Buyers' market for electronics could end next year
Semiconductor prices will firm and then increase in 2010, while passives will decline.
By Jim Carbone -- Purchasing, 8/13/2009 2:00:00 AM
Electronics purchasers can expect the buyer's market for most semiconductors, passive components and connectors to continue through the rest of the year, but 2010 may be a different story.
While many semiconductor companies and other component manufacturers have cut back on capital expenditures, the effect of those reductions won't be felt for the rest of the year for the most part. While there will be price firming for some chips later in year, there will be more than adequate supply. Prices for many components will decline, albeit at a slower rate than the past 12 months. The average integrated circuit price will fall 2–3% in 2009.
However, as the recession ends and demand picks up in 2010, buyers can expect tighter supply and higher prices for most parts because of production cutbacks and severe reduction in capital spending by many suppliers, especially chipmakers.
The capital expenditure reductions by semiconductor suppliers have been "shocking," according to Bill McClean, president of IC Insights, a semiconductor industry market research firm. "I am still taken aback by how low the spending levels are," he says.
In 2009, capital spending by semiconductor companies will decline 40% to $26.1 billion from $43.3 billion in 2008, according to IC Insights. Intel, the world's largest semiconductor company, will cut its capital spending by only about 2% to $5.1 billion. However, Samsung, the leading DRAM manufacturer, will reduce its capital spending by 33% to $4.5 billion. Memory IC supplier Micron is slashing its capital spending by 74% to $600 million from $2.3 billion in 2008, says the researcher.
Other large capital expenditure reductions by chip companies in 2009 include Infineon, 81%; Toshiba, 57%; Hynix, 69%; STMicroelectronics, 49% and SanDisk 69%.
McClean says the capital spending reductions in 2009 by chip companies are about right for 2009. "However, it won't be right for 2010 or 2011," when chip demand grows strongly.
Some semiconductor suppliers have cut back more than others. DRAM suppliers have cut back the most, perhaps because DRAM prices fell sharply from 2007 to early 2009. McClean says capital spending by DRAM manufacturers in 2009 will be $4.2 billion. Two years ago, DRAM capital spending was $18.7 billion. "So now DRAM capital spending is 20% what it was in 2007," he says.
Demand, prices rise
While DRAM suppliers have cut back on spending, demand and prices are beginning to rise and will continue to increase in 2010 and 2011. "We see DRAM bit volumes increasing 40% per year over the next three or four years," says McClean.
He says DRAM pricing is up 20% from the first of the year. The average price for a DRAM chip was $1.24 in January. In June it was about $1.50 and by the end of the year, the average price will be $1.62, according to McClean. He expects DRAM prices to increase about 30% in 2010.
The capital spending scenario for flash memory is similar. Capital expenditures for flash in 2007 totaled $13.6 billion. In 2009 it was $3 billion. Bit demand for NAND is forecast to grow 50% per year for several years. However, for 2009, NAND prices will be fairly stable on average. The average NAND price was $3.29 in the first quarter and in the fourth quarter will be $3.25, according to IC Insights.
Expenditures are down for suppliers of other semiconductor products, including digital signal processors, analog and logic.
Buyers should also keep a close eye on the capital spending plans of semiconductor foundries. More semiconductor companies are outsourcing chip production to foundries, in part, to avoid the expense of new fabs and new equipment. The problem for buyers is foundries have also cut back capital spending and have not added capacity.
Earlier in the year that was not an issue because the capacity utilization rates of foundries was low, in the 60-70% range. But demand has picked up and now utilization rates are much higher.
Taiwan Semiconductor Manufacturing Company, the largest chip foundry, has a 100% factory utilization rate for chips made on 65nm process technology.
"If you look four months ago, they were at about 60% utilization for 65nm," says McClean. "To go from 60% to 100% in four months is pretty amazing," he says.
The same is true with other leading foundries, including UMC, Charter and SMIC. Their utilization rates are in the 90% range. Demand for foundry services will pick up later this year and in 2010. Unless foundries increase capacity, supply will tighten and prices will rise.
Chip prices to increase
As a result of increasing demand and tightening supply caused by the decline in capital spending, the average chip price will increase 5% next year, says McClean. However, prices for all chips won't increase. Some will continue to decline or stabilize.
While DRAM prices will increase for the rest of 2009, prices for other ICs such as microprocessors and microcontrollers will continue to fall, although at a much slower rate than in 2008 and early 2009.
For example, the price of a microprocessor averaged $67.23 in the first quarter. By the fourth quarter the price will be $63.46, says McClean. One reason for the decline is there is more demand for lower cost microprocessors such as Intel's Atom processor used in netbook computers. Netbooks are kind of streamlined versions of notebook computers. They don't have as much functionality, but they are low-cost, light weight and the fastest growing segment of the computer market.
Microcontroller (MCU) tags will also drop. The average price of an MCU will drop from $1.17 in the first quarter to $1.01 in the fourth, says IC Insights.
While prices for many semiconductors will decline through the rest of the year, so will tags for connectors and passive components as capacity will continue to exceed demand.
Here's a rundown on other components:
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Connectors. Connector prices fell about 5–10% earlier in the year and will likely decline 2–3% for the rest of the year. Ron Bishop, president of research firm Bishop and Associates, says connector demand dropped by about 50% earlier in the year, but order rates have since picked up. In addition, inventories have been worked off as connector plants slowed down production. However, there is connector overcapacity, which means prices will still decline, but at a lower rate.
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Ceramic capacitors. Sluggish demand will also result in declining prices for ceramic capacitors through the rest of the year. Buyers can expect prices to fall 2–4% because of sluggish demand. Researcher DECISION in Paris says the ceramic capacitor market will decline 9% to $6.3 billion because of weaker demand and falling prices. However, some suppliers will do better than others. John Denslinger, executive vice president sales and marketing at Murata North America in Smyrna, Ga., says he expects Murata will have same sales as last year despite declining prices.
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Switches. Buyers can expect price declines for switches for the rest of the year because of stiff competition among switch suppliers. Prices should decline 2–5%, depending on the types of switches. However, in some cases the price drops won't make up for the price increases that some suppliers implemented in late 2008. Some switch manufacturers raised prices 4–10% because of higher costs for transportation, resins, copper and gold, says Mike Schwert, founder of market research firm Cumulus Inc. in Antioch, Ill. Suppliers may have to give up some of those price increases to keep market share. With the recession, switch demand is weaker than 2008.
Where prices could head in 2010
| Source: IC Insights |
|
| DRAM: | $1.67 |
| NAND flash: | $3.34 |
| Microprocessor: | $63.78 |
| Microcontroller: | $1.05 |
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