4Q03 Update: Data Processing Semiconductor Forecast,

Transcription

1 Forecast Analysis 4Q03 Update: Data Processing Semiconductor Forecast, Abstract: Financial releases by publicly traded suppliers indicate the market exceeded expectations in the third quarter of Positive market changes suggest stronger-thanexpected growth in the fourth quarter of By Joseph Byrne Strategic Forecast Statement The market for semiconductors for data processing use will be $73.6 billion in 2003 and grow 21 percent to reach $89 billion in Publication Date:5 December 2003

2 2 4Q03 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: 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 Ongoing Drivers and Inhibitors Economy U.S. gross domestic product grew a strong 7.2 percent in the third quarter of Gartner Dataquest expects U.S. economic growth to slow but to average above 4 percent through Fueled by a reviving U.S. economy, global economic recovery begins in the first quarter of Asia/Pacific enjoys a sharp, strong recovery in early 2004, while Japan and Europe experience weaker, more-extended recoveries throughout The IT market noticeably recovers shortly after an economic upturn. The semiconductor market amplifies the trend as increased capacity utilization provides underlying pricing support. End Demand Worldwide PC market growth in the third quarter exceeded expectations. Many segments contributed to the market's strength. Except in Europe, demand from large companies continues to be lackluster. The server market has also been strong; entry-level x86-based servers have sold particularly well. Robust growth in PCs and servers is reflected in the strong sales posted by Intel and AMD in the third quarter of Dynamic RAM (DRAM) revenue, however, grew slightly below expectations. Pricing Pricing remains an important swing factor. Generally, Gartner Dataquest has shifted from being concerned about overcapacity to being concerned about undercapacity. With tightening capacity and growing demand, we expect the value of semiconductors shipped in each system to stabilize or even increase in the midterm. In the long term, semiconductor product integration and falling computer prices further depress the total value of semiconductors in data processing systems. Forecast Scenario Commentary Gartner Dataquest has revised the forecast scenarios presented in "3Q03 Update: Data Processing Semiconductor Forecast, ," SEMC-WW- DP-0326, as follows: Theworst-casescenarioisrevisedupward Gartner, Inc. and/or its Affiliates. All Rights Reserved. 5 December 2003

3 The most likely case scenario has been revised upward. Gartner Dataquest estimates that the market exceeded our best-case expectations for the third quarter. The best-case scenario has been revised upward for the fourth quarter of The best-case scenario is downward for 2004, narrowing the gap between the best-case and most likely scenarios. The best-case scenario represents the result of strong IT spending, which would lead to greater shipments and higher prices for semiconductors. Estimates for 2005 are included. Tables 1 through 3 show the revised forecast scenarios. Table 1 Worldwide Forecast of Semiconductors for Data Processing Use (Millions of Dollars) 1Q03 2Q03 3Q03 4Q Best Case 16,366 15,767 19,461 22,900 74,494 Most Likely Case 16,366 15,767 19,461 22,051 73,645 Worst Case 16,366 15,767 19,461 21,500 73, Q04 2Q04 3Q04 4Q Best Case 20,800 21,800 24,000 26,500 93,100 Most Likely Case 20,165 20,936 22,908 25,419 89,428 Worst Case 19,000 19,800 21,600 24,100 84,500 1Q05 2Q05 3Q05 4Q Best Case 26,800 26,800 29,100 32, ,100 Most Likely Case 25,809 25,870 28,428 32, ,262 Worst Case 24,000 24,000 25,000 27, ,000 Source: Gartner Dataquest (November 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 Q05 2Q05 3Q05 4Q Best Case Most Likely Case Worst Case NA = Not applicable Source: Gartner Dataquest (November 2003) 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 5 December 2003

4 4 4Q03 Update: Data Processing Semiconductor Forecast, 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 Q05 2Q05 3Q05 4Q Best Case Most Likely Case Worst Case Source: Gartner Dataquest (November 2003) 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 2Q03 3Q03 Intel (Intel Architecture Business) 5,768 5,213 5,407 5,928 5,760 5,833 6,838 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 (November 2003) Intel Intel's Intel Architecture business unit grew dramatically in the third quarter over the second quarter. Processor shipments were up 15 percent sequentially. Revenue shipments were up 17 percent, implying Intel's blended average price was higher. Compared with the prior year, revenue was 26 percent higher. Prices most likely rose because of increased sales of server and mobile PC components. Both sell at a premium compared with desktop components. Further, Intel just began selling server processors with 533MHz front-side buses, which at product launch sell at a premium over older models using 400MHz buses. Core logic chipset shipments also grew to record levels in the quarter. Chipsets with integrated graphics, which sell for a premium over similar models without integrated graphics, grew the most. Intel's verbal guidance for the third quarter was bullish. Its guidance for full company revenue between $8.1 billion and $8.7 billion is in a range 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 5 December 2003

5 not seen since Core logic shipments for all suppliers were up 20 percent in the third quarter, suggesting that Intel could handily exceed the top end of its guidance; either that or the industry will have a nasty inventory overhang going into the first quarter of From a product marketing perspective, the third quarter was quiet for Intel and characterized by incremental product upgrades. One exception was Intel's launch of the Pentium 4 Extreme Edition microprocessor, which is essentially a top-end Xeon repackaged for PC enthusiasts. The launch coincided with Advanced Micro Devices' (AMD's) launch of the Athlon 64 FX, which is targeted at enthusiasts, graphics professionals and others requiring maximum performance in a single-processor desktop PC. Intel also continued to emphasize its Centrino-branded technology. At the center of Centrino is the Pentium M microprocessor. Collectively, mobile PCs based on it doubled their share in the third quarter of Additionally, Intel unveiled several technology initiatives at Intel Developer Forum; see "Intel Unveils Technology Directions," SEMC-WW- DP-0340, and "Intel's New Vanderpool Will 'Virtually' Transform PC Platforms," FT Advanced Micro Devices AMD posted a 25 percent sequential increase in PC processor revenue, driven by a dramatic increase in mobile processor shipments and an increase in blended average selling prices. Shipments of AMD's new Opteron line of 64-bit x86 processors for servers and workstations grew steadily in the quarter. However, they remain small and are offset by falling shipments of Athlon MP processors. Despite greater revenue growth, AMD ceded share to Intel in unit terms. The major product announcement during the quarter was for the new Athlon 64 family of microprocessors. For more detail on the Athlon 64 launch, see "Hardware Platforms Weekly, Issue 39," HWPW-WW-NT NVIDIA NVIDIA's revenue, excluding sales of chips for use in Microsoft Xbox, declined in the October-ending quarter. In contrast, unit shipments of desktop and mobile discrete graphics chips and core logic increased 11 percent in the third quarter of NVIDIA gained share in the mobile market, which is dominated by ATI Technologies. On the other hand, NVIDIA lost share to ATI in the desktop graphics market which NVIDIA dominates, despite increased shipments. Gartner Dataquest expects NVIDIA to bounce back in the current quarter, with the main driver of revenue growth to be the GeForce FX 5700 graphics processor, which NVIDIA launched in October. The new product is targeted at mainstream customers and is the first fruit of NVIDIA's relationship with IBM. NVIDIA's management has provided bullish guidance for the next quarter, suggesting that the seasonal drop in revenue from Xbox will be offset by gains in sales of PC components Gartner, Inc. and/or its Affiliates. All Rights Reserved. 5 December 2003

6 6 4Q03 Update: Data Processing Semiconductor Forecast, ATI Technologies ATI again posted growth in its combined board and component businesses based on its successful introduction of new products over the past year and its participation in the mobile PC market. In the third quarter of 2003, ATI increased unit shipments of discrete graphics chips for desktop and mobile PCs. The mobile PC market is driving growth in the overall PC market, and Pentium M-based PCs are faring especially well. ATI graphics chips are designed into Centrino (Pentium M-based) systems from IBM and others. ATI's success in the mobile PC market and its strategy of de-emphasizing its board business are resulting in lagging growth of its board business compared with that of its component business. VIA Technologies VIA's revenue increased nearly 40 percent sequentially in the third quarter, reversing its decline in the second quarter. Core logic chipset shipments increased more than 50 percent sequentially. Viewed in combination with increased shipments by other suppliers, indications are that PC manufacturers geared up in the third quarter to support strong sales in the fourth quarter. The rebound in shipments of chipsets for AMD's processors bodes well for AMD's processor sales. The rebound in shipments of chipsets for Intel processors suggests that VIA is gaining share at the expense of Silicon Integrated Systems (SiS), as expected, given VIA's acquisition of an Intel bus license. Silicon Integrated Systems Revenue for SiS grew sequentially from $109 million in the second quarter to $120 million in the third quarter. Revenue was even with the same quarter in Sequential growth was the result of increased unit shipments of core logic chipsets. During the quarter, SiS made several significant announcements. It spun off its manufacturing operation, transforming SiS's business model into one similar to its peers and more economically feasible in the long run. Additionally, it secured the rights from Intel to produce core logic chipsets for Pentium M microprocessors, enhancing its position to take advantage of the growing mobile market. SiS, along with its competitors, announced chipsets for AMD's Athlon 64, which was launched during the quarter. In November, SiS demonstrated continued support for Rambus Dynamic RAM by introducing a fourchannel core logic chipset, which appeals to the most-performancesensitive users of desktop PCs. Genesis Microchip Genesis Microchip's revenue from sales of products for use in liquid crystal display (LCD) monitors declined 18 percent over the prior quarter and fell 8 percent below year-ago levels. Price erosion on monitor controllers eroded "only" 16 percent, not the more than 20 percent management had expected. Nonetheless, competition and its accompanying impact on market share and pricing will have their effects on Genesis Microchip. Further, indications have emerged that the conversion from cathode-ray-tube-based to LCD-based desktop monitors 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 5 December 2003

7 Gartner Dataquest Perspective will take longer than Gartner Dataquest previously expected. LCD panels are being diverted to the LCD TV market. From Genesis' perspective, the lengthened transition hurts the monitor controller business; however, it helps Genesis' LCD TV integrated circuit (IC) business. With LCD TV ICs selling for more than LCD monitor ICs, Genesis as a whole stands to gain. 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. Despite a strong third quarter of 2003, suppliers need to be prepared for a short-term retreat because of weakness in the major world economies and geopolitical instability. Simultaneously, suppliers need to be prepared for a recovery in IT spending that would propel continued growth. Suppliers must 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 and stimulate demand. Companies should expect a global economic recovery in the first quarter of Increased spending on IT follows in the subsequent quarter. 7 Key Issue What is the size and projected growth of the key application market segments? 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 5 December 2003

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