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EDN Europe's Editor Graham Prophet posts a selection of comments and insights prompted by the many items of industry news and rumour that cross the editorial desk or are gathered on his frequent travels to interviews, press conferences and events around Europe - and further afield - and somehow never find their way to the magazine or the web site, recovering some of the information otherwise lost in the noise level...

Tuesday, July 14, 2009

No silver linings without clouds

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Semiconductor industry analyst Malcolm Penn (Future Horizons) yesterday put out an assessment of the chip industry’s latest figures; he says that in May, the industry grew 18 percent month-on-month, raising the expectation that in June, the industry may have done over $20billion in a month for the first time since the collapse of last September.
Penn calls the timing of this recovery , “‘as good as it gets’, given that third quarter seasonal demand will be on the increase just as the sales decline caused by inventory build ends. Capacity will also shortly start to come into play, given the unprecedented three years of fab under-investment.”

My normal view of the semiconductor supply sector as a control system with a really badly designed, and seriously under-damped, loop response, seems to be confirmed by some of Malcolms’s further remarks. “The fourth-quarter market collapse was far too steep - a severe over-reaction to last year’s gross financial uncertainty - culminating with the Lehman Brothers collapse in September. The first quarter saw this stabilise with the second quarter restocking, but there are other positive factors also in play. The normal dynamics following any market collapse is (1) over-reaction, cutting back production and inventories too far (2) a correction phase to rebalance over-depleted inventories and (3) a resumption of demand-driven built. We are currently in Phase 2 of the recovery cycle”.

Never one to leave good news unbalanced without a bit of bad, Malcolm suggests that with several years of (by historical norms) severe capital under-investment in new semiconductor fabs, capacity is already an issue and price rises for key products are already in the pipeline.

Just what we needed.

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