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2011 Chip Growth Will Crest Into a 2012 Cutback

At the Semico Summit this week I focused on our forecast for the year ahead. My conclusion, as I told participants, was: “2011 will see revenue growth of 8 percent, however the Semico IPI indicates the second half of 2011 as the beginning of the next market slowdown.” What evidence supports this hypothesis? Here are a couple of reasons:

  • Tablet winners and losers.
  • Approximately 100 tablet computer models are being introduced this year, each with a market share goal of more than 1 percent. There will naturally be winners and losers, but the result of this impossible target from manufacturers will be excess capacity and inventory in the channel as these models shakeout. This will have significant effects on the components market. In terms of semiconductor average selling prices (ASPs), for instance, the supply chain only has to be a few percentage points out of equilibrium to cause prices to crash. We've seen it in the memory market many times.

  • Even more impossible goals.
  • The smartphone is considered the promised land. A market that continues to grow at double-digit rates with increasing semiconductor content is an irresistible market. However, the threat in the smartphone market is similar to that in the tablet market. Overproduction of smartphones will result in a production pullback in 2012, contributing to excess capacity and inventory, leading to falling ASP.

While we would expect a semiconductor downturn to produce negative semiconductor revenue, {complink 7526|Semico Research Corp.} has identified several factors that will dampen the severity of the downturn.

A reduction in production output from Japan is one of these primary factors. The earthquake and tsunami wreaked devastation in the north of the country. A number of production facilities were severely damaged — {complink 4637|Renesas Technology Corp.} was one of the hardest hit. In addition to plant closures, the Japanese automotive manufacturers have substantially reduced production rates.

Some consumer products, particularly games and TVs, are in a similar situation. Although this is bad news for the affected companies facing potential revenue declines for 2011, Semico believes there will be pent-up demand that will roll into 2012 helping to mitigate the severity of the downturn.

Other positive factors affecting 2012 include:

  • A continuing growth in Internet activity and cloud computing is spawning a wave of upgrades in the communications backbone and server farms.
  • The build-out of 4G wireless networks will require substantial investment that will spur demand from 2012 through 2015.

8 comments on “2011 Chip Growth Will Crest Into a 2012 Cutback

  1. AnalyzeThis
    May 12, 2011

    Interesting article, Jim, and I think I agree with your conclusion.

    However, I don't think the smartphone market is really that similar to the tablet market… I think there is plenty of demand for smartphones, more new smartphones will be purchased in order for consumers to utilize those 4G networks you mention, and I think it's very clear that smartphones are across-the-board a popular, desirable product.

    Tablets, on the other hand, are not only in danger of overproduction, but obviously there are way too many manufacturers jumping on the bandwagon even despite the overall uncertainty in the form factor as a whole. So far, no one other than Apple has really produced a very successful tablet that enjoys significant market share… so if there is no viable competitor to the iPad, perhaps there is no tablet market after all: there's merely an iPad market. If that is the case, there could be some very dramatic drops in demand in this space.

    Anyhow, this is a bit of a nitpick and you obviously discuss the tablet situation in your first bullet-point. I'm just trying to say that I'm fairly confident that smartphone demand will continue to stay strong.

  2. Anand
    May 13, 2011

    Jim,

     I am not quite sure if threat in the smartphone market is similar to that in the tablet market. In countries like India smartphones are slowly becoming popular and market is far away from getting saturated. I am sure people dont mind spending 300$ on smartphone rather than spending 600$ on tablet. So i guess demand for smartphone is here to stay. 

  3. Mydesign
    May 13, 2011

        Anand you are right. Now a day’s Smart phones are becoming popular in markets and the demand is also high. Majority of techies prefer laptop/net books rather than tablets. I don’t know the exact reason, but I guess mainly because of the cost factor. The cost for tablets is more than the cost of a dual core 10’’ laptop or net book. In India, even though we would like to buy tablets, availability and selection are major hurdles. Hope within a couple of months or years the trend changes and tablets becomes more popular.

  4. saranyatil
    May 13, 2011

    Dennisq,

    It seems more like a puzzle at this point, i agree that there will be an increase in sales of smartphones in the future but yet again we dont know what companies like samsung, motorolla are going to come up with in the tablet series already we are experiencing  the competetion rolling between samsung and Apple.

  5. Adeniji Kayode
    May 13, 2011

    I agree with you Tom, i feel the reason for that also is because laptops still offer more functions and handle more tasks than tablet despite the price

  6. Taimoor Zubar
    May 13, 2011

    I agree that smartphones will continue to be in demand especially because of the newere models coming up. Besides, the excess supply of Tablets will drive prices down. As a consumer, this appears to be a favorable sign.

  7. Jay_Bond
    May 13, 2011

    Smartphone’s biggest hurdle in the U.S. is going to be the cell carriers restrictions. Right now with the increase in sales of smartphones across the board, company’s cell networks aren't able to keep up with the demand for data usage. Companies are starting to set up more fees for using more data. While this won't affect all users, it will deter some users from converting to smartphones.

  8. elctrnx_lyf
    May 23, 2011

    I do not accept that there will be any slow down in the smart phone and the tablet segment in the next couple of years. They just opened their wings and there is lot of places in this world where they will reach.

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