2010: 20 good and bad signs for electronics biz

Mark LaPedus
(12/22/2009 1:28 $� EST)
URL: http://www.eetimes.com/showArticle.jhtml?articleID=222002983
SAN JOSE, Calif. — 2009 started off bad, but the year is now seeing some positive signs.Thankfully, the IC industry is seeing a recovery. But what about 2010? Heading into 2010, there are both good and bad signs in the marketplace. Here’s what various analysts think:

Good signs

1. Seasonal demand for ICs is better than expected. Craig Berger, an analyst for FBR, said: ”Recent checks with Asian chip distributors suggest their 4Q chip shipments should fall 4-to-8 percent sequentially, better than our month-ago checks of minus 10 percent sequentially, driven by strong industrial, consumer, and smartphone chip orders in November. Specifically, mid-single-digit month-over-month growth in November was better than our forecast of a mid-single-digit month-over-month decline as a robust Golden Week holiday required downstream OEMs to place rush orders for Christmas and provided confidence to begin placing orders for Chinese New Years (mid February).”

2. Companies are raising guidance, such as Altera, Amkor, AuthenTec, Fairchild, IR, Vishay, Xilinx and others. Berger of FBR said: ”For 4Q, we believe Atmel’s revenues are tracking at or above the high end of guidance of $327 million to $340 million (3-to-7 percent up sequentially), better than the consensus estimate of $335 million.”

3. Demand to pick up in 2010. Doug Freedman, an analyst at Broadpoint AmTech, said: ”In the near-term we are bullish on electronic equipment unit demand (minus 5-to-10 percent in 2009, plus 15-to-25 percent in 2010); however, this is offset by our bearish view on terminal growth rates. We believe 5- and 10-year CAGRs will be 5 percent versus more bullish consensus estimates of 8-to-10 percent.” We believe overall long lead times and lean inventory throughout the supply chain continue to help drive above-seasonal results in Q4 and Q1 guidance. We also believe 2Q10 shipment results are likely to be above seasonal with a return to normal or below normal seasonal patterns in 3Q10 and 4Q10.”

4. PCs up in 2010. Freedman of Broadpoint AmTech said: ”MPUs should benefit from notebook and server unit strength. We believe notebook unit growth will be above 20 percent year-over-year expectations and may exceed 25 percent year-over-year. We expect server MPU ASPs and units (13 million units) will drive improved margin mix.”

5. A DRAM rebound? Andrew Norwood, an analyst at Gartner, said: ”Gartner expects January 2010 pricing to be down for DDR2 as demand continues to reduce and supply, especially from Taiwan, increases. DDR3 pricing is harder to predict and will, at best, remain flat or else see small price declines. A return to mild pricing declines in the contract market will be a good thing, as DRAM content in PCs is already above 10 percent of bill of materials (a historic pressure point for PC OEMs) for high-end and midrange machines. Pricing easing during the next few months will allow PC OEMs to slowly increase the gigabyte content of their PC lines and therefore create a healthy demand environment in 2010, which will in turn soak up the increasing capacity in the second half of 2010 that comes from the move to 40 nm technology by the major vendors.”

6. NAND to grow. Joseph Unsworth, an analyst with Gartner, said: ”The outlook for the remainder of December is that pricing is likely to remain soft, but given optimism during recent channel checks, it appears that prices will remain stable leading into 2010 before sliding again in the second quarter. The year 2010 will be a strong one for NAND vendors (with revenue growth of more than 20 percent), but exactly how strong will be influenced by NAND customer sentiment, gauged at the Consumer Electronics Show in early January.”

7. LEDs are another bright spot. Jagdish Rebello, director and principal analyst at iSuppli, said: “The LED industry is on the threshold of a new expansion phase–a phase that will be characterized by growth rates in the high double digits during the next three years. This growth will be driven by the increased adoption of high brightness (HB) and high flux–also referred to as high power or ultra high brightness (UHB)–LEDs into a new range of next-generation lighting applications. Global LED revenue will expand by 10.9 percent in 2009 to reach $7.4 billion, up from $6.7 billion in 2008. This comes in stark contrast to the overall semiconductor market, which is expected to contract by 12.4 percent in 2009 because of the slowdown in the global economy. By 2013, the global LED market will reach $14.3 billion, nearly double from 2009.”

8. Solar is sunny. Edwin Mok, an analyst with Needham & Co., said: ”Heading into 2010, we are seeing strong demand in several key regions including Germany, Italy and the U.S. Industry participants have confirmed that the near term strength should extend into at least 1H10. In 2010, we continue to believe the U.S. solar market will see substantial growth driven by increased availability of federal stimulus spending and a number of state/local subsidies.”

9. TVs in cars? Richard Robinson, an analyst with iSuppli, said: ”Worldwide shipments of mobile television systems for cars, consisting both of solutions embedded into autos and included in Portable Navigation Devices (PNDs), are expected to more than double from 2009 to 2015. Global automotive mobile television shipments are expected to exceed 17 million units in 2015, up from 8 million in 2009. Car passengers will be able to take advantage of live television services in an increasing number of vehicles with embedded front and rear displays.”

10. Connected cars roll. Egil Juliussen, principal analyst and fellow for iSuppli, said: ”An estimated 62.3 million global consumers will have Internet access in their cars by 2016, up from 970,000 at the end of 2009. With smart phones having become more affordable and ubiquitous, consumers are demanding Internet connectivity in cars. Car makers are serving this demand by adding various forms of Internet connectivity to cars.”

Bad signs

1. Prices to rise in analog? Berger of FBR said: ”Note that we already raised financial estimates on Fairchild Semiconductor and International Rectifier as these companies preannounced 4Q results positively over the past few weeks. Given channel strength and the potential for distributor inventory replenishment in 1Q10, we think that these discrete and lower margin analog chip vendors can raise prices on some products to some customers in early 2010.”

2. Application processor war is coming. Freedman of Broadpoint AmTech said: ”While application processors see huge growth with smartphones, we do not seek out investment as it may turn into profitless growth. Numerous emerging competitors (Qualcomm, Nvidia, Broadcom, NXP, ST Micro and MediaTek), eager to take share from established vendors (TI, Marvell), could turn price aggressive as they continue to invest tremendous amounts in ecosystems for their particular application processor development environments. We see parallels to baseband, given the high volumes and minimal barriers to entry of this attractive wireless growth market.”

3. Touch screens notebooks not taking off yet. Daniel Amir, an analyst with Lazard Capital Markets, said: ”Demand for touch screen notebooks, which were enabled by the debut of Windows 7, is still fairly lackluster. HP expected to ship 80,000 touch screen notebooks every month, but current demand is only 1,500 notebooks a month. Higher prices for the capacitive touch screen panels are posing a challenge to mass adoption of touch screen enabled notebooks. We believe that we have yet to reach a high adoption rate because of the lack of touch applications that are targeted to the PC market. We believe that the touch PC concept will begin to have higher adoption rates in late 2010.”

4. NOR is a bore. Analysts from Gartner said: ”NOR flash pricing showed mixed results in December. Most densities saw prices gently increase, while 512Mb declined by 3.8 percent. Although NOR flash contract pricing was flat because of a temporary shortage, we continued to see a NOR flash/pseudo SRAM MCP pricing decline. Gartner expects NOR flash pricing in the first quarter of 2010 to remain flat or post a mild decline. However, since the application of NOR flash is limited and most smartphones will use a NAND flash solution, the overall revenue from NOR flash will continue to decline in 2010.”

5. Fab tool downturn continues. Freedman of Broadpoint AmTech said: ”Maturing 300-mm fab assets will continue to drive unit costs lower (and faster than ASP declines) as process upgrades are less capital intensive. As such, we believe the foundry build-out opportunity in 300-mm will be among the best investments for semiconductor corporations in the past decade. However, this is likely a negative for capital equipment manufacturers on efficiencies from re-use and longevity of equipment.”

6. Backend capacity remains tight at Amkor and others. C.J. Muse, an analyst at Barclays Capital, said: ”Amkor raised its guide for 4Q based on broad-based demand. Focus remains on 1Q10 outlook where we expect better than seasonal guide for 1Q10 led by still tight OSAT capacity.”

7. More backend woes. Amir of Lazard Capital Markets said: ”Our contacts have indicated that we are seeing back-end capacity tightening and that it could be a challenge for semiconductor companies to increase shipment volumes beyond the current run rate. According to our channel checks, tight Amkor capacity may drive the company to break its delivery commitments. Major clients of Amkor include Toshiba, Numonyx, Qualcomm, Broadcom, Conexant, and Marvell.”

8. Solar shakeout hits. Robert Castellano, president of The Information Network, said: ”We forecast that in 2010 as many as 50 percent of the more than 200 solar manufacturers, mired in red ink with current selling prices above $2.00 per watt, may not survive. The freefall has begun.”

9. Chinese firms ride vertical integration to solar cost leadership. Henning Wicht, senior director and principal analyst at iSuppli, said: “Yingli and Trina, along with U.S.-based First Solar Inc. represent the most notable success stories in the PV market today. In the price-driven environment of 2009, vertical integration provides the scale and control needed to contain costs, and to provide a competitive edge.”

10. Netbooks to slow? John Jacobs, an analyst at DisplaySearch, said: ”Mini-notes continue to be a significant piece of the notebook PC pie, in terms of both units and revenue. However, our long-term outlook is that the mini-note share of the notebook PC market has stabilized, and will remain at approximately 20 percent through 2011 before starting to erode. While mini-notes offer lower ASPs and are thinner and lighter than notebook PCs, the performance of larger notebook PCs continues to improve while prices continue to steadily decline, increasing the performance gap while narrowing the price gap. In 2010, DisplaySearch expects the notebook PC market to grow by 16 percent, with higher than average growth for mini-notes and ultra-portable notebook PCs. Growth in the latter segment is expected to be fueled by numerous new 11.6-inch and 12.0-inch products built on CULV platforms and with aggressive, sub-$500 ASPs.”

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