuts and low interest rates served as a good foundation for growth. The year ended on a high note as consumer confidence rose in December 2004, from 90.2 to 99.9.
Semico forecasts both the U.S. economy and the worldwide semiconductor industry will experience a slowdown in 2005. This is expected, despite an attempt by U.S. President Bush to overhaul Social Security and the nation’s tax system.
The firm does, however, see some exciting new developments that will drive semiconductor growth. The digital home revolution, it said, is at last catching on fire, with Intel and Microsoft making major pushes in this market. Couple that with digital consumer product introductions by a host of other players from the PC, consumer, and communications markets, and the opportunities are significant. Unfortunately, the economy and an overcapacity situation will curtail much of this growth until 2006.
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