Emerging markets offset global economic slump

A semiconductor industry forecast delivered at the International Electronics Forum 2008 in Dubai predicts a 12-precent growth this year despite a shaky U.S. economy.

According to U.K.-based Future Horizons, emerging economies like China and India could offset the growing economic slump in the rest of the world. The forecaster noted that China accounts for one quarter of global economic growth while the Indian chip market continues to grow.

Growing middle class
The global market once dominated by Japan, North American and western Europe now encompasses the Asian Rim, China, eastern Europe and India. The middle class market has grown from 500 million to 3 billion people. IC industry unit growth last year was 12 percent, with average selling prices (ASP) down 0.8 percent. That dragged down total semiconductor growth to 4 percent. If Q2 08 is positive, industry growth is likely to reach 12 percent unit growth, including 10 percent growth and ASPs growing 2 percent, Malcolm Penn, chairman and CEO of Future Horizons.

"Short-term issues are dominating the agenda while longer-term structural trends are unclear. Traditional IDMs are going through a mid-life, 'new business model' identity crisis, and startups are struggling to reach critical mass," Penn said.

Penn called for calm: "The underlying fundamentals are sound and there is no end in sight to the 'make-lunch-or-be-lunch' ethos. Companies have to compete, innovate, aggressively march into new markets because all the rules of the game have changed."

Meanwhile, market demand is shifting dramatically as trade patterns change. "Trade is less dependent on advanced economies because the purchasing power of the consumer has gone up dramatically in the emerging economies," Penn said. Although consumers in emerging markets lack the purchasing power of developed countries, "the numbers double when it comes to these economies. We are definitely seeing a huge demand coming up from these regions," he added.

According to the forecast, no significant inventory corrections are expected despite the typical end-of-year adjustments. Fab capacity expansion slowed due to declining capital expenditures in 2007.

Cautious moves
Meanwhile, memory pricing is stabilizing. If the global economy holds, the second half of 2008 will be strong, Penn predicted. "Overall capacity expansion is on the side of caution, but it would be better to keep a watchful eye on capex trends," he added.

Theo Classen, executive VP at NXP Semiconductors, said here that an industry growth strategy will require chipmakers to control costs while using efficient process technologies. "We have to focus on the market segments that have the growth potential, and where you can differentiate and partner with market-shaping customers."

"More important is for companies to develop a portfolio [that includes] mature products, which will sustain the investment and tap new markets to invest in long term opportunities," Classen said.

Achieving the appropriate scale in each market segment while actively pursuing mergers and acquisitions will be the key to the survival and success in a changing semiconductor business, he said.

Added Rolf Juergen Bruess, CEO of ST TEC, a German semiconductor consulting firm: "I see consolidation and shakeouts happening in the mid-term timeframe. We have seen that happening with Freescale, NXP, Infineon, Covalent," with more to come.

- Sufia Tippu
EE Times