Economic news not all bad for semiconductors

However the news is not all bad. Looking at the components of U.S. GDP, spending on electronics by consumers and business is still relatively strong. Business investment in equipment and software (including computers, telecom and manufacturing equipment) grew 8.7% in 1Q and 7.9% in 2Q. Consumer spending on recreational goods and vehicles (over 75% of this category is electronics) grew 15.3% in 1Q 2011 and 9.3% in 2Q 2011.

Key end markets for semiconductors are continuing to show solid growth. Total mobile phones grew at high double digit rates for the first two quarters of 2011, according to Gartner. Smartphones are driving mobile phone growth – with year-to-year growth of 85% in 1Q 2011 and 74% in 2Q. PCs declined 3.2% in 1Q 2011 versus a year ago but bounced back to 2.6% growth in 2Q, based on IDC data. Media tablets (dominated by Apple’s iPad) are growing explosively, with IHS iSuppli forecasting 245% growth in 2011. Media tablets are certainly displacing some PC sales, thus the combination of the two gives a better picture of demand. Total PC plus iPad shipments were up 7.7% from a year ago in 1Q and up 9.5% in 2Q.

Semiconductor market recovery in 3Q?

What is the outlook for the semiconductor market for the year 2011? The chart below shows recent forecasts range from 3% from Carnegie Group to just over 7% from IHS iSuppli and IDC. Semiconductor Intelligence has lowered our forecast to 4% from our March forecast of 9%. We are keeping our 2012 forecast growth at 10%.

The semiconductor market was weak in 2Q 2011 primarily due to the March earthquake and tsunami in Japan which damaged much of the semiconductor supply chain. The Japan market was hit the hardest, down 8.1% from 1Q 2011, but the rest of the world was also affected, down 0.9%. Most major semiconductor companies showed declines or weak growth in 2Q 2011. The major Japanese semiconductor companies were impacted the most, with revenues in Japanese yen down 21% at Toshiba and down 25% at Renesas. Most of the major companies expect a strong rebound in 3Q 2011. Renesas expects revenues in yen to bounce back 23%. Intel, AMD and Qualcomm all expect healthy 3Q 2011 growth, with the midpoints of their guidance ranging from 7% to 11%. Texas Instruments and STMicroelectronics expect a slight decline to moderate growth.

The semiconductor industry should continue to grow at a moderate rate for the remainder of 2011 and in 2012. Despite concerns about the overall economies in the U.S. and Europe, major drivers of the semiconductor market remain fairly healthy.