Semiconductors Sales Start to Strengthen?

In news that must be welcome to many in high tech, semiconductor sales may have bottomed out and seem to be on the rise again, according to a number of reports and data. That would be good news for high tech in general, given that more chips out the door means more products being purchased. The question is how long might it take for a rebound?

Clearly the past year has been a veritable hammer on the industry. Chip revenue declines pushed Fujitsu into the red for its fiscal year, which ended on March 31. ST-Ericsson, the joint venture of STMicroelectronics and LM Ericsson, lost $89 million in the first quarter and plans to lay off 15 percent of its work force.

But there are short term signs that things might be getting a little better. The Semiconductor Industry Association reported that sales in March were up 3.3 percent from February, though still $6.4 billion less than in 2008, and Q1 sales were 29 percent down from the same period in 2008:

“The modest sequential rebound in worldwide sales in March suggests that demand has stabilized somewhat, albeit at substantially lower levels than last year,” said SIA President George Scalise in a statement this morning. “While all major product sectors showed month-on-month growth, there continues to be limited visibility in end markets. There are some bright spots such as ‘smartphones’ and ‘netbook’ PCs, but there are no clear signs of early firming of demand in other major end markets such as automotive, corporate information technology, and consumer electronics.”

In other words, chip sales are no longer seem to be plunging as they were toward the end of 2008, but the immediate future is too foggy to say make a guess as to what is going on.

There have been anecdotal yet significant signs that things are improving. Texas Instruments and Intel have worked off surplus inventory. Semiconductor foundry TSMC has seen business pick up in the second quarter and expects the second half of 2009 to be an improvement over the first half.

Research firm Databeans thinks that improvement will be much faster than was the case in the 2001 plunge:

“While this industry recession shows some similarities to the one that occurred in 2001, when semiconductor sales plummeted by 32.5% and took nearly three years to return to 2000 levels, Databeans believes this crisis will be far shorter lived,” the company said in a statement. “The primary difference is that the unprecedented growth that occurred between 1999 and 2000 caused such overcompensation in production that the following recovery followed a ‘bathtub effect’ or a rather long and flat stabilization to return to previous profits.”

In other words, the good news would be that the turndown was because of demand, not the enormous inventory glut that had built up through the late 1990s and into 2000, making any recovery protracted. The firm is expecting a 17 percent year-over-year increase in 2010.

IC Insights sees some supporting evidence in semiconductor capital spending:

In 2010 capital pending will rise 15% to $30.6 billion. Spending will increase 35% in 2010 and another 29% in 2012 when it will reach $53.3 billion, says the researcher. That’s good news for semiconductor buyers because it means more chip capacity will be added which should lead to lower prices.

But given the rough ride that the chip manufacturers have seen, there’s a question of whether a price drop would be nothing more than another few coffin nails.

Potato chip image via stock.xchng user mzacha, standard site license.