Sunday, April 19, 2009

The Dao of Strategic Assessment (12): Assessing the Global Marketplace

When assessing the grand picture of the U.S. economy, one must understand what are the "hot" political and economic influences before evaluating the marketplace.

In Jan. 2009, some associates told us that the U.S. economy will recover sometimes late this year. That the the upper tier banks have slowly begun to release money to the upper middle tier of our society. It will slowly trickle down to other parts of the economic value chain.

Many months ago, we saw the rate for a five yr CD was within the 1.0% range. In Feb., it was about 2.8%. At this moment, it is close to 3.5%. Progress!? Growth!? ... Recovery!? ... It is one of the many barometers that our associates used to assess and gauge the progress of the U.S. economy.

In Silicon Valley, chip manufacturing companies (i.e., Applied Material, Novellus Systems Inc., Intel, etc.) and network companies (i.e., Cisco Systems, etc.) are considered to be the bellwethers that kick-start the engine of the high technology economy.

Where the leading indicator of the semiconductor industry is the sale of voltage regulators - power supplies, my favorite gauge is the battery manufacturing companies. We will talk about this in a later post.

Overall, our research shows that the high technology and the biotechnology industries are the keys that will kick-start the global economy.

Whenever the banking industry stabilizes, we at C360 Consultants expected that the Silicon Valley region will “jump-start” some parts of the economy of the United States (and some parts of the global economy) in Sept. 2009.

We will continue this topic
later next month.

Collaboration360 Consultants (C360 Consultants). Copyright:2009 © All rights reserved. Copying, posting and reproduction in any form (without prior consent) is an infringement of copyright.

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NEWS: Analyst - Strong IC rebound to start in second half
By Dylan McGrath
EE Times
(04/09/09, 06:49:00 PM EDT)

SAN FRANCISCO Spurred by pent-up electronic system demand and increasing average selling prices (ASPs), the IC market will register double-digit growth in 2010 and 2011 after beginning to recover in the second half of this year, according to market research firm IC Insights Inc.

Chip industry revenue in 2011 will surpass 2007 totals, according to the firm's current forecast, which is more optimistic than many others in the space in recent months. Gartner Inc. said in February that it does not see chip revenue returning to 2008 levels until 2013.

IC Insights (Scottsdale, Ariz.) is currently forecasting that overall IC industry revenue will decline 17 percent in 2009, followed by growth of 15 percent in 2010 and 19 percent in 2011. The proejctions are largely the same as the firm issued in January.

Bill McClean, president of IC Insights, told EE Times that his firm has been predicting double-digit growth for 2010 and 2011 for some time. A severe decrease in chip industry capital spending—the firm is now projecting it will decrease 39 percent in 2009—will result in a rapid increase in ASPs when demand begins to recover, he said.

"These supply issues are going to start turning the other way," McClean said. "When we see some seasonal strength in things like cellphones and consumer devices at the end of the year, I think people are going to be surprised about how quickly the market turns."

McClean said DRAM vendors are planning to spend, in total, $4 billion to $5 billion on capex in 2009, and the four leading foundries are planning to spend about $2 billion in total, both dramatic decreases from recent years. The result will be increases in average selling prices that have already begun, he said, adding that 2008 was the first year since 2004 that foundries showed increases in revenue per wafer.

"IC suppliers, I think there main focus is to get better pricing," McClean said. "These capex cutbacks are really going to force the issue."

Any surge in leading-edge IC unit demand could very quickly push 300-mm fab utilization rates to 90 percent or beyond, with an increase in ASPs trailing closely behind, IC Insights said. While first quarter utilization rates for 200-mm facilities hovered at only about 50 percent, 300-mm fab utilization rates for the first quarter ran at a fairly healthy 80 percent, the firm said.

A severe inventory burn in the first quarter of 2008 and first quarter of this year caused IC users to cut their order rates far below what is needed to sustain future electronic systems requirements, according to IC Insights. With IC inventory adjustments expected to be finished in the first half of the year, unit demand for ICs is expected to accelerate in the second half, the firm said.

IC Insights' observations about low inventories are consistent with what other market watchers have said in recent weeks. Last month, Jim Feldhan, president of Semico Research Corp., said lean inventories across the supply chain could jump-start a rapid IC recovery when the economy starts to improve. Last week, a venture capitalist said that chip inventories are at record lows and that the industry may have hit a "local bottom."

IC Insights said positive forces that are likely to drive growth in the worldwide economy later this year, including record low interest rates, low oil prices and more than $2 trillion in worldwide economic stimulus—less than 10 percent of which has been spent.

According to IC Insights, global recessions cause pent-up demand for electronics. A strong electronic systems and semiconductor industry rebound has followed each of the past four global recessions over the past 30 years, according to the firm.

"In IC Insights' opinion, given the extreme and unprecedented cutbacks in IC industry capital spending in 2008 and 2009, a surge in IC average selling prices in 2010 and 2011 is almost guaranteed," McClean wrote in a recent report. "This surge in IC ASPs will be the driving force for double-digit growth in the IC market over the next couple of years."

In the report, IC Insights offered two examples of companies anticipating an increase in demand later in 2009—foundry giant Taiwan Semiconductor Manufacturing Co. and automotive semiconductor supplier Melexis. Both companies are banking on better second halves to reach targets for 2009, the firm said.

"First quarter 2009 levels are so depressed, that in most cases, there will be a noticeable second-half over first-half 2009 increase in business," McClean wrote.

Semiconductor companies should not adjust their businesses— especially with regard to personnel cuts—to run at first quarter levels, given the expected increase in demand, IC Insights said. Unpaid leave, salary cuts and other measures may be the best approach to bridge the gap between the current weak level of business and the expected second-half recovery, according to the firm.

MARKET NEWS: Intel calls 'bottom' but market says hold on
By Bolaji Ojo
EE Times
(04/15/09, 10:00:00 AM EDT)
OEMs, corporate IT equipment buyers, consumers and industry analysts want to see the hard evidence before agreeing with the world's largest semiconductor company that the electronic market has hit bottom in terms of demand cutbacks.

Executives at Intel Corp. said in a statement announcing the company's first quarter results and in a follow-up conference call that demand for electronic components is no longer dropping as sharply as it did over the last six months, implying that sales could be on the upswing soon as manufacturers restock lean inventories and corporate IT buyers replace old equipment.

"We expect business conditions in the second quarter to mirror those in the first quarter with some gradual recovering of demand and replenishment of inventories occurring as the industry sees increasing signs of stabilization and a return to more normal seasonal trends," said Paul Otellini, Intel's president and CEO.

Otellini's optimism is hitting a wall of skepticism in the market place. Intel's stock price dipped more than 4 percent in after-market trading following the company's announcement of what appeared to be above-expectation first quarter results.

Similarly, a bunch of analysts covering the company indicated some disagreement with Intel's overall conclusion about the health of industry demand.

The sticky point was future demand in the face of continuing weakness in the global economy. With many regions of the world, including key markets in Europe and Japan, still fighting to turn their economies around, analysts are hesitant to conclude semiconductor sales will pick up strongly anytime soon.

In fact, many believe sales will remain flat and perhaps depressed until sometime in the third quarter of the year at the earliest.

"Despite the relatively enthusiastic pronouncements by the chipmaker, TBR believes that Intel will face challenges to grow its revenue and maintain profitability in 2009," said John Spooner, an analyst at Technology Business Research in Hampton, New Hampshire.

"We believe that the new realities of the market will exert considerable pressure on Intel's processor average selling prices as end-customers, both businesses and consumers, look for the greatest bang for the buck when and if in the case of businesses they move to purchase new PCs," he said. "We believe that, for the most part, 2009 PC sales growth increases will be on the lower-ends of the spectrum."

Morgan Stanley Research analyst Mark Lipacis has a similar conclusion: "While Intel called the bottom in PC demand, it was uncertain about the trajectory of demand, and indicated that enterprises as well as Europe, Japan and emerging markets still appear to be challenged," Lipacis said in a report.

Intel itself has not said it definitely expects demand for microprocessors to roar back strongly in coming months. While company executives said demand has stopped contracting they also declined for the second consecutive period to provide revenue forecasts for the ongoing quarter.

Instead, Intel said it expects sales to be flat from the first quarter, during which the company recorded revenue of $7.1 billion, down 26 percent from the year-ago comparable quarter and 19 percent from the fourth quarter.

First quarter net income shrank by more than half to $647 million, or 11 cents per share, from $1.44 billion, or 25 cents per share, in the first quarter of 2008. The company's gross margin tumbled to 45.6 percent, an improvement upon Intel's forecast for "the low-40 percent" but down from 54 percent in the year-ago quarter.

The company warned corporate equipment buyers are still holding off on new purchases and said demand in Europe and Japan remain depressed. The more price sensitive consumer market is helping to prop up demand, Intel said.

Intel is pinning its hope for future growth and margin improvements on several factors, including intensive cost-cutting activities, productivity increases, strong demand for next-generation processors, inventory replenishment at PC manufacturers and pent up demand from the corporate sector.

Additionally, demand visibility is beginning to improve, giving Intel a clearer look into future sales prospects, according to Otellini.

"The global environment hasn't changed but our ability to look at and plot some historical points has given us the confidence to essentially say that the industry has seen the bottom," said Otellini.

"Three months ago, we were sitting in a fragile global economic environment and we had just come off a horrendous fourth quarter and we weren't sure of [future] PC sales," he added. "Three months later we're still sitting in a fragile global economic environment but we've got three or four months of fairly good trending in terms of where the business is, what the inventory levels are, what geographies are still buying product and what segments are still buying products."

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