Semiconductor recovery set to begin

El SEGUNDO, CA--Not only do the photonics and semiconductor industries intersect--think digital cameras, optical interconnects, and photolithography, as a start--but the semiconductor industry is so large that its financial state of affairs is a good indication of the position of the economy in general.

El SEGUNDO, CA--Not only do the photonics and semiconductor industries intersect--think digital cameras, optical interconnects, and photolithography, as a start--but the semiconductor industry is so large that its financial state of affairs is a good indication of the position of the economy in general. Whether it lags the photonics market or leads it, the semiconductor marketplace bears watching closely.

And thus it is good news that, according to technology-market forecaster iSuppli (www.iSuppli.com), quarterly year-over-year growth is expected to finally return to the semiconductor market in this last quarter of 2009, signaling the start of the semiconductor industry recovery. This is in spite of the fact that, as iSuppli had previously announced, global semiconductor revenue is set to contract by 16.5% in the whole of 2009 (following a 5.4% decrease in 2008).

Revenue is expected to rise by 10.6% in the fourth quarter of 2009 compared to the same period in 2008. The fourth quarter will mark the first quarter in 2009 that revenue has risen compared to the same period a year earlier (growth figures for the other three quarters of 2009 are: -33.3% for Q1, -22.1% for Q2, and -16.0% for Q3).

Positive book-to-bill

“The seeds of the current recovery were sown in the second quarter,” said Dale Ford, senior VP of market intelligence for iSuppli. “During that period, manufacturers began to report positive book-to-bill ratios, indicating future revenue growth. This was followed by another sequential increase in revenue in the third quarter. Meanwhile, semiconductor inventories returned to more normal levels in the third quarter after chip suppliers shed stockpiles. They did this by slashing costs dramatically in order to reduce unsold inventory they’d been carrying since the beginning of 2009.”

The book-to-bill ratio is used by semiconductor-equipment manufacturers, such as makers of photolithographic steppers, as a gauge to whether the manufacturer has more orders received than filled (if greater than 1) or fewer orders received than filled (if less than 1). A “positive” book-to-bill is greater than 1. These days, a high-end wafer stepper for use at the 193 nm wavelength can cost tens of millions of dollars; even just the photomasks for the steppers can cost more than $1 million.

But proceed with caution

While these signs are encouraging, and sequential quarterly increases in revenue will continue into 2010, iSuppli cautions that this growth will not be sufficient to lift semiconductor revenues back to pre-recessionary levels until the 2011 to 2012 time frame. And some worrisome indicators remain, such as the climbing U.S. unemployment rate, which reached 9.7% in August and is projected to peak at greater than 10%. Also worrisome, says iSuppli, are the struggling credit and banking markets as well as the rising number of foreclosures in the U.S. housing market, clouding the overall economic outlook.

The pattern of a weak first half of the year followed by a strong second won’t be relegated to 2009 alone, says iSuppli. The firm forecasts that the first two quarters of 2010 will see revenue that is slightly down compared to the fourth quarter of 2009--but the second half of the year will deliver a strong performance. This will result in 13.8% growth in global semiconductor revenue in 2010, ending the two-year losing streak. Subsequent years will see a return to single-digit-percentage growth in the semiconductor industry as conditions stabilize.

--John Wallace

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