Bill McClean: Don't broadbrush the semiconductor market

Bill McClean, president of market-research company ICInsights, spoke to EDN in November on 2011's estimatedsemiconductor-industry growth, expectations for 2012, andwhy the always-complex semiconductor market cannot be judgedon just one of its aspects. Excerpts of that conversation follow.

2011 started off great, full ofoptimism and high growthexpectations for the semiconductorindustry. But thatmellowed as the year progressed,and now, as 2011comes to a close, recentestimates call for low-single-digitgrowth, which couldappear meager comparedwith previous estimates fordouble-digit growth. What'syour take on that?

A: We have the total semiconductormarket at2% [growth] for this year. Atthe beginning of the year, wewere at about 10%. A fewthings came along and hurtthat higher scenario. One wasall of the uprisings in the Arabworld that served to raise oilprices. Our original forecastfor the worldwide economyGDP growth was 3.9%, and itlooks like it is going to comein at 3.3%. That [fact] is reallythe key to why the semiconductormarket did not do better.Of course, there was thetsunami in Japan that disruptedthe supply chain andcreated additional uncertaintyout there. The US debt-ceilingfiasco this summer and theongoing situation in Europe[created] more uncertainty.

We've always said thatuncertainty is the worst thingin the marketplace. It's actuallyworse than bad news.If you know something isgoing to be bad, you can planaround it. But uncertainty createstotal fear and total apprehension,and it makes peoplefreeze. They don't do anything;they just sit on the sidelines.2011 saw a tremendousamount of uncertainty, andthat [feeling] showed up in thesemiconductor market.

Were there any areas of themarket that did not do aswell as expected in 2011?

A: One of the key areasthat really took a beatingthis year was the DRAMmarket, going down 25% thisyear. If you look at the semiconductormarket withoutDRAM, market growth wouldbe close to 6% [for 2011].Prices are starting to firm upin the DRAM market, which isa good sign going into 2012.The oversupply is likely to begone. In general, there was aninventory issue [across the ICmarket in 2011]. … We seethe IC market going into nextyear in somewhat of a steadystate—not excess inventory [and] not a shortage of capacity.Our view for 2012 is reallydependent on what the worldwideeconomy does, and ourforecast for next year is 3.5%growth for worldwide GDP.Given that [situation], we arelooking at a 7% increase forthe semiconductor marketnext year. It's pretty tied towhat happens in the worldwideeconomy.

Going back to 2011, overallwe may be looking at2% growth, but there aresemiconductor-industrycompanies that will outdothat. Companies on the ICInsights Top 20 list wouldshow 6% growth if examinedexclusively. Were thereany markets that reallyshone in 2011?

A: The smartphone isgoing to increase 63%in units this year, and that[growth] was after a 64%increase last year. The smartphonemarket takes a lot offlash memory. The NAND flashmarket is doing pretty well thisyear. We have it going up 13%this year. Application processorsthat go into cell phonesare doing very well this year.That market is going up morethan 20%.

The microprocessor marketis doing pretty well becauseaverage selling prices are holdingup. The microprocessormarket [should] be up 15% this year. Unit volume is uponly 4%, but the average sellingprice is up 10%. The pricingfor some of these microprocessorsgoing into serversand even in some PCs is firm,and some have increased.

You definitely don't want tobroad-brush the entire marketwith a 2% brush because, asthe Top 20 list shows, thereare wild swings, [and] thereare double-digit growth ratesand double-digit declines.

As we conclude 2011 andmove toward 2012, how doyou feel overall? Are wehappy with 2% growth?

A: Overall, it could havebeen better. There werea lot of things that conspired tocreate the low growth. We werereally looking for a much bettermarket this year. Given thisstate of the world economy, it'sholding its own and doing aswell as can be expected.

Going into 2012, there'snot a lot of optimism. Mostforecasts are around ours forGDP, but, again, those areforecasts. We started out lastyear with a lot of people prettyoptimistic, so [2012] could gothe other way, as well.

In the US economy, there's9% unemployment now, butwhat really matters to theeconomy is how the other91% feel. If they have a scaredattitude, an uncertain attitude,it is not going to do verywell. If they feel confident, ifthe unemployment rate goesdown and people start to saythat it's getting better or notgetting worse, ... people willget off the fence. Once thingsstart turning, purchases cando better than [estimates].There's some hope. Growth inthe mid- to high-single digits isstill very doable next year, evengiven the mediocre outlook.

Any thoughts on 2013?

A: We're thinking it's going to be a little slower than 2012. Again, as in the past, there is a postelection cycle. The United States has its presidential election next year, and things [such as unemployment-benefit extensions and payroll-tax cuts] will be extended because politicians want to be re-elected. Those [things] will give a little boost to the economy. The problem is that, if you extend that [move] through 2012, in 2013 after the elections, [politicians] start to get tougher. So, we're looking to a slower market—not a disaster. We don't think there will be a big overbuild or inventory issue in 2012 that will need to be adjusted in 2013. We're looking at mid-single-digit growth for the semiconductor industry. As the world economy does recover, the housing market recovers, and all of these things get better over time, 2014 and 2015 could be really big years approaching and exceeding double-digit growth for the industry.
Bill McClean: Don't broadbrush the semiconductor market