2Q03 Update: Data Processing Semiconductor Forecast,

Transcription

1 Forecast Analysis 2Q03 Update: Data Processing Semiconductor Forecast, Abstract: Financial releases by publicly traded suppliers indicate the market exceeded expectations in the first quarter of However, we are reducing our expectations for the second half of By Joseph Byrne Strategic Forecast Statement Gartner Dataquest expects the market for semiconductors for data processing use to be $69 billion in 2003 and grow 21 percent to $83 billion in Publication Date:6 June 2003

2 2 2Q03 Update: Data Processing Semiconductor Forecast, Overview In the face of continuing economic uncertainty, Gartner Dataquest has developed three forecast scenarios for the data processing sector of the semiconductor market. These are best case, most likely case and worst case. We present the scenarios here. Additionally, we discuss the performance of computer component suppliers during the most recently past quarter. Forecast Accelerators and Inhibitors New Drivers and Inhibitors Economy U.S. and world economies continue to languish despite the unexpectedly quick resolution of combat in Iraq. Yet again, Gartner Dataquest is delaying expectations for economic recovery. The weak economy continues to contribute to tepid capital spending, including spending on PCs the biggest consumer of semiconductors. Gartner Dataquest's interactions with end users suggest that companies still contemplate delaying PC upgrades. Until the market for PCs and associated technology rebound, the data processing semiconductor market will be less than robust. Severe Acute Respiratory Syndrome Severe acute respiratory syndrome (SARS) is on everyone's lips. Despite the talk, it is unlikely to upset the semiconductor supply chain and thereby cause prices to rise. Its incursion on daily life in infected countries could cause a reduction in consumer shopping, decreasing sales of PCs and other technologies. More importantly, if unchecked, the resulting travel restrictions could hinder trade and consequently economic growth. In the short term, underachieving companies are likely to cite it as an excuse for weak performance. Ongoing Drivers and Inhibitors End Demand Major component suppliers posted robust sales in the first quarter of 2003, following strong sequential growth in the fourth quarter of While bellwether Intel characterized its sales as exceeding seasonal norms, sales were within normal bounds. Ongoing concerns about the economy have led Gartner Dataquest to slightly lower our forecast for chip shipments. Pricing Pricing continues to be an important swing factor. Capacity and demand issues continue to persist in general. Therefore, downward pricing pressure exists in the short term. In the medium term, increased demand because of a recovery is likely to increase or stabilize the value of semiconductors shipped in each system. In the long term, semiconductor product integration and falling computer prices further depress the total value of semiconductors in data processing systems Gartner, Inc. and/or its Affiliates. All Rights Reserved. 6 June 2003

3 Forecast Scenario Commentary The data processing semiconductor market concluded 2002 and started 2003 on positive notes. However, Gartner Dataquest is again reducing and delaying expectations for recovery. Consequently, we have lowered our forecast and tempered forecast sequential growth rates for the second half of 2003 and for 2004 (see Tables 1 and 2). We reduced the magnitude of our forecast mostly by changing the underlying dynamic RAM (DRAM) and microprocessor forecasts. These two product segments are the biggest contributors to the overall data processing semiconductor market. For example, we reduced the value of DRAM per PC and the average selling price for microprocessors for 2003 and 2004 in our forecast model. Table 3 provides a forecast for year-over-year growth in data processing use. Table 1 Worldwide Forecast of Semiconductors for Data Processing Use (Millions of Dollars) 1Q03 2Q03 3Q03 4Q Best Case 16,366 16,019 18,206 21,384 71,975 Most Likely Case 16,366 15,743 17,322 19,246 68,677 Worst Case 16,366 15,486 16,475 18,294 66, Q04 2Q04 3Q04 4Q Best Case 21,415 21,467 23,896 27,272 94,050 Most Likely Case 18,883 18,890 21,271 24,159 83,202 Worst Case 18,005 17,499 19,002 21,129 75,634 Source: Gartner Dataquest (June 2003) Table 2 Worldwide Forecast of Semiconductors for Data Processing Use, Sequential Growth (Percent) 1Q03 2Q03 3Q03 4Q Best Case NA NA Most Likely Case NA NA Worst Case NA NA 1Q04 2Q04 3Q04 4Q Best Case Most Likely Case Worst Case NA = Not applicable Source: Gartner Dataquest (June 2003) Table 3 Worldwide Forecast of Semiconductors for Data Processing Use, Year-Over-Year Growth (Percent) 1Q04 2Q04 3Q04 4Q Best Case Most Likely Case Worst Case Source: Gartner Dataquest (June 2003) 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 6 June 2003

4 4 2Q03 Update: Data Processing Semiconductor Forecast, Quarter in Review: Computer Semiconductor Supplier Results Table 4 shows revenue for some semiconductor suppliers on a quarterly basis. Table 4 Quarterly Revenue for Representative Suppliers (Millions of Dollars) Vendor 1Q02 2Q02 3Q02 4Q02 1Q03 Intel (Intel Architecture Business) 5,768 5,213 5,407 5,928 5,760 AMD (PC Processor Sales) Nvidia (Excluding Xbox) ATI Technologies (Chips and Boards) Via Technologies Silicon Integrated Systems Genesis Microchip (LCD Monitor) NA NA = Not available 1 Nvidia's fiscal quarters end in April, July, October and January. 2 ATI's fiscal quarters end in February, May, August and November. Source: Gartner Dataquest (May 2003) Intel Intel posted a solid quarter. Revenue generated by the Intel Architecture Business Unit was within the range of normal seasonal variations; the company characterized it at the high end of the range. Intel's guidance for the second quarter is positive. The company expects to see little change sequentially, which would result in growth over the same quarter one year ago. Shipments for the new Pentium M the processor in the Centrino platform grew at a faster pace than any other Intel microprocessor. By the end of the year, Intel expects that Pentium M will account for half of the mobile processors it sells. Intel's long-term goal is to convert users from desktop PCs to mobile PCs. Its short-term goal is to stimulate sales by providing and promoting mobile computing and wireless connectivity. In addition to launching the Centrino family of technologies during the first quarter, Intel launched 3GHz variants of its Pentium 4-based, multiprocessing-capable Xeon. After the close of the quarter, Intel launched its new core logic chipset. The chipset, the 875, code-named Canterwood, offers significant enhancements over previous products. It provides an 800MHz microprocessor interface, a high-speed connection to dual Gigabit Ethernet ports, two channels to main memory, serial Advanced Technology Attachment (ATA) interfaces and redundant array of independent disks (RAID) capabilities. Accompanying the chipset, Intel launched a 3GHz Pentium 4 with an 800MHz interface. A core logic chipset is the core of a computer platform, providing most of the interfaces and peripherals a computer needs. Consequently, it has a greater impact on operating system image stability than other components. To help IT managers maintain image stability, Intel is beginning to introduce chipsets on a regular, annual basis. Therefore, the next introduction of a substantially different desktop chipset will happen in about one year Gartner, Inc. and/or its Affiliates. All Rights Reserved. 6 June 2003

5 Advanced Micro Devices Advanced Micro Devices (AMD) posted a good first quarter. PC processor revenue grew substantially but is below year-ago revenue. A highlight of the quarter was strong sales of mobile processors, which sell on average at a higher price than desktop processors. Desktop processor prices for AMD fell sequentially. To bolster its position in the mobile market, AMD launched a family of mobile processors during the first quarter. The new products and heightened interest in mobile computing will benefit AMD. AMD, however, will be overshadowed by Intel's massive marketing effort and broad, capable lineup of processors. AMD's most significant recent product news was the launch of the Opteron microprocessor early in the second quarter. Despite a few gaffes, the launch was successful. Among the positive aspects of the launch, Microsoft lent its support by promising a server OS compatible with AMD's 64-bit extensions to the x86 instruction-set architecture (ISA). Database software suppliers Oracle and IBM lent their support by promising to offer products for the new ISA. IBM also announced its intention to develop computers based on the processor. Support from such Tier 1 suppliers of complementary technology is critical to AMD's efforts to generate interest from end users. Also essential for AMD's success is enabling hardware suppliers, including system builders, to assemble Opteron-based systems. Partners such as Einux, Newisys and various electronics manufacturers are critical to this effort. Opteron appears to be a powerful microprocessor. The processor scores high on benchmarks. Its on-chip memory controller alleviates a severe bottleneck and should facilitate future performance improvements. Its Hypertransport links facilitate implementation of multiprocessor systems. However, none of these features eliminates the need to continually introduce faster products, a feat that AMD has generally performed less well than Intel. While AMD trumpeted the performance leadership of Opteron, within a month Intel published better benchmarks using its latest Pentium 4 and 875 core logic. The challenge of performance scaling became especially apparent during the first quarter. While AMD got back to a cadence of launching new desktop processors by launching the Barton processor with a model designation, benchmarks by hobbyist Web sites did not fully support the claim that it outperforms competing implicitly 3GHz Pentium 4 microprocessors. The same sites marred the launch of the successor during the middle of the second quarter by panning its performance. While the is indeed faster than its predecessors (particularly pre- Barton products), performance gains come from faster core logic chipsets, faster interfaces and a larger cache. However, comparisons against Intel are trickier because Intel has improved its chipset and interfaces without increasing processor core frequency. AMD needs to improve the performance of its lineup to maintain its share of the profitable high end of the market Gartner, Inc. and/or its Affiliates. All Rights Reserved. 6 June 2003

6 6 2Q03 Update: Data Processing Semiconductor Forecast, Nvidia Nvidia's revenue declined in the April-ending quarter, which is consistent with seasonality in the PC component business. A major contributor to Nvidia's performance during the quarter was the core logic business. Nvidia's core logic sales grew 80 percent sequentially in the quarter. The company reports that it maintained its share in unit terms in the market for stand-alone desktop graphics chips in the first quarter. The vendor reports that it gained significant share in stand-alone mobile graphics chips. In the first quarter, Nvidia began to recover from its missteps during the launchoftheinitialgeforcefxproduct.first,nvidiaintroduceddirectx- 9-capable products throughout its product line, including the low-end and mobile categories. These categories drive shipment volumes, although the top-end, premium category enhances reputation and contributes profits. Proliferating DirectX-9 capability and rapidly creating an installed base should entice application developers to make a quick transition to the standard, which in turn will fuel additional demand for the hardware. Second, Nvidia announced that it would contract with IBM to fabricate next-generation products. IBM's high-performance process technology will help Nvidia regain the performance crown. Third, in the middle of the second quarter, Nvidia launched a new top-end graphics processor, which will enhance Nvidia's competitiveness in the interim before the launch of the next-generation product. As important as product introductions, Nvidia entered into an agreement with game software publisher Electronic Arts (EA). EA will feature the Nvidia logo on its games and take advantage of Nvidia-specific features. Nvidia will bundle EA games with graphics cards based on its chips. These efforts increase the brand equity of Nvidia and establish an additional competitive barrier. ATI Technologies Continuing to benefit from the success of its most-recent products, ATI posted growth in the quarter ending 30 February. By the end of that quarter, ATI shipped its millionth 9700 graphics processor. As anticipated, ATI executed an intermediate update of its product line. Its new products offer incremental performance boosts. Also included in the update is a mobile DirectX-9-compatible product. Given its financial performance and successful product execution, ATI gained share in terms of revenue, if not units, during the quarter. ATI also recently negotiated a Pentium M bus license from Intel. Historically, ATI has performed well in the mobile graphics market; ATI is a new entrant to the core logic market, however. The license will enable ATI to take advantage of its historical strength and gain share in the core logic market Gartner, Inc. and/or its Affiliates. All Rights Reserved. 6 June 2003

7 Via Technologies Revenue contracted sequentially from $193 million in the fourth quarter of 2002 to $164 million in the first quarter of 2003 and was below year-ago levels. Via's most significant accomplishment was its settlement with Intel. Under terms of the settlement, Via can officially sell Intel-compatible core logic. With this capability, Via is positioned to take share from rival Silicon Integrated Systems (SiS). Major product announcements during the first quarter and the first part of the second quarter include a high-performance, full-featured chipset for AMD processors the KT400 and a chipset with integrated graphics the KM400. The products will help Via maintain competitiveness against Nvidia in the AMD core logic business. Also, Via announced in April a new compact (mini-itx) motherboard based on Via's 1GHz Nehemia processor. Via's efforts marketing mini-itx motherboards demonstrate innovation and are generating interest among developers of quasicomputer-embedded systems. SiS SiS managed to hold revenue steady at $141 million from the fourth quarter of 2002 into the first quarter of 2003, which is well above year-ago levels of $103 million. In February, SiS entered an agreement with Samsung, Rambus and Asustek to produce a quad-channel Rambus Dynamic RAM (RDRAM)-based chipset. The chipset should deliver excellent memory throughput; however, it will be a niche product at best. In March, SiS launched a wireless LAN Media Access Control (MAC) chip. A likely strategy is for SiS to integrate the technology in its core logic when such integration becomes feasible. Given the proliferation of suppliers with such products, SiS is unlikely to sell many stand-alone chips. Genesis Microchip Genesis Microchip exceeded its guidance by growing liquid crystal display (LCD) monitor controller integrated circuit (IC) revenue from $44 million in the fourth quarter of 2002 to $48 million in the first quarter of The company benefited from the conversion from cathode-ray tube (CRT)-based to LCD-based desktop monitors. Genesis particularly benefited from adoption of 17-inch monitors. More than half of its LCD controller shipments in the quarter came from SXGA (1280 x 1024 pixels) controllers; SXGA is the typical resolution of 17-inch monitors. The greatest threat to Genesis' continued growth is price erosion forced by competition Gartner, Inc. and/or its Affiliates. All Rights Reserved. 6 June 2003

8 8 2Q03 Update: Data Processing Semiconductor Forecast, Gartner Dataquest Perspective With the exception of storage networking, data processing is a relatively mature product market for semiconductors. Nonetheless, the market remains dynamic. Innovations by technology suppliers have driven endequipment markets historically, and this trend is unlikely to change. The risk, however, is that IT upgrade cycles will permanently lengthen. Even a lengthening by one year will have a dramatically deleterious impact on the market. Recommendations Uncertainty continues to be the watchword. Suppliers need to be prepared for both an unexpected recovery in IT spending and ongoing malaise because of weakness in the major world economies and geopolitical instability. Suppliers need to continue to focus on operational efficiency from the design through fulfillment processes. In light of a lengthening upgrade cycle, suppliers need to focus product development on creating features that provide better customer productivity or reduce costs. Such features are likely to resonate with profit-conscious customers. Companies should expect an economic recovery in the United States to become manifest by the end of 2003; there is risk that it will not occur until the beginning of Increased spending on IT should follow. Key Issue What is the size and projected growth of the key application market segments? This document has been published to the following Marketplace codes: SEMC-WW-DP-0288 HARD-WW-DP-0527 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice