In fact, the IC industry is in the midst of a slow, modest recovery, declared Jim Feldhan, president of Semico, a Phoenix-based research firm. "I think you can say that the semiconductor recovery started in 2002," Feldhan said in an interview with Silicon Strategies.

But there's both good and bad news for the industry. Good news: IC unit growth and fab-utilization rates remain high in the industry, he said. Bad news: the average selling prices (ASPs) for ICs remain down, as vendors are cutting prices to maintain their market shares, he added.

And the picture looks cloudy for 2003. A lackluster recovery foreseen in the semiconductor industry prompted Semico this week to lower its chip forecast down to 10.7 percent in 2003 over 2002. Previously, the firm projected that the industry would grow 17 percent in 2003 (see Aug. 6 story).

Semico's new forecast is based on the so-called Semico Inflection Indicator (IPITM), which currently signals a "lackluster recovery" in the second half of this year. The IPITM forecasts the industry six to nine months in advance.

Semico's IPITM for June was the lowest positive reading since February of 2002, an indication the recovery will be muted this year. "The trend has not been encouraging," Feldhan said. "To get to our 17 percent growth forecast, we needed a stronger June. But June was not as strong as we expected."

The other problem is July, which is typically a "horrible" month for the IC industry. "July typically drops 18 percent to 25 percent," he said. "There is also not enough visibility in the fourth quarter."

The trends point to a slower-than-expected IC recovery in the second half of 2003. "There are things that could drive a second half recovery, but the drivers are too late to make a difference," he said.

Semico cited a number of factors that have negatively impacted the market this year. Consumer confidence and capital spending are down. And semiconductor prices have been weak, as manufacturers are cutting prices in an effort to gain market share during the turbulent times.

Meanwhile, in 2004, Semico projects that the IC industry will grow 21 percent to 23 percent, thanks to PCs and wireless. "It's going to be PCs and cell phones," he said. "They are going to be the drivers for years to come."

Digital cameras, DVDs, wireless LANs will also remain strong drivers. "Digital cameras outsold film cameras for the first time this year," he said. The long-awaited "recordable DVD will put the nail in the VRC's coffin."

In general, a slow and modest communications recovery will begin to take hold by the end of 2003. The communications recovery "will roll over into 2004 and 2005," Feldhan said.

Then, however, the IC market is headed for another downturn in 2005. "At 2005, we're running into excess capacity again," he said. "The industry will install excess equipment--again."

By: DocMemory
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