Market Watch

Semiconductor Industry to Enjoy Modest Climb in 2013 as Demand for Silicon Rises


Caution still needed, however, to prevent excessive inventory

The semiconductor industry is primed for moderate growth this year following an extremely challenging 2012, with revenue and silicon demand alike to be powered by key consumer electronic segments such as wireless, televisions and computing, according to an IHS iSuppli Semiconductor Manufacturing & Supply market tracker report from information and analytics provider IHS.  

Global semiconductor industry revenue is expected to grow 6.4 percent this year to $322.30 billion. Revenue last year had fallen to $303.02 billion, down from $310.21 billion in 2011. The projected revenue growth this year tracks with an expected 4.6 percent increase in silicon demand to shipments of 9.55 billion square inches, compared to 9.12 billion square inches last year and 9.16 billion square inches in 2011.

The fall in revenue last year was the result of soft consumer spending on electronic goods, especially as consumer purchases represent nearly 60 percent of semiconductor industry revenue and silicon demand. However, the global economic climate is much more optimistic this year. Initial indications show that despite excessive capacity, the semiconductor supply chain has been able to reduce channel and finished goods inventory, and is also poised to begin reordering. Demand will start materializing in the latter portion of the first quarter, with silicon orders set to increase in March.

Even so, companies will continue to work to avoid the same scenario that took place in the second half of 2012, when demand early in the year resulted in manufacturing oversupply. Excess inventory eventually caused significant manufacturing slowdowns late in the third quarter and then throughout the fourth quarter of 2012.

Growth drivers this year tied to consumer electronics demand

Wireless applications will again prove to be the growth engine for the semiconductor industry in 2013, just like last year. Smartphones and tablets will remain popular in the purchase list of consumers, especially as prices for both mobile devices continue to come down.

Two other electronic consumer devices could help propel semiconductor growth this year. Ultrabooks or other ultrathin PCs could entice consumers through their next-generation computing platforms and falling prices, while interactive televisions will continue to attract buyers looking for ever-more expansive options in home entertainment. 

All these devices require silicon components as their engine, and how quickly consumers can be persuaded to upgrade or buy new personal electronic items will ultimately drive demand for silicon manufacturing, IHS iSuppli believes.

In silicon manufacturing, demand for both 8-inch and 6-inch silicon wafers will continue to be negatively impacted by the transition to 12-inch manufacturing in light of depreciated 12-inch fab capacity. Wireless handsets and tablets will drive increasing demand for silicon supporting NAND flash memory, while an anticipated recovery of the PC market is likely to spur silicon demand for dynamic random access memory (DRAM). Within the computing segment, a potential boost in ultrathin PCs could also translate to increased silicon shipments supporting NAND manufacturing for products like solid state drives and related cache memory components.

Still, semiconductor suppliers need to proceed with caution throughout the year. If manufacturers do not show restraint as they ramp up production capacities in the second quarter, the industry could be facing a very short-lived recovery.

In particular, semiconductor manufacturers should maintain a close watch on component inventory, as well as on outsourced manufacturing inventory delivered by electronics manufacturing services providers and original design manufacturers. Silicon demand in the fourth quarter by the end of this year could face adjustments, depending on inventory levels that remain at the end of the third quarter.

Read More >> Consumer Demand for Electronics will Drive Silicon Growth in 2013