2011 Roundup & 2012 Outlook From the Open Market

2011 saw two major, devastating natural disasters: Japan's earthquake and tsunami in March and, most recently, Thailand's flooding. Both of these unfortunate events led to global supply chain disruptions for extended periods and, in the case of Thailand, created a multi-quarter shortage situation for hard disk drives (HDD) and related components that will last well into 1H12.

Soft end-product demand has also been a factor this year, and that has meant a reduction in sales for a handful of sectors focused on consumer electronics. Meanwhile, demand for tablet PCs, e-readers, smartphones, and automotive infotainment continues to be quite strong and has bolstered the semiconductor and electronics industry overall.

Here's a drill-down into selected components:

DRAM volatility continues to be the mainstay of this sector's patterning. DRAM pricing did not see its normal 4Q bounce back, likely attributable to the shutdown and disruptions to the HDD supply chain, which had the negative effect of pulling PC production down by up to 30 percent. Another negative end-product situation is the slowing in DRAM content increases for notebook PCs, related to the softening of traditional PC demand coupled with high production (leading to high inventory) rates for DRAM. These negative pulls had a draw-down effect on DDR3 pricing this year, and forecasts for 1Q12 were not favorable for the memory sector in general, although success with new ultrabooks may ease this situation. NAND
Throughout November, NAND contract pricing declined, despite a brief price increase for large block NAND for SSDs from short-orders. This is likely to not be a long-lived increase and will likely creep down soon. Similarly, small block NAND for embedded applications also increased slightly due to decreased production by chip-makers but has now fallen to its previous level and flattened as well. Mid-range block NAND followed its normal patterning of decreased pricing. In 2011, NAND flash revenue grew 5 percent, and units were up 10 percent, but ASP was down almost 5 percent, for the recent three month moving average (3MMA) based on year-over-year values, according to Semiconductor Industry Association (SIA) data. Panels
From LCD TVs to small OLED displays, the panels sector, like memory, faced challenges in 2011. Again, the missing variable to success has been demand. Panel inventories continued to rise this year because demand from consumers and enterprises was not strong. Microsoft's 2012 release of Windows 8 OS brings new hope for enterprise spending, which, at least, was better than consumer spending. Small and medium displays were the bright spot due to the continued strong (OK, hot ) demand for tablets, e-readers, and smartphones. With Apple slated to adopt the new, cost-competitive, oxide material called IGZO (indium, gallium, and zinc) display, for its iPad3, we expect the next generation of higher-resolution displays to be at the feature forefront of 2012. Processors
CPUs have had a relatively good run this year due, in part, to a shift to higher-margin, higher-priced products. This shift is verified by some sourcing problems on select high-end, series processors for a variety of end-products for enterprise, servers, and, more recently, the build up for new ultrabooks to be premiered at CES. Intel's new ultrabook CPU series is an important catalyst that could boost the wider semiconductor and electronics supply chain. With the introduction of many new ultrabooks to compete with Apple's MacBook Air and the few existing ultrabooks from Asus, Acer, and Samsung, we expect demand to pick up due to both increased price competition, as well as the draw of a new “must have” PC with significant feature muscle.

CES will showcase roughly 50 new ultrabook-type devices and some with a “ready-to-ship” status. Thanks to the anticipated ultrabook demand, we expect increased tightness in 2012 for the leading edge, quad-core CPUs that power these devices. Since builds have been more conservative due to weaker demand for traditional PC devices, once demand rises, pricing will also increase.

Important for CPUs this year, beyond the quad-core architectures, is the evolution of CPUs to more of a System on a Chip (SoC) function. Increased feature demands for reduced power consumption, latency, and increased speed with superior graphics has meant that processors have seen architectural changes. Couple these demands with ever-shrinking form requirements to meet ultrathin, ultralight designs, and we expect continued innovation and growth for the processor sector, and especially for more integrated CPUs.

Looking forward
While 2011 was difficult for many, it was not without its bright spots. 2012, overall, is forecasted to see some rebound and stabilization across the board (please see Smith & Associates' latest MarketWatch Quarterly for expanded discussions). The year will certainly start with negative impact on the PC sector due to the supply chain shutdowns and disruption caused by the devastating floods in Thailand. Yet despite this, as we move into 2H12, ultrabooks will be well introduced, new tablet PCs and superphones will have arrived on the market, and we'll see a renewed automotive industry push for new vehicles to be equipped with more infotainment features. With this in mind, there is renewed hope that 2012 might make up for the challenges some saw in 2011.

20 comments on “2011 Roundup & 2012 Outlook From the Open Market

  1. Barbara Jorgensen
    December 22, 2011

    This is really well-researched and useful information. Tracking open market trends are a lot more difficult and data-intensive than many folks realize. The better prepared buyers are, the better the supply chain can be managed (in theory!) Thanks for the insight!

    December 22, 2011

    This is an excellent roundup.  I look forward to business in 2012 being more settled and fruitful for us all and I wish all those affected by natural disasters a very peaceful and happy 2012.

  3. mfbertozzi
    December 23, 2011

    Very good editorial Todd, it summarize clearly the outlook for 2012 and major evolution coming in electronics, as SoC; I am wondering if, in parallel to evolution towards new materials or components to use, there is also an evolution (focused on electronics, of course) in the way to recycle or waste disposal.

  4. Anand
    December 23, 2011

    @Todd, thanks for the informative post. What is your opinion on Intel's Medfield IC ? Do you think this IC from Intel will impact the sales of ARM chipsets?

  5. Eldredge
    December 24, 2011

    Todd – Thanks for the summary. Hopefully 2012 will brign a rebound in demand for these components and products.

  6. _hm
    December 24, 2011

    Natural disasters are unpredictable and can be very expnsive for auto and other similar manufacturers. They should add natural disaster in their risk factor and accordingly enhance their inventory of all critical parts.


  7. Himanshugupta
    December 24, 2011

    Todd, really insightful article. I hear a lot about ultrabooks and the business around it. But automobile infotainment do not get that much publicity. Is the reason low sale/impact or premature technology? 

  8. Himanshugupta
    December 24, 2011

    year 2011 started with a strong outlook and unexpected growth and ended in weak recovery. 2012 is starting with low expectations. As Todd said in his article that there will be introduction of ultrabooks, smartphones and tablets so hopefully 2012 will be better than what most analysts are predicting. There is continued focus on System-on-chip products to reduce power and latency with improved performance. With that Marry Christmas and Happy New Year.

  9. Wale Bakare
    December 24, 2011

    Yes in-vehicle infortainment lacks the spark other technologies have had in market. However, this is defintely a sector that would probably boost LCD panel in particular. Hopefully, 2012 might fair better.

  10. Himanshugupta
    December 25, 2011

    I think that in-vehicle entertainment should be an add-on to the gadgets that vehicle owners already own. Radio or FM has been the most popular entertainment system that vehicle owners use because of its low cost and versatile nature. Someone who is driving is already occupied with his hands and partially occupied with his vision, ears and mind. So, it will be challenging to come up with something that adds to the entertainment without distracting. 

  11. Jay_Bond
    December 25, 2011

    I think the other challenging point will be cost. With many people wanting the most bang for their buck, entertainment systems usually take a back seat. When the typical navigation and DVD center costs $3000 or more, it is usually much cheaper to by seperate units and use them as needed. Unless automakers can reduce the cost, I don't see a huge demand for these services.

  12. Taimoor Zubar
    December 26, 2011

    Interesting post, Todd. What do you think are some of the lessons learnt from the disruptions caused during the year through the Japanese and Thai disasters? I would expect companies to come up with policies that incorporate sourcing materials from a variety of locations rather than be dependent on a single country or region. If they want to ensure that their supply chains remain unaffected by natural or man-made disasters, they have to come up with such policies.

  13. Houngbo_Hospice
    December 26, 2011

    Companies have certainly learnt many lessons from past disasters in order to prevent future disruptions. However I don't think that such diresptions could always be prevented with outsourcing as some of the manufacturers might not be reliable and some of the components might just be fake. 

  14. Houngbo_Hospice
    December 26, 2011


    “Someone who is driving is already occupied with his hands and partially occupied with his vision, ears and mind.”

    That's very true. Too many in-vehicle gadgets might just be distractive to the driver.

  15. Taimoor Zubar
    December 26, 2011

    @Hospice_Houngbo: Yes, counterfeit products can be an issue when you look for new suppliers or vendors, but there are ways to deal with that as well. At the end of the day it's a better decision to have multiple sources of supply rather than be tied up with a single vendor or a single region of supply.

  16. Ariella
    December 26, 2011

    @TaimoorZ In other words, don't put all your supply eggs in one basket.

  17. JADEN
    December 26, 2011

    2011 has come and it's going with all the events that has happened, the year started strongly with good outlooks but the end was down.  Hope 2012 will be more better.

  18. Kunmi
    December 26, 2011

    2012 appears very promising compared with the outgoing year. Economy is picking up and there is tendency for it to extend to all areas of business enterprise

  19. Kunmi
    December 26, 2011

    This is the absolute truth. It is not good to put all eggs in one basket. If multiple vendors are engaged, it will be very easy to figure out what is counterfeit from the original

  20. Ariella
    December 27, 2011

    Yes, we all hope for a better year in 2012.

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