Chip pricing and, with it, the growth of the semiconductor market for 2014 could see a significant uptick because of a long period of reduced investment in production capacity, according to analysis by Future Horizons. Although production capacity has so far kept pace with unit growth, improvements in unit demand are likely to feed through to rising chip prices.
Speaking at the company’s January forecast meeting in London, UK, Future Horizons president Malcolm Penn said the most likely scenario for 2014 is a 8 per cent growth in semiconductor revenues compared to 2013, which would take the market to $330bn. The main drag on growth, he said, is a general lack of confidence in the global economy as well as weakness in the PC market as consumers shift purchases to tablets and large smartphones. Against that, however, has been a steady rise in unit demand growth since mid-2012 that was, at least for the cyclical fourth-quarter peak at the end of last year, double the 10 per cent long-term average.
“There is reason to be confident that ASPs have turned,” said Penn. “The pressure on capacity has put pressure on prices. We are now entering 2014 on a background of units being on an increasing trend and price [rises] kicking in. We have been on that trend for about four months now. This time last year, we had flatter unit demand and uncertainty together with a negative ASP background.”
If unit growth surges, which may take some months as first-half fab utilization tends to be lower than in the second half, long-term low investment in production capacity is likely to feed through to selective shortages and rising prices. Penn said: “There is zero slack in the pipeline.”
“Fab capital expenditure has fallen from its long term average of 21 per cent of sales to something that is trending about half that level,” Penn said, noting that some of that is probably due to wiser choices over spending since the boom-and-bust cycles of previous decades, and better control of yields.
“But we don’t know what the real level of long-term capital expenditure should be, because it hasn’t been put to the test yet. All of this has happened in a recessionary environment where there hasn’t been pressure on production since 2005. We might get into a real period of undersupply because we have been running behind the game,” Penn argued, adding that some of the foundry spending has been primarily to shift production to more advanced nodes rather than add capacity overall.
“Also at the moment, capital expenditure and sales are in sync and they shouldn’t be. One should be a year ahead of the other because of the time it takes to install new capacity,” Penn said.