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Prediction is very difficult, especially about the future

Prediction is very difficult, especially about the future
by Bill Jewell on 02-20-2013 at 8:01 pm

The above quote is attributed to both physicist Niels Bohr and baseball’s Yogi Berra. The statement certainly applies to predicting the semiconductor market. Semiconductors operate on physical principles. However the market for semiconductors is affected by numerous factors. The outcome of a baseball game can be determined by a single pitch which could result in a strikeout or a home run. Semiconductors are at the end of the electronics food chain. Semiconductor companies are dependent on electronics companies, who are dependent on buying patterns of businesses, government and consumers. At each level of the supply chain are distributors, inventories, and outsourced manufacturing. Despite these complexities, many organizations, companies and individuals still try to forecast the semiconductor market.

How accurate are these predictions? I have collected forecasts for the last five years from publicly available sources. The forecasts used were released in the period from October of the prior year to the end of February in the forecast year. Thus the forecasts were made before any monthly data for the forecast year was available from WSTS (World Semiconductor Trade Statistics). The charts below show the forecasts in sequential order compared to the final market data for the year from WSTS.

Year 2008 semiconductor market projections ranged from 12% from Future Horizons to 3.4% from Gartner. At the end of 2007 most expected solid growth in 2008. However as time went on weakness in the economy became more apparent. Gartner’s March forecast reflected some of this weakness with only 3.4% growth. The economy continued to deteriorate in 2008, resulting in a semiconductor market decline of 2.8%. No one predicted this decline a year in advance, but the weakness of the world economy in 2008 surprised almost all the experts.


For 2009, the forecasts were universally pessimistic. In November 2008, WSTS predicted a modest decline of 2.2%. In early 2009 it became apparent the market could see a significant decline. The 4Q 2008 market was down 24% from 3Q 2008, a record decline. Forecasts in January and February of 2008 called for major declines in 2009 of over 20%. However the semiconductor market bounced back quickly after it became obvious the global recession (driven by a housing market collapse) was not having a major impact on demand for electronics. A market decline of 16% in 1Q 2009 was followed by 20% increases in both 2Q 2009 and 3Q 2009. The year wound up with a 9% decline. WSTS turned out to have the most accurate forecast – not because it foresaw the strong bounce back but because it was made before the weakness in 4Q 2008 became known.

The momentum of the recovery in 2009 led to optimistic projections for 2010. Future Horizons (F.H.) in November 2009 predicted 22% growth for 2010. WSTS and IC Insights were more conservative with 12.2% and 15%, respectively. Later forecasts were 20% or higher. I began forecasts for my company Semiconductor Intelligence (SI) with 25%. Based on the available forecasts, my 25% forecast was the highest made before any 2010 monthly data was released. The year finished stronger than anyone predicted, with 31.8% growth in 2010. Although no one came very close to the final growth rate, most forecasters correctly predicted a very strong market in 2010.

Following the exceptionally high growth in 2010, forecasters expected growth to moderate in 2011 but remain healthy. My October 2010 forecast for Semiconductor Intelligence (SI) was 9%. IC Insights, Semico Research and IDC also had forecasts of 9% or higher. WSTS, Gartner and iSuppli were more conservative in the 4% to 6% range. Mike Cowan’s forecasts use a model based on historical WSTS data and thus make no assumptions about the future. Cowan’s December 2010 forecast was for 2.3% growth in 2011. The global economy was weaker than expected in 2011 due to a weak recovery in the U.S., the earthquake and tsunami in Japan, and the European debt crisis. The 2011 semiconductor market finished up a slight 0.4%. Mike Cowan’s forecast was the most accurate.

Projections for year 2012 primarily fell into two camps. Semico Research, Future Horizons (F.H.) and IC Insights expected growth of 7% to 8%. WSTS, IDC, Gartner, IHS iSuppli and Mike Cowan were in the 2% to 3% range. My forecast for Semiconductor Intelligence in February 2010 called for a 1% decline. Based on available forecasts, Semiconductor Intelligence was the first to call for a decline in the 2012 market. The global economy in 2012 again fell below expectations and the semiconductor market finished with a decline of 2.7%.

What conclusions can be drawn from these comparisons? First, no one is consistently correct. In general the forecasters are closer to each other than they are to the final result. This is not much of a surprise since most forecasters are working with similar assumptions. Unexpected events can lead to a final result significantly different from expectations. Second, often the most accurate forecast is the latest –since it is based on the most recent data. This is not always the case, as seen with the November 2008 WSTS forecast for 2009.

Third, why bother? If no one can accurately predict the semiconductor market, why should anyone pay attention to forecasts? The answer is every business needs a plan. The plans should be specific but flexible. The semiconductor market forecasts provide guidance based on the latest available data and assumptions. Ideally the forecasts should be updated frequently based on the latest results. We at Semiconductor Intelligence update our forecasts quarterly. Mike Cowan updates his forecast monthly.

What is the outlook for the current year? The forecasts for 2013 range from 3.6% from Mike Cowan to 8.3% from IHS iSuppli. This is a fairly narrow range compared to prior years. However as we have seen before the final 2013 market growth could be outside of this range.

Semiconductor Intelligence does not claim to be consistently more accurate in our forecasts than other companies or organizations. However we were the most accurate of the publicly available forecasts for both 2010 and 2012. We provide the assumptions behind our forecasts and update quarterly. More information is available on our website at: http://www.semiconductorintelligence.com/

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