Chip industry is ready to bounce back

Doom and gloom may be prevailing through much of the world, but there is hope that the semiconductor industry could see a good bounce back this year, according to Future Horizons CEO Malcolm Penn.

At IFS 2012, a peer into what the semi industry has to offer, Penn’s energetic outlook defied industry pessimism.

It may be true that the world has been through another traumatic upheaval, but there is plenty of scope for the chip industry to rebound in a big way this year, with the question more ‘when’ rather than ‘if’, he reckons.

Of course, the landscape is hardly encouraging at the moment in markets.  Confidence among many developed nations is at an all time low as the balance of power shifts to Asia and various emerging economies.  As Penn puts it, World War Three has been lost, and Western countries are in the process of a downfall from decadence akin to that of the Greeks.

The US, for example, is seeing low GDP growth this year, at the levels seen in Europe.  In the Eurozone itself, of course, the situation is bleak, with indecision among leaders not exactly helping growth.

However, Penn believes that the rhetoric being bandied about does not quite fit the reality of the situation.  Overall GDP growth last year hit four percent – a good show by any year’s standards.

Despite recent claims from various think tanks, he says that whether we are actually in recession or subject to some seriously disruptive events is debatable.

What is for sure, though, is that the chip industry’s growth was hit badly in 2011.  Future Horizons’ own forecasts show that growth is likely to have stuck at 0.3 percent for the year but, interestingly, the outlook had been much more positive at the start of 2011.

With catastrophe after unforeseen catastrophe buffeting markets across the world it was perhaps inevitable that the industry would suffer.

As Penn points out, the chip industry is beholden to the wider economic situation, but it is also very quick to re-emerge once markets improve and there is “underlying strength” in the market at the moment.  With companies such as TSMC managing crises well with excellent leadership there is hope that others too can pick themselves up from battered inventory levels.

Promising signs such as better than expected results by TSMC bode well for the rest of the industry, he says.  With its foundries churning out products for other firms we should see more positive results in coming quarters from the others, too.

This means that despite the industry slow to get a kickstart, the chip market should still see good growth this year, Mayan predictions notwithstanding.

It’s predicted that the industry could grow by up to 20 percent this year, though a more realistic figure is set at an impressive eight percent.  A slow start is accounted for, with major growth expected during the third quarter of this year.

Although the circumstances are not necessarily directly comparable, the 2008 market offers a good parallel of a reaction to the massively disruptive effects of recovery in the wake of the Lehmann Brothers collapse.  This too started with losses before a quick bounce back.

Into 2013, the market should also look healthy.  In fact, it should be possible to break the $300 billion mark, barring any catastrophes, Penn says.  A year of 20 percent growth this year followed by 25 percent the next is “not impossible” he contends, though this seems to be more of a best case scenario.

Of course, there is a difficultly in predicting the markets, and this is where Penn believes the chip industry has erred in declaring that there is little scope for growth in the industry.

He argues that the industry bodies have seriously downplayed ASPs with misinterpretations of data, which has serious ramifications as a self-fulfilling prophecy. WSTS, SIA and others have been busy talking erroneously of how the market is becoming mature, he says, when they “should be supporting the industry – not stopping people from investing”.

Penn remains adamant that the industry still has lots of potential, particularly if companies were less concerned with cutting back and more caught up in making sales.

As he points out, there is a tremendous amount of R&D continually going on within the industry, so there must be optimism that this stuff will actually sell.

With so much in the pipeline it is hard to disagree.  The semi industry may be going through a period of change at the moment, but with chips becoming ever more pervasive – a trend that will only accelerate in coming years – there persuasive evidence that the industry is a long way from coming to a halt.