Semiconductor Monthly Update Report for May 2006

Last week, I received the May edition of the Future Horizons Semiconductor Monthly Update Report. Below are some highlights of the report. If you would like to see the full report, please contact Future Horizons.

  • IC sales was stronger than expected in Q1, as Future Horizons predicted previously.
  • The general consensus for 2006 is still in the 8 to 10 percent growth range. Future Horizons stands behind its 20 percent year-on-year forecast.
  • The overall chip market shrank 1.3 percent in Q1-2006 versus Q4-2005, up 7.3 percent versus Q1-2005.
  • The two chip market gorillas – Intel (-12.4%) and Samsung (-11.9%) – dragged the market down, their absolute size weighing heavily on the overall results.
  • The big products for 2007, as always, will be difficult to predict but new games machines are likely to be among them, as well as the next generation HD TVs and video players. However a general slowing down of the consumer appliances market over the next few years is bound to be experienced, as current markets saturate and the disposable spending squeeze tightens, driven by high oil prices and a trend for increasing interest rates.
  • After a roller coaster start to the year, memory prices have stabilized both for DRAMs and Flash.
  • Contract pricing for DRAMs has risen on the back of tight supplies, a situation that is expected to continue due to tight capacity and the traditional seasonal increase in demand. Right now the industry is walking a tight rope between increased supply, due to greater 300mm yields and the move to 90nm production, and the expected demand increase, due to seasonal and structural effects, including AMDs new processor introductions.
  • The steep Q1 price declines for NAND flash memory have paused, with contract prices for some densities actually increasing. Given that memory prices fall 2 percent per month (on a per bit basis), a period of stable pricing means big windfall profits for the producers – and a major boost to memory ASPs and sales.
  • Spot shortages are also starting to appear in other sectors of the commodity market, including standard logic, analogue ICs, SRAMs, NOR flash and power MOSFETs.
  • In its latest World Economic Outlook, the International Monetary Fund (IMF) reported the global economy is moving ahead at a healthy pace, with almost every country posting positive economic growth this year. The IMF predicts the world as a whole will top 4 percent growth for the fourth consecutive year and said world GDP growth may even reach 4.9 percent in 2006.
  • The US economy grew at a blistering annual rate of 4.8 percent in the first quarter of 2006.
  • At the beginning of May, the European Central Bank (ECB) left eurozone interest rates unchanged but left little doubt that a June rate increase is likely amid signs that Europe’s economic upturn is continuing.
  • As expected, the Bank of England (BOE) left UK interest rates unchanged at 4.5 percent at the beginning of May for a ninth consecutive month.
  • The Bank of Japan (BoJ) recently forecast a steady return to price stability and said inflationary risks outweighed the danger of a deflationary spiral, bolstering the view that the central bank might seek to end its long-standing zero-interest rate policy quickly.
  • At the end of April – a first time in 18 months, China’s central bank, the People’s Bank of China (PBoC), raised the one-year benchmark rate by 27 basis points to 5.85 percent.
  • International venture capital groups are increasingly shifting focus from China to India after years of reduced exposure to the subcontinent – a move that underlines the pull of India’s fast growing market for internet and consumer wireless applications.
  • After China and India, Russia is now the third-largest software outsourcing destination in the world.