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JULY 5, 1999 ARTICLE FOR EETIMES |
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Electronic Engineering Times, © 1999, CMP
Media Inc. Global GDP Pickup Buoys Chips By Bill McClean Preface The following article originally appeared in the July 5, 1999 issue of Electronic Engineering Times. It should be noted that there are two additional charts in this on-line version that were not presented in the EETimes article. Moreover, some of the GDP figures have been updated to represent the most current forecasts now available. Please call 480-348-1133 if you have any questions on this article or about IC market research products available from IC Insights. Worldwide Economic Conditions Worldwide economic conditions create a positive or negative environment for the semiconductor industry. Although the historical correlation between worldwide gross domestic product (GDP) growth and semiconductor industry growth has been moderate, IC Insights believes that in 1999 the correlation will be relatively strong (see figure below).
In general, worldwide economic news has been upbeat. While the U.S. economy continues to move strongly forward through 1999, some other regions are also displaying better than expected results. That is especially true of the Asia-Pacific region (not including Japan). For example, South Korea was initially forecast to show no growth in GDP in 1999. However, the latest forecast for the 1999 South Korean GDP is for an increase of 4.8 percent. Concerning GDP growth, the one disappointing region thus far in 1999 has been Europe. Initially forecast to show a 2.1 percent 1999 GDP growth rate, the forecast has now been cut to 2.0 percent (down from 2.7 percent registered in 1998). Still, the beginnings of an Asia-Pacific recovery and the continued surge in the U.S. economy have served to somewhat offset this unexpected weakness in Europe. Thus, the worldwide GDP outlook for 1999 has been boosted slightly to 2.6 percent from our early 1999 expectations of 2.3 percent. Electronic System Sales Another factor affecting the semiconductor industry is electronic-system sales. In 1999's first quarter, PC unit shipments surged 17 percent. Throughout the first half of 1999, the market for telecommunications equipment was also very strong. A steep drop in system sales in the second half of 1999 is not expected. In general, it appears that worldwide electronic-system sales, especially telecom equipment (e.g., cellular phones), will have a positive effect on the 1999 semiconductor market. Currently, the computer market is still the primary driving force in the IC industry. However, the telecom IC market is forecast to gain six percentage points of market share from 1993 through 1999 (see figure below). The telecom-equipment IC market is also expected to display the fastest growth of all the electronic-system segments over the next few years, gaining three more points of market share from 1999 through 2003. IC Insights forecasts that in 2003, the computer and telecom segments will increase their combined share of the total IC market to 79 percent. Thus, while hot new consumer, industrial, and automotive IC applications will always be emerging, the future health of the overall IC industry is expected to be increasingly dependent upon the strength of both computer- and telecom-system sales.
A big unknown for electronic-system sales in the second half of 1999 is the impact of the Y2K situation. Some surveys conducted in the early part of 1999 reported the possibility of a corporate lock down on computer purchases beginning in late 1999. That potential cutback in business-computer spending is said to be due to the reluctance of companies to add new computer hardware so close to January 1, 2000. Some have attempted to predict the effects of Y2K on 1999-2000 corporate computer sales by gathering information from company surveys. However, most surveys conducted in the first half of 1999 polled only U.S. companies, with worldwide effects remaining cloudy. Uncertainty continues to exist over the impact of Y2K issues on worldwide consumer PC, industrial systems, automotive-electronics, and cellular-phone sales. Another potentially important issue regarding Y2K and the semiconductor industry is inventories. Electronic-system houses may begin building semiconductor inventory in late 1999 (most likely after September) in an attempt to minimize any disruption in component supply in early 2000. Overall, there continue to be many more questions than answers concerning the Y2K impact. It should be noted that because there appear to be as many possible negative as positive effects of Y2K on the semiconductor industry, IC Insights' 1999 forecast is Y2K-neutral (see figure below).
Semiconductor Industry Forecast Through the first half of 1999, worldwide economic and electronic-system sales effects on the semiconductor industry have generally been positive. That influence was mirrored in the early 1999 results for the semiconductor industry. The figure below shows the actual 1998 and 1Q99 quarterly semiconductor market results and IC Insights' quarterly estimates and forecasts for the remainder of 1999.
It should be noted that pricing trends are still a key issue in the IC industry. This is especially true for DRAM and 32-bit microprocessor IC product segments. While DRAMs and MPUs have led the way in the current recovery, they are also the two product segments that are causing the most concern (based on highly competitive pricing) heading into the second half of 1999. For these two segments, IC Insights considered the second quarter of 1999 to be the " marketshare quarter ." In the DRAM market, Micron, Samsung, and Hyundai/LG are each on a mission to become the largest producer in the world. This 3-way battle served to bludgeon 64M DRAM ASPs from over $9.00 in February to just over $7.00 in May. In the MPU market, Intel and AMD are slugging it out for the low-end PC market (while National/Cyrix dropped out) by slashing 32-bit MPU price tags. Both of these situations have one thing in common -- the willingness of the companies involved to sacrifice short-term results for potential future (2H99 and 2000) rewards. IC Insights believes that the worst of the DRAM and MPU competitive pricing battles will be over after 2Q99. A stable IC pricing environment is a key assumption in the forecast for an increasingly stronger semiconductor market in the second half of 1999. In summary, IC Insights' worldwide semiconductor industry forecast calls for a "healing" year in 1999 leading to strong growth in 2000.
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