4Q03 Update: Global Semiconductor Forecast Scenarios

Transcription

1 Forecast Analysis 4Q03 Update: Global Semiconductor Forecast Scenarios Abstract Semiconductor revenue growth in 2003 is certain to exceed 11 percent. As the industry recovery gains pace in the coming quarters, market revenue is expected to grow by more than 20 percent in By Richard Gordon Strategic Forecast Statements Gartner Dataquest reiterates its forecast guidance of revenue growth in excess of 11 percent for In the most likely scenario, revenue growth is forecast at 20 percent in 2004 and 18 percent in In the best-case scenario, revenue growth is forecast at 30 percent in 2004 and 14 percent in In the worst-case scenario, revenue growth is forecast at 12 percent in 2004 and 8 percent in Publication Date:1 December 2003

2 2 4Q03 Update: Global Semiconductor Forecast Scenarios Semiconductor Forecast Overview In the face of continuing economic uncertainty, Gartner Dataquest has developed three forecast scenarios for the semiconductor market: best case, most likely case and worst case. Changes From the 3Q03 Forecast Update In August 2003, Gartner Dataquest published its previous forecast update. For details, see "3Q03 Update: Global Semiconductor Forecast Scenarios," SEMC-WW-DP For this update, we are again reiterating our semiconductor market forecast guidance. Our forecast for annual revenue growth in 2003 and 2004 is essentially unchanged at 11.7 percent and about 20 percent, respectively. In addition, this quarter we have included our forecast for 2005, which stands at about 18 percent. Changes to the forecast are as follows: Quarterly sequential growth in the third quarter of 2003 was much stronger, at 10.2 percent, than even our best-case scenario forecast last quarter of 8.3 percent. This, in conjunction with continued market strength so far in the fourth quarter of 2003, has led us to edge up our annual revenue growth forecast for 2003 from 11.2 percent to 11.7 percent. Growth in 2003 of 11.2 percent becomes our new downside scenario, while we have raised our upside scenario to 13.1 percent. While our most likely forecast scenario for 2004 is essentially unchanged, we have tightened the range for quarterly sequential growth in the first quarter of 2004 to reflect an expectation for a better-thanseasonally-normal start to the year. The best-case scenario in 2004 calls for strong sequential growth in the second quarter of 2004, a quarter earlier than our last forecast update. Although order visibility remains poor, semiconductor vendors are beginning to give more positive guidance about the first half of 2004, reflecting a cautious shift in sentiment about the industry outlook from bearish to bullish. Assuming a healthy second half of 2004, annual growth next year could exceed 30 percent on the upside. Since last quarter's forecast update, our worst-case scenario for growth in 2004 has been raised from 7.7 percent to 11.5 percent. We would be surprised to see single-digit growth next year, given the positive fundamentals in place at this stage of the industry recovery. Nevertheless, it remains a possibility (however unlikely) that the demand side of the industry could recover more slowly than expected or indeed reverse its improving trend. We have extended the range of the forecast scenarios to include The best-case scenario for 2005 calls for an annual growth rate that is lower than the most likely case. This is because our scenarios take into account different sets of assumptions and are independent of each other Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1 December 2003

3 Forecast Scenario Commentary They represent three separate forecast profiles that are continuous from quarter to quarter and year to year. The best-case scenario is so called because, in this case, cumulative revenues are highest With three-quarters of the year behind us, it is clear that the semiconductor market will grow by at least 11 percent in 2003; quarterly sequential growth in the third quarter of 2003 was exceptionally strong at 10.2 percent. We have raised our most likely forecast to 11.7 percent growth, while our previous most likely forecast of 11.2 percent becomes the new downside forecast. Midway through the fourth quarter of 2003, continued healthy market conditions suggest that an upside to the most likely forecast is a distinct possibility, especially if device average selling prices (ASPs) continue to hold firm through year's end. Our upside forecast for 2003 is 13.1 percent revenue growth. Most Likely Scenario Our most likely scenario calls for healthy revenue growth in 2004 and That said, our forecast of 20.1 percent revenue growth in 2004 is modest by historic upcycle standards and reflects continued caution in the industry, particularly about the strength of demand from end markets. What cannot be denied is the ongoing improvement in supply-side fundamentals; the lack of investment in manufacturing capacity over the past two years is now being felt as utilization rates approach peak levels of more than 90 percent. Tight capacity in 2004 will bring with it stability in device ASPs, which, in turn, will drive device revenue, more so than stellar unit shipments. Although improved revenue and profits will likely lead to the return of capital spending by semiconductor vendors, a measured approach to the addition of new capacity should prevent the market from flipping into oversupply until the second half of Taking into account a softening in device ASPs as new capacity comes on line, we forecast modest market growth of 17.7 percent in Best-Case Scenario A real possibility exists for an upside to our forecast of 20.1 percent growth in On the demand side, macroeconomic conditions are improving, resulting in a recent raft of more bullish gross domestic product (GDP) forecasts. Business confidence is beginning to return, which is a trend that is likely to continue in 2004, resulting in increased corporate spending on IT infrastructure. Furthermore, consumer confidence is showing resilience in the face of geopolitical uncertainty, which augurs well for spending on new digital consumer electronics products, particularly those associated with digital video technologies Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1 December 2003

4 4 4Q03 Update: Global Semiconductor Forecast Scenarios However, even if the demand side of the industry falls short of lofty expectations (and the perceived absence of a so-called "killer application" is disconcerting to some), we believe it is the supply side that holds the key to this industry upcycle. In general, fabs are running at close to maximum utilization rates, which means that semiconductor vendors must begin to invest in additional capacity. Our upside scenario assumes that semiconductor equipment suppliers will not be able to fully satisfy demand for new equipment in Therefore, supply of semiconductor devices could be constrained, lead times could lengthen, and prices could rise. These conditions would lead to stronger-than-expected revenue growth. Inevitably, following such a strong growth year, growth in 2005 would likelybemoremodest. Worst-Case Scenario If the economic recovery stalls or if the semiconductor industry brings additional capacity on line too aggressively (as it has done in the past), the risk, albeit a low probability one, exists that the semiconductor market recovery could limp along, posting low growth in 2004 and If this were to happen, it would be unprecedented and a disaster for longsuffering semiconductor vendors desperate for a return to profitability following almost three years of losses. Tables 1 through 3 show the semiconductor forecast data for the most likely, best-case and worst-case scenarios. Table 1 Worldwide Semiconductor Revenue Forecast (Billions of Dollars) 1Q02 2Q02 3Q02 4Q Best Case Most Likely Case Worst Case Q03 2Q03 3Q03 4Q Best Case Most Likely Case Worst Case Q04 2Q04 3Q04 4Q Best Case Most Likely Case Worst Case Q05 2Q05 3Q05 4Q Best Case Most Likely Case Worst Case Source: Gartner Dataquest (November 2003) 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1 December 2003

5 5 Table 2 Worldwide Semiconductor Revenue Forecast, Sequential Growth (Percent) 1Q02 2Q02 3Q02 4Q Best Case Most Likely Case Worst Case Q03 2Q03 3Q03 4Q Best Case Most Likely Case Worst Case Q04 2Q04 3Q04 4Q Best Case Most Likely Case Worst Case Q05 2Q05 3Q05 4Q Best Case Most Likely Case Worst Case Source: Gartner Dataquest (November 2003) Table 3 Worldwide Semiconductor Revenue Forecast, Year-Over-Year Growth (Percent) 1Q02 2Q02 3Q02 4Q Best Case Most Likely Case Worst Case Q03 2Q03 3Q03 4Q Best Case Most Likely Case Worst Case Q04 2Q04 3Q04 4Q Best Case Most Likely Case Worst Case Q05 2Q05 3Q05 4Q Best Case Most Likely Case Worst Case Source: Gartner Dataquest (November 2003) 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1 December 2003

6 6 4Q03 Update: Global Semiconductor Forecast Scenarios Gartner Dataquest Perspective Gartner Dataquest reiterates its semiconductor market revenue forecast guidance for 2003, 2004 and Fundamentally, our forecast assumptions are proving correct thus far as the semiconductor industry and market recovers, in line with our expectations for a phased recovery profile in the short term to midterm. An incrementally improving PC market is increasingly supplementing continuedstrengthinthecellularphonehandsetmarket.amorebroadbased semiconductor market recovery, driven by an improved macroeconomic environment and increased electronic equipment production, is expected to gain momentum over the next six to eight quarters. As 2004 unfolds, we fully expect to see demand finally return in the important wired communications sector already in the fourth quarter of 2003, early indications are emerging that a recovery in the data communications segment of the market has begun. That said, despite strong quarterly sequential revenue growth in the third quarter of 2003 and despite a rosy outlook in our forecast for the market in 2004, the industry seems almost to be in a state of denial that a sustainable recovery is under way. Perhaps this is a lingering hangover from the downturn in 2001, but most semiconductor vendors, at least publicly, are still voicing, at best, caution, or at worst, skepticism, that strong revenue growth can occur in Before the industry can proclaim a full-blown upcycle, two remaining pieces of the semiconductor recovery jigsaw puzzle must fall into place. First, a wholesale shift in the balance of power from semiconductor buyers to vendors needs to occur, and second, a change in investment sentiment from negative to positive among semiconductor manufacturers must be seen. We believe these two industry events are inevitable and imminent, so much so that we believe our best-case scenario is far from fanciful. Recommendations The semiconductor industry is entering a period of constrained supply. Semiconductor vendors should do the following: Review supply and pricing agreements with customers and put plans in place to prepare to prioritize key accounts while maintaining support for Tier 2 and Tier 3 accounts. Take the opportunity to resist device price reductions. Watch out for the onset of "double ordering" by skittish original equipment manufacturers (OEMs) and electronics manufacturing services (EMS) companies. Manage existing capacity and the introduction of planned new production capacity to maintain favorable supply/demand conditions for as long as possible (that is, focus on current profitability rather than future market share) Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1 December 2003

7 Continue to scrutinize costs and reduce nonessential expenditure in the short term while maintaining strategically important investments in the long term. OEMs should do the following: Prioritize, ensuring a guaranteed supply of critical semiconductor devices and be prepared to forgo price reductions while supply is constrained. Monitor inventory levels and consider taking action now to ensure adequate semiconductor component supplies in the short term to midterm. Evaluate and qualify new semiconductor suppliers that may be able to supplement existing suppliers. Redouble efforts to form strategic partnerships with semiconductor vendors. The reasons for doing this (such as security of supply) have not been strong over the past two years, but those reasons are returning. Key Issue What factors drive the growth in semiconductors? Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1 December 2003

8 8 4Q03 Update: Global Semiconductor Forecast Scenarios This document has been published to the following Marketplace codes: SEMC-WW-DP-0351 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