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Yelling fire in a crowded chip factory

Yelling fire in a crowded chip factory
by Don Dingee on 03-28-2016 at 4:00 pm

Semiconductor market forecasts for 2016 are all over the place. Jim Handy and Tom Starnes floated a report in January looking for 10% growth. Jim Feldhan at Semico turned outright negative at -0.3% just a couple weeks ago. Tossing out the high and low scores, analysts tracked by GSA range from 0.3% to 7.0% in March updates. What’s going on here?

 I’m not an analyst, I’m a product marketer. My job for the last 25 years has been to watch trends, gather facts and opinions, and sort out where and how to place the bets that best utilize engineering, manufacturing, and sales resources. Whenever someone comes up with a forecast number, I always ask how they got there.

Reading through the latest reports and opinions, a few things jump out. Semico’s opinion is based on their Inflection Point Indicator, a leading model with four quarters of advance visibility. It’s hard to say what is in Feldhan’s recipe exactly, although he gives hints – in his view, GDP growth of major economies other than India are slowing, DRAM is weakening in both demand and ASP, and the big application segments of PC and mobile are in non-regenerative braking modes.

Bill Jewell of Semiconductor Intelligence has already shared his latest opinion on SemiWiki, and he’s settling in at around 3%. He points to an electronics slowdown in China (from incredible 14% levels to a more reasonable 10%) while showing a jump in the US to 6.5%. Jewell cites near-term reduced global revenue guidance from most semiconductor firms, but says something very interesting and potentially messy in his text:

“We are assuming a decline of 5% in 1Q 2016, healthy quarter-to-quarter growth in 2Q and 3Q 2016, and a mild seasonal decline in 4Q 2016.”

Meanwhile, the low end comes from the SIA itself, dialing down its number to 0.3%. Their formula is pretty simple – the $45B DRAM segment sheds -7.9%, while most other segments grow, including sensors at 3.6%, microprocessors and MCUs at 3.6%, and logic including ASICs and FPGAs at 3.5%.

Then there is the Objective Analysis high end. They use a cap ex analysis as a major component of their model. They cite the IoT as (still) being 5 years away, and an overreliance on China for growth. However, their model factors in DRAM and NAND flash capacity, and they suggest two things are happening. First is a switchover from DRAM to NAND (something we pointed out in our Samsung chapter in “Mobile Unleashed” – their fab capacity is largely interchangeable). Second is while ASPs are flattening, bit capacity is growing, 20% for DRAM and 35% for FLASH, which translates to an estimated 14% revenue growth in the memory segment.

My conclusion from all that is, unlike the PC days when a microprocessor carried everything else in mass quantities along for the ride, there is no such thing as the semiconductor market anymore. Component categories are not moving in lockstep, and there is no clear trend in geographic markets. One really has to break this down by application segment to understand what could be happening. That’s one of the problems with IoT forecasting – it isn’t really a segment, but rather a collection of technologies and a hodgepodge of use cases that make it hard to say with certainty what happens five years out.

Of course, all the analysts claim to be accurate within a statistical margin. I’d add one factor I didn’t see anyone talk about – a pronounced shift from merchant business to custom or semicustom business, which is a lot harder for analysts to get their arms around. Cap ex may also be a bit misleading outside of the memory segment for this next phase, because much of the IoT activity is going to be on mature processes already in place.

OK, so I’ll put my money where my mouth is. I don’t have any sophisticated model here that would produce a decimal place of accuracy. My best guess at the semiconductor “market” would be 2% growth for 2016, however if one were to remove DRAM, that number would be more like 4%. The mere fact DRAM is dragging the market not due to overcapacity issues says a lot.

Which pieces of these methodologies pass the sniff test for you? Should we stop calling this a market and do what the SIA is suggesting, analyzing growth rates by component segment? If it isn’t the IoT, what will trigger semiconductors to outperform GDP growth rates again – or is that not going to happen anytime soon? Thoughts welcome.

References for this post:
2016 Forecasts – Global Semiconductor Alliance
2016 Semiconductor Sales Go Negative– Semico Research
2015 semiconductor market flat, 2016 looking somewhat better – Semiconductor Intelligence
Semi Market Breakdown and 2016 Forecasts – EETimes
2015 Reflections and 2016 Outlook – Objective Analysis

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