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.
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.