The chip recovery is under way, with quarterly sales forecast to increase year-over-year for the first time in 2009, according to a report from market researcher iSuppli on Tuesday.
Revenue from chip sales is expected to rise by 10.6 percent in the fourth quarter compared to the same period in 2008. This would mark the first time this year that revenue has risen compared to the same period a year earlier, according to Dale Ford, senior vice president, market intelligence, for iSuppli.
"The seeds of the current recovery were sown in the second quarter," said Ford. At that time, manufacturers began to report positive book-to-bill ratios, indicating future revenue growth. This was followed by more sequential revenue growth in the third quarter, according to Ford.
Semiconductor inventories returned to more normal levels in the third quarter after chip suppliers shed stockpiles, he added.
Earlier this month, chip giant Intel said third-quarter revenue was down only 8 percent year-over-year, an improvement over the 15 percent and 26 percent year over year declines in the second and first quarters respectively. Intel also indicated that it expects future growth. "We're finished with the cutting phase of our efficiency effort and now in the growth phase of that efficiency effort," said Intel's chief financial officer Stacy Smith at that time.
Overall, it's been a tough year, however. Global semiconductor revenue is set to contract by 16.5 percent in 2009, following a 5.4 percent decrease in 2008.
And iSuppli has added a good dose of caution to its report. Though sequential quarterly increases in revenue will continue into 2010, sales growth will not be sufficient to lift semiconductor revenue back to pre-recessionary levels until the 2011-2012 time frame, according to Ford.
And there are troubling indicators such as the climbing U.S. unemployment rate, which reached 9.7 percent in August and is projected to exceed 10 percent at its peak, which will continue to constrain consumer spending, Ford said.
On the back of Intel's better-than-expected financials, an iSuppli analyst said Monday that chip inventories will recover, driving up sales in the second half of the year.
Following positive financial guidance from Intel and other chipmakers, global semiconductor revenue will increase by a sharp 10.4 percent in the third quarter and by 4.9 percent in the fourth quarter, according to Carlo Ciriello, a financial analyst for iSuppli.
This expected recovery comes on the heels of four consecutive quarters of chip inventory declines, which took their sharpest dive in the first quarter of this year, plunging by 15.1 percent. iSuppli forecasts that second-half inventories will increase modestly by 5.1 percent in the third quarter and 1 percent in the fourth.
"Falling demand in the first half of 2009 prompted a swift inventory correction among chip suppliers," said Ciriello, in a statement. "Companies dialed down (factory) utilization levels and cleared swaths of inventory by reducing Average Selling Prices (ASPs) in anticipation of continued depressed demand," he added, describing how the sluggish market conditions in the first half should set the stage for an inventory correction in the second half.
FBR Capital Markets analyst Craig Berger said in a research note Monday that because Intel's forecasts were much better than investors anticipated three months ago, he expects global demand to recover as "the world gets back to normal." Berger's comments appeared in the Wall Street Journal on Monday.
The premium pricing of Apple's Mac Mini desktop is due to its laptop lineage, according to a teardown analysis by iSuppli.
Apple Mac Mini
(Credit: Apple)Though probably not a surprise to Mac Mini connoisseurs, the diminutive desktop bears higher component costs due to its use of parts designed for mobile PCs, iSuppli said in a report released Friday. In short, inside the Mini is a virtual laptop.
The entry-level version of the new-generation Mac Mini carries a bill of materials (BOM) of $376.20, which increases to $387.14 when manufacturing costs are added, iSuppli said. The low-end model in the Mac Mini lineup is priced at $599, "reflecting the relatively thin BOM/manufacturing margins" of Apple's PCs in relation to its lower-cost consumer items, specifically the iPod line, according to iSuppli.
"Unlike most desktop computers from other brands, the Mac Mini and, indeed, Apple's entire Mac line make extensive use of components designed for notebook computers," said Andrew Rassweiler, director and principal analyst for iSuppli. "Apple knows how to make computers better, smaller, and more attractive," he said. "Such an achievement, however, comes at a premium."
This sentiment is echoed in a CNET Reviews write-up of the Mac Mini. "While we're still impressed with the Mac Mini's ability to pack so much into a tight package, Apple can't get away from its PC competitors that offer more features for less money," CNET Reviews said.
That said, mobile components abound. ... Read more
Moore's Law may lapse by 2014, according to iSuppli. The high cost of chip manufacturing--not just the impossibly smaller geometries--may be the biggest threat.
Gordon Moore, former chairman and CEO of Intel
(Credit: Intel)Moore's Law, named after Intel co-founder Gordon Moore, states that the number of transistors that can be placed on an integrated circuit doubles roughly every two years. For more than four decades, chip geometries have gotten smaller and smaller, allowing Moore's Law to remain on track.
By 2014, however, the high cost of semiconductor manufacturing equipment will threaten Moore's Law, "altering the fundamental economics of the industry," according to a report released on Tuesday by iSuppli.
"The usable limit for semiconductor process technology will be reached when chip process geometries shrink to be smaller than 20 nanometers (nm), to 18nm nodes," said Len Jelinek, director and chief analyst, semiconductor manufacturing, for iSuppli. "At those nodes (levels), the industry will start getting to the point where semiconductor manufacturing tools are too expensive to depreciate with volume production, i.e., their costs will be so high, that the value of their lifetime productivity can never justify it."
While further advances in shrinking process geometries can be achieved after the 20-nanometer to 18-nanometer level, Moore's Law will no longer drive volume semiconductor production, iSuppli said.
As a yardstick, Intel is currently in the process of moving to a 32-nanometer manufacturing process. While Taiwan Semiconductor Manufacturing Company (TSMC)--the world's largest contract chip manufacturer--has moved to 40-nanometer for chips it makes for companies such as Nvidia.
There are examples of companies that have already found chipmaking prohibitively expensive. Facing possible bankruptcy, Advanced Micro Devices eventually spun off its chipmaking operations. Some Asia-based memory chipmakers have also faced possible extinction because they couldn't invest the staggering sums of money necessary to update production facilities.
The end of Moore's Law has been prophesied more than a few times in the past but chip equipment cost isn't the only thing conspiring against the law. Exponential growth in every industry eventually has to come to an end, according to an April EE Times report quoting IBM Fellow Carl Anderson. He cited railroads and speed increases in the aircraft industry as examples where exponential growth eventually petered out.
"A generation or two of continued exponential growth will likely continue only for leading-edge chips such as multicore microprocessors, but more designers are finding that everyday applications do not require the latest physical designs," Anderson said in the EE Times' report.
Until 2014, however, the race continues. Globalfoundries, the joint company owned by AMD and Abu Dhabi-based Mubadala Development, said Tuesday that "the semiconductor industry is celebrated for overcoming seemingly insurmountable odds to continue the trend toward smaller, faster, and more energy-efficient products" and, in partnership with IBM, announced research that will enable the continued scaling of semiconductor components to the 22-nanometer level and beyond.
And Intel on Thursday will show off new research that will demonstrate the company's latest advancements with its chip manufacturing technology.
Updated at 12:15 p.m. PST with information from iSuppli.
Nvidia is slashing fourth-quarter revenue guidance 40 percent to 50 percent. This comes on the heels of Intel's revision last week. Both companies are citing collapsing demand from customers.
"Total revenue for the fourth quarter of fiscal 2009 is now expected to decline 40 percent to 50 percent sequentially as a result of further weakness in end-user demand and inventory reductions by Nvidia's channel partners in the global PC supply chain," the largest graphics chip supplier said in a statement Tuesday.
This revises the fourth-quarter guidance provided during its third-quarter financial conference call held November 6.
Based on Nvidia's third-quarter sales of $897.7 million, expected declines of between 40 percent and 50 percent would put fourth-quarter revenue somewhere between $538 million and $449 million. Nvidia will report fourth-quarter earnings on February 10.
The new guidance follows an Intel fourth-quarter warning last week (its second) that revenue will fall $2 billion short of its original forecast, due to PC makers curtailing chip orders.
Most of the major PC chip suppliers, including Taiwan Semiconductor Manufacturing Company (TSMC), have cited a dramatic fall-off in orders from customers. TSMC has said it expects the chip industry to decline by mid to high single digits in 2009, "with very little visibility."
iSuppli, which tracks the PC market, said in its Q4 2008 Market Tracker that shipments of desktop PCs--where most of the high-end, high-profit-margin graphics chips go--are forecast to decline by 6.4 percent in the fourth quarter on a year-over-year basis. And iSuppli expects the desktop PC market to get worse in 2009, with desktop PC shipments falling 5.5 percent to 146.2 million units.
Global notebook shipments exceeded desktops on a quarterly basis for the first time ever, with Netbooks playing a decisive role, iSuppli said on Tuesday.
Acer's Netbook shipments appear to have been a deciding factor that catapulted notebook shipments over desktops.
(Credit: Acer)Notebook PC shipments rose almost 40 percent in the third quarter of 2008 over the same period in 2007, hitting 38.6 million units, said iSuppli, a market research firm based in El Segundo, Calif.
Netbooks may have been the deciding factor in pushing notebooks over the top.
"The big news from iSuppli's market share data for the third quarter was undoubtedly the performance of Taiwan's Acer," said Matthew Wilkins, principal analyst for compute platforms at iSuppli, in a statement. "Acer shipped almost 3 million more notebooks in the third quarter than it did in the preceding quarter, with the majority of those 3 million being the company's Netbook products," Wilkins said.
And Acer is close to catching No.2 Dell because of the surge in Netbook shipments, according to Wilkins.
All of this resulted in lower desktop PC shipments, which fell by 1.3 percent in the third quarter over the previous year to 38.5 million units.
Global PC unit shipments rose 15.4 percent over the third quarter of 2007, with 79 million units shipped. Overall third-quarter PC shipments exceeded iSuppli's expectations of 12 percent year-over-year growth for the third quarter, the market researcher said.
Hewlett-Packard remained the No.1 PC supplier in the third quarter, with shipments of 14.9 million units, and a market share of 18.8 percent. Dell held onto second place with shipments of just under 11 million units, translating into a market share of 13.9 percent. Acer was No.3 with a market share of 12.2 percent, as shipments hit 9.7 million during the quarter.
Lenovo and Toshiba were ranked fourth and fifth, respectively.
iSuppli is revising its 2008 forecast upward. "In view of the better-than-expected third-quarter PC shipments, iSuppli has slightly increased its full year 2008 unit growth forecast from 12.5 percent to 13.0 percent," the firm said, adding that its revised 2009 outlook calls for PC unit growth of 4.3 percent.
As chip equipment goes, so goes the electronics industry and the rest of high tech.
It's a pretty simple equation. Electronics gadget makers get silicon from chipmakers, which get production gear from companies like Applied Materials and ASML. So when chip gear suppliers go south, you can bet the entire electronics industry (and the overall tech industry) is in a funk.
And it is. Appearing on CNBC Thursday morning, Peter Wennink, chief financial officer of Netherlands-based chip equipment maker ASML, said the "sudden drop in end demand for electronic products...is forcing our customers to announce severe cuts in their production." Who are ASML's customers? Companies like Toshiba, Taiwan Semiconductor Manufacturing Company, Samsung, and Intel, which supply the electronic guts to customers like Sony, Nokia, Compal Electronics, and Hewlett-Packard. (Samsung and Toshiba are also large consumers of silicon from the chip-making arms of their companies.)
Thursday, ASML announced that it was cutting 10 percent of its workforce amid an "unprecedented" downturn. "Never before have we witnessed such a sharp and sudden fall-off in lithography system demand," said Eric Meurice, chief executive officer of ASML, in a statement. He attributed this to "an unprecedented mix of falling end-demand for semiconductors, weak memory prices and restricted access to capital for our customers."
Meurice went on to cite one of ASML's biggest customers, Toshiba, which announced on Monday night that it was cutting production for flash memory 30 percent, starting in January. Flash memory is one of the staple components of consumer electronics and computers and is used in everything from portable music players to digital cameras to PCs.
ASML plans to shut down production facilities for four weeks, spread over the first and second quarters of 2009. ASML's restructuring follows a similar move by U.S.-based Applied Materials, the largest chip gear supplier. In November, Applied said it was paring its global workforce by 12 percent or 1,800 positions. For the fourth quarter, Applied said fiscal 2008 net sales were $8.13 billion, down from $9.73 billion from 2007.
Semiconductor equipment forecast; a recovery isn't expected until 2010.
(Credit: Semiconductor Equipment and Materials International )"We're at levels we last reported in 2003," Dan Tracy, senior director industry research and statistics at SEMI, said in a telephone interview. Semiconductor Equipment and Materials International provides market data for the global semiconductor equipment market. "In our most recent data through October, orders for semiconductor manufacturing equipment were down over 50 percent from the peak in 2007."
Tracy said orders for automotive chips--a giant market--have also "slowed down dramatically in the fourth quarter."
Japanese chip equipment makers, some of the largest in the world, saw orders sink 71 percent in November from the same month last year as customers cut spending, according to a Reuters report Wednesday, citing the Semiconductor Equipment Association of Japan.
"This was the 21st straight month of year-on-year declines as the financial crisis hurts consumer appetite for computers, digital cameras, and TVs," Reuters reported.
To top off the bad news, market research firm iSuppli issued a report Wednesday forecasting that worldwide semiconductor industry revenue is set to decrease by 9.4 percent in 2009 to $241.5 billion, down from $266.6 billion in 2008. iSuppli had previously predicted 6.8 percent growth for the same time period.
In the more immediate future, iSuppli said in the fourth quarter "excess semiconductor inventories could balloon up to $10.2 billion in value, up 268 percent, from $3.8 billion at the end of the third quarter."
Steep worldwide recessions "have resulted in a pullback of consumer spending on all types of electronic products," iSuppli said, leading the firm to forecast a decline in OEM (original equipment manufacturer) factory revenue for electronics equipment of 1.3 percent in 2009. The previous forecast had predicted 6.7 percent growth.
Updated at 2:50 p.m. with correction of comments in FORM 10-Q
Intel reiterated in an SEC filing Friday that business conditions may worsen and that demand for its chips may take a hit because of global economic conditions.
As a result of the recent financial crisis, "there could be a number of follow-on effects from the credit crisis on Intel's business, including insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of our products and/or customer insolvencies," Intel restated in a FORM 10-Q filing.
Intel also cited "increased expense or inability to obtain short-term financing of Intel's operations from the issuance of commercial paper."
"The current uncertainty in global economic conditions makes it particularly difficult to predict product demand," Intel said, reiterating what was stated in its third-quarter earnings announcement.
(Intel also plans to publish a mid-quarter business update on December 4, 2008.)
For the fourth quarter of 2008, Intel reiterated that it expects revenue of between $10.1 billion and $10.9 billion and a gross margin of 59 percent, plus or minus a couple points. Gross margin is a crucial indicator of profitability. The company repeated that economic uncertainty may result in lower than expected demand and may "negatively impact our gross margin if we fail to reduce manufacturing output accordingly."
Restructuring and asset impairment charges--as stated in its third-quarter earnings announcement--will be approximately $250 million, which includes charges related to Intel's joint decision with Micron to discontinue the supply of NAND flash memory from a facility within the Intel-Micron manufacturing network.
iSuppli warns on flash memory revenue
And speaking of NAND flash memory, iSuppli said Friday that its revised forecast for the flash memory market predicts that worldwide NAND flash memory revenue will fall by 14 percent to the $12 billion level in 2008, down from $13.9 billion in 2007.
This year will mark the first time that worldwide NAND flash revenue has declined on an annual basis.
In 2009, global NAND flash memory revenue will decline by another 15 percent, iSuppli said.
Along with the economy, chip forecasts are heading south.
Following an outlook about weak chip industry capital spending from market researcher Gartner on Wednesday, iSuppli cut its 2008 IC revenue forecast to 3.5 percent from 4 percent on Thursday.
The memory chip industry is the canary in the coal mine. At least two memory chip manufacturers are on life support right now. Hynix, the world's second largest maker of memory, is trying to scare up cash by seeking buyers for a 36 percent stake in the company. The other ailing memory maker is Qimonda AG. Rumors have been rife that the manufacturing assets of the loss-ridden company will be snapped up.
Hynix and Qimonda won't get any help from the market in the coming months. Gartner said that the oversupply in memory, combined with a slowing consumer market, "gives little hope for an upside until 2010." Semiconductor industry capital spending is forecast to decline 25.7 percent in 2008--this would be the steepest decline since 2002--and another 12.8 percent in 2009, according to the market researcher.
The iSuppli report isn't any brighter. The outlook for memory revenue has been revised downward by 5.8 percentage points for 2008. iSuppli is citing the "credit crisis" as adversely affecting demand.
And let's not forget the Micron surprise on Thursday. The largest maker of memory chips in the U.S. said it would reduce its workforce 15 percent during the next two years. "Selling prices for NAND flash memory (are) significantly below manufacturing costs," Micron said in a statement.
SanDisk--the largest supplier of retail flash memory products--has problems of its own. It has become a buyout target as its stock price has steadily declined over the last 12 months.
Click here for ongoing coverage from CNET News, 'Tough times for tech'
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