[opendtv] Second-half forecast: hang on to your hat
- From: "Manfredi, Albert E" <albert.e.manfredi@xxxxxxxxxx>
- To: <opendtv@xxxxxxxxxxxxx>
- Date: Mon, 3 Jul 2006 15:48:26 -0400
"The relentless expansion of manufacturing capacity appears to be
catching up with the flat-panel display industry as it faces a volatile
second half of 2006.
"Although flat-panel display shipments remain strong, several suppliers
in recent weeks have scaled back sales and earnings expectations due to
slower-than-anticipated demand, growing inventory and falling prices. In
addition, at least one major LCD panel supplier said it would scale back
production.
"Rapidly falling prices are compounding profitability concerns.
"LCD TVs have experienced some of the sharpest drops, with some analysts
noting that panel prices for 32-inch TVs fell 50 percent between the
first quarter of 2004 and fourth quarter of 2005, from $1,200 to $600."
Looks like LCDs are taking over the CRT market, and timed to coincide
with DTV transition in many countries.
Bert
-------------------------------------
Second-half forecast: hang on to your hat
EET.com staff
(06/30/2006 12:39 PM EDT)
URL: http://www.eetimes.com/showArticle.jhtml?articleID=3D189800164
We've dusted off our crystal ball again to provide some insight into
where the industry's headed for the remainder of what is shaping up as a
turbulent year. Chip industry forecasts are retooled on a seemingly
weekly basis as the list of unknowns grow. Rising interest rates,
still-high energy costs, materials shortages and unrelenting
globalization continue to baffle industry watchers. Here's our take on
where things stand and where we see the industry heading in the second
half of 2006.
Semiconductor roller coaster
This is the time of the year when chip industry watchers agree to
disagree.
Some forecasters have recently raised their chip predictions for 2006,
while others have lowered their numbers amid lackluster growth in the PC
and consumer sectors. "There are also inventory concerns in the market,"
warned Mark Bachman, an analyst with Pacific Crest Securities Inc.
(Portland, Ore.).
Current IC growth forecasts among analysts range from 6-11 percent for
2006 over 2005. Two mavericks- Future Horizons (Sevenoaks, England) and
Semico Research Corp. (Phoenix)-remain at the high end of the scale with
bullish predictions of around 20 percent and 17 percent growth,
respectively.
As usual, there is plenty of uncertainty in the market. The problem is
that the industry analysts rarely get their forecasts right and are
always changing their predictions based on current market conditions.
One of the more sobering and realistic predictions, is from iSuppli
Corp.. It has increased its IC forecast by a half-percentage point,
going to 7.9 percent, up from 7.4 percent. Worldwide IC revenue is
expected to rise to $255.7 billion in 2006, up from $237 billion in
2005, according to iSuppli (El Segundo, Calif.).
Despite decent demand for equipment, the semiconductor market outlook
isn't all rosy, iSuppli warned. The higher-than-expected growth seen in
the first quarter will be followed by some sluggishness in the second
half. Second-half growth of 5 percent is less than the normal seasonal
expectations for the industry. Orders appear to be weakening as
inventories rise, it warned.
Another concern is reported delays with Apple's next-generation iPod
products-a key driver for NAND flash, MP3 processors and other devices.
But even before the reported iPod delays, analysts were already jumping
on the bear bandwagon following at least one red flag in the market:
sluggish chip sales in April.
April's dismal numbers prompted Wedbush Morgan Securities Inc. (Los
Angeles) to lower its 2006 semiconductor growth forecast one point to 10
percent. For 2007, Wedbush projects the IC market will slow, growing by
only 6 percent over 2006.
In a new report, Handelsbanken Capital Markets projects that the
semiconductor market will now grow 5 percent in 2006 over 2005, down
from 6 percent in its previous forecast. The investment banker blamed
the lowered forecast on the worldwide PC slowdown.
Handelsbanken also expects lackluster sales in May. The three-month
average of May chip sales is projected to hit $19.37 billion, compared
to $19.6 billion in April, according to the firm.
Not all are in the bear camp. Industry cheerleader, the Semiconductor
Industry Association (SIA), recently boosted its projected worldwide
chip sales forecast for 2006, and now projects growth of 9.8 percent to
$249 billion, up from its previous estimate of 7.9 percent growth to
$245 billion. SIA (San Jose, Calif.) said the correction is mainly due
to better than anticipated demand for chips by the mobile phone sector.
The revised forecast also includes more optimistic projections for
industry sales from 2006 through 2009. SIA said the industry will grow
by 11 percent in 2007, 12 percent in 2008 and 4 percent in 2009.
The World Semiconductor Trade Statistics (WSTS) organization also raised
its semiconductor forecast. The global IC market is expected to grow
10.1 percent on an annualized basis to $250 billion in 2006, according
to WSTS's spring forecast. Projected growth worldwide will accelerate to
11 percent in 2007 and 12.8 percent in 2008, according to the
organization.
EDA's surprising strength
EDA may be as healthy as its been in years heading into the second half
of 2006. The industry returned to double-digit growth earlier this year
and is now gearing up for its premier event, the Design Automation
Conference in July.
Yield issues continue to pain chip makers, and there is a good deal of
money at stake for vendors who can provide the oft-discussed but elusive
design-for-manufacturing (DFM) solutions. The industry has recently
witnessed a breakthrough in what had been considered one of the most
pressing DFM logjams: silicon foundry giants Taiwan Semiconductor
Manufacturing Co. Ltd. (TSMC) and United Microelectronics Corp. (UMC)
offering fab data models designed to give fabless customers information
about manufacturing processes. The move could level the playing field
between fabless companies and IDMs on DFM issues.
Dennis Wassung, an analyst and vice president with Canaccord Adams,
recently said the market for DFM tools is currently worth $350 million
to $400 million annually, and is poised for substantial growth.
Precise definitions of the market for DFM tools differ, and executives
like Aprio Technologies President and CEO Mike Gianfagna have noted that
if EDA vendors can find a way to sell into chip makers' manufacturing
budgets-which are significantly larger than design budgets-it could mean
a windfall for the EDA industry, providing a much needed new source of
revenue.
There are indications that DFM tools are starting to come into their own
after years of development. DFM has been little more than a marketing
push, but now at least some DFM tools have entered production.
Deepchip.com moderator John Cooley recently published the results of a
census that included, among many other things, what he believes to be
the first published user review of a DFM tool-UMC's Chien Kuo Wang
reviewing ClearShape Technology's InShape tool.
Elsewhere, electronic-system level (ESL) tools, supposedly EDA's other
big technology driver, have yet to catch on, at least in the U.S.,
according to an analysis of available data. But ESL vendors and some
observers, notably Gartner analyst Gary Smith, said the ESL tool flow is
finally robust. Most observers agree that designers will move to ESL
eventually. The question is when.
For now, evidence suggests that ESL use is still primarily concentrated
in Japan and, to a lesser degree, in other markets outside the U.S.
So how will EDA fare in the second half of 2006? As Mentor Graphics
Chairman and CEO Walden Rhines told EE Times this week, EDA could
maintain a pace set with its 10 percent year-to-year growth in the first
quarter. This depends on whether the IC market continues to expand. With
most analyst predicting chip growth ranging from 6 to 20 percent. Hence,
2006 could be a strong year for EDA.
Display volatility
The relentless expansion of manufacturing capacity appears to be
catching up with the flat-panel display industry as it faces a volatile
second half of 2006.
Although flat-panel display shipments remain strong, several suppliers
in recent weeks have scaled back sales and earnings expectations due to
slower-than-anticipated demand, growing inventory and falling prices. In
addition, at least one major LCD panel supplier said it would scale back
production.
Rapidly falling prices are compounding profitability concerns.
LCD TVs have experienced some of the sharpest drops, with some analysts
noting that panel prices for 32-inch TVs fell 50 percent between the
first quarter of 2004 and fourth quarter of 2005, from $1,200 to $600.
According to data compiled by another market researcher, DisplaySearch
Inc. (Austin, Texas), prices for 32-inch WXGA LCD TV panels dropped from
an average of $550 in January to $450 the second half of June. For
42-inch WXGA LCD TV panels, prices fell from an average of $1,050 to
$815 over the same period.
Plasma display prices also continue falling in price. DisplaySearch
reported 42-inch high-definition plasma TV screens fell from $759 in
January to $682 in June.
"Each time the flat-panel market has undergone a reduction in pricing,
revenue has dropped, profit margin has dipped and then players have
dropped out of the market," Sweta Dash, director of LCD and projection
research for iSuppli, said during a recent display industry conference.
So far, there's no indication that anyone is dropping out. But Dash said
LCD suppliers will continue to be pressured to lower panel prices amidst
intensifying competition in the TV market.
Some suppliers are taking precautions. LG.Philips LCD Co. Inc.
downgraded its second-quarter forecast, adding it would scale back
production to address inventory concerns. LCD glass supplier Corning
Inc. also lowered its second-quarter forecast, though still expects to
glass volume to grow 40 to 50 percent for the year.
But Samsung Electronics said its LCD business remains profitable, and
would post single-digit profit margins in the second quarter.
If you believe the display industry will follow its historical pattern
of alternating cycles of weak pricing/weak demand followed by stronger
pricing/stronger demand, the second half should be better. Analysts
believe attractive prices will stimulate demand for the holiday season,
in turn depleting excess inventories and eventually slowing down the
rate of price erosion.
Such a scenario held true last year, when some display companies
reported lagging profits at the end of a less-than-stellar first half.
But sales surged toward year's end as flat-panel TVs went mainstream.
LCD suppliers continued to pour hundreds of millions of dollars on 7th
and 8th generation fabs, and plasma display makers also opened new fabs.
Backdating blues
On top of rising interest rates that will increase the cost of capital,
steadily rising energy prices and shortages of key materials like
polysilicon, add to the second-half industry outlook the specter of a
full-blown stock-option backdating scandal. This past week, the scandal
reached as high as industry stalwart Apple Computer.. There is growing
unease that the practice is widespread in an industry built on stock
option incentives, attracting unwanted scrutiny from regulators..
Responding to pressure, the U.S. Securities and Exchange Commission is
expected to hit the industry with new guidance on the backdating of
stock options any day now. Either way, a lot of industry earnings
reports will likely have to be restated.
Another financial issue is emerging that could affect the way capital
flows within the global industry. An industry analyst is arguing that
U.S. financial disclosure rules approved by Congress in the aftermath of
the Enron debacle may sharply curtail U.S. high-technology IPOs.
According to Charley Lax, managing general partner of GrandBanks
Capital, provisions of the Sarbanes-Oxley Act may be forcing high-tech
startups to list instead on the London exchange.
Energy costs continue to exact a price on company earnings, but have
also prompted some suppliers to shift their focus to new markets beyond
semiconductors and consumer electronics. Case in point: Germany's Wacker
Chemie AG said this week it will expand polysilicon production to meet
growing demand by the solar cell industry. The Munich-based manufacturer
said it hopes to boost capacity to 14,500 metric tons by the end of 2009
to meet soaring demand from the energy sector as well as from
traditional semiconductor customers.
The announcement could foreshadow a fundamental industry shift to new
markets as semiconductors increasingly become commodity items.
-Contributors to this article are: Mark LaPedus in San Jose; Dylan
McGrath in San Francisco; Spencer Chin in Manhasset, N.Y.; and George
Leopold in Washington.
All material on this site Copyright 2006 CMP Media LLC. All rights
reserved.
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