Last Update: December 22, 2009
"Overall, 2009 will go down in the history books as one of the most difficult years ever experienced by the global semiconductor and foundry industries," acoording to Len Jelinek (iSuppli). "Unlike previous industry downturns, where supply and demand have driven upturns and downturns, the debacle in 2009 can be mainly attributed to external economic influences on the semiconductor industry that will take years from which to recover."
The reduction in revenue so far this year is much worse than 2008, when sales fell by only 3 percent from 2007. In the first quarter of this year, sales have been down more than 30 percent. Automotive electronics equipment sales is down over 24% compared to last year (iSuppli).
PC manufacturers have been reducing inventory, which has resulted in lower sales at the wholesale market. This has been driving down part prices in general. This process has now run its course, since inventories are now very low, and prices have begun to stabilize.
Many industry pundits are calling this trend the end of the downturn and the beginning of the recovery. This would seem premature. Market trends indicate that the rate of decline has slowed. This could have been predicted with the completion of the inventory correction. Last weeks poor showing in the Durable Goods numbers indicate that a call of market recovery is probably premature.
"Experience during the U.S. Depression and in Japan during the 1990s teaches the danger of premature declarations of victory." Larry Summers, chief White House economic adviser.
Memory
The wholesale price of DDR2 512 Mb DRAM fell from $7.03 in 2006 to $0.32 at the end of 2008, a 95% decline. In the same period, the DDR2 1 Gb price fell from $3.80 to $0.59 in 2008, an 85% decline. According to Gartner, first quarter DRAM market revenue fell to $3.6 billion, down 18.4 percent from the fourth quarter of 2008 and down 41 percent from last year. Shipments per memory bit declined just 6.3 percent (the average memory chip was of higher capacity this year), meaning that average price fell almost 53 percent as compared with last year.
These prices are well below the cost to manufacture. Globally, DRAM vendors have lost $10 billion in the last 2 years. The DRAM market is very unstable. Historically, the Christmas season drives prices down. Elpida Memory and Powerchip Semiconductor Corporation (PSC) have stopped selling memory to the spot market, trying to force price increases. Prices for 1Gb DDR3 chips have increased 19% to $1.58/chip during August, and DDR2 prices increased 14% to $1.45 during the month. The spot market price of a 1Gb 800MHz DDR2 was approximately $0.75¢ at the end of '08, but by late-October (2009), the price for the same chip was about $2.65.
Windows 7 release figures to have a dramatic impact on the DRAM market. PC sales have historically been driven by new operating system releases.
Major DRAM producers are moving their DRAM manufacturing to more efficient production nodes. For example, Samsung is in pilot production at the 45 nanometer node (the smaller the node, the higher the efficiency). Inevitably this will spur further price decreases, but the outlook remains very difficult to predict, and will also track the economy. If the world economy stays in recession, look for prices to remain very weak.
In an effort to stabilize prices, Samsung, Toshiba and SanDisk have reduced flash memory production by about 30% this year. A 16GB NAND flash memory chip sold for about $1.80 at the end of 2008, but is now selling for over $4. Apple's new 3GS smart phone is causing some of the increase in NAND flash memory prices, since each phone consumes between 8-32 gigabytes of NAND flash. Global sales of NAND flash memory is expected to rise for the foreseeable future at a compound annual rate of about 40%, (more than $900 million in 2013).
Earlier this year, Apple made a $500 million prepayment to Toshiba for flash memory chips to ensure an adequate supply. Apple has been manipulating the market for NAND flash memory chips by ordering more chips than it actually consumes. This results in artificially deflated flash prices (Korea Times). Apple receives very good profit on its memory, but leaves manufacturers with more flash chips than needed.
Many memory factories are capable of producing either DRAM or NAND flash products. When the NAND market had oversupply problems earlier this year, DRAM prices were quickly affected since the factories shifted production from NAND to DRAM.
DDR3 DRAM (SDRAM) is now shipping from a several memory vendors. DDR3 is good because the chips can use 60 percent less power than DDR2, and provide almost twice the bandwidth (data rate). DDR3 is expected to eventually replace DDR2 as the memory of choice. Currently, DDR3 1066Mhz 2GB sells for about $24. DRAM vendors including Samsung Electronics have narrowed down the price difference between DDR2 modules and DDR3 in an attempt to encourage faster adoption of DDR3 by PC manufacturers. DDR3 allows for chip capacities of 512 megabits to 8 gigabits, for a maximum memory module size of 16 GB.
(Source: www.DramExchange.com)
Capital Investment in New Manufacturing Capacity
The Semiconductor Industry is famous for its "Boom & Bust" cycles, and the model remains accurate. We are in a major Bust now, and understandably, the manufacturers are cutting spending, and this includes investment in new factories. If we emerge out of this recession in a slow gradual growth period, the industry will be able to track the growth with manufacturing capacity. If however, the economy recovers quickly (a "U" or "V" shaped recovery), then there will be severe shortages for many products, especially the chips that require the newest manufacturing techniques.
A trend having enormous impact on capital investment strategies is the use of foundries. Companies, including Intel, Texas Instruments, and AMD, have been using foundries for years to supplement their production capacity. Intel has been in the news for outsourcing the Atom, its most promising commercial venture in years, to a foundry in Taiwan. Dongbu Semiconductor in Korea might as well be a TI facility, since they control the company's output to such a great degree.
But as recent problems at Taiwan Semiconductor Manufacturing Company (TSMC the world's largest foundry company) demonstrate, it can be dangerous to rely on a third party for critical production. TSMC recently confirmed a yield crash with their 40nm process technology that has resulted in yield rates below 40%. Major customers for TSMC's 40nm processes include AMD and Nvidia.
Capital spending by semiconductor companies will decline this year by about 40%, to $26 billion (from $43 billion last year). Intel, is the exception, and will cut its capital spending by only about 2%.
Samsung will reduce its capital spending by a third. Micron is cutting its capital spending by 75%. DRAM suppliers have cut back the most. DRAM capital spending is 20% of its level in 2007.
Forecasts for next year (notoriously unpredictable) call for an increase in capital spending of more than 50%, as measured from this years depressed baseline. It should be noted that Applied Materials (the world's largest Semiconductor equipment manufacturer) has announced a headcount reduction of about 12% next year. "We have to be realistic about the markets we are serving," Applied Materials CEO Mike Splinter.
(Source: IC Insights)
Microprocessors
CPU prices have remained stable over the summer. It seems that AMD and Intel are surviving the slow economy better than the memory companies.
According to figures from the U.S. Bureau of Labor Statistics, microprocessor prices fell 49% a year between 2000 and 2006, declining more than the prices of personal computers (26%), storage devices (23%) and software (1%). Ironically, the European Union just fined Intel more than 1.06 billion euros (~ $1.5 billion) for market manipulation. It would appear that Intel's manipulation was counter-productive.
Intel shipments fell by 33 percent in the first quarter when compared to the 4th quarter of last year. IDC estimates that the Atom microprocessor used in notebook computers represented about 21 percent of its mobile PC processor shipments in the first quarter.
Microprocessor sales in general did not fare well. In the first quarter, worldwide CPU shipments declined by 11 percent compared to the previous quarter, while revenues fell by 25 percent. With the exception of netbooks, PC sales were down significantly (iSuppli) in the first quarter.
The last time that there was a significant oversupply in microprocessors was in 2001. According to Mercury Research, for the last decade AMD has been the lower priced CPU when compared to Intel, with a average sale price (ASP) difference of about 45 percent for a comparable CPU. In June, AMD introduced the "Istanbul", a six-core Opteron microprocessor for business computers. The Istanbul is an update of the Shanghai microprocessor.
Intel recently introduced "Nehalem" (also called Xeon 5500), which offers high-level computing power but with better management of energy. Intel also recently introduced new microprocessors for laptops. The new units will include processors that have a clockspeed of 2.66 GHz. The part numbers are Q8400 (95W, $183) and Q8400S (65W, $245).
The news comes after Intel and AMD reduced the prices on several processors (more than 40% on some units) earlier this year. Intel is also updating its low-voltage processors. This includes the Intel "Core 2 Duo SP9600" chip that will run at 2.53GHz (up from 2.4 GHz, 25W, $316).- Intel had over $12 billion of cash in the bank at the end of 2008.
The European Union fined Intel $1.45 billion in May. Late last year, Korea's Fair Trade Commission fined Intel $18.6 million. And in November, Intel agreed to pay $1.25 billion to AMD to settle all antitrust and patent suits. A billion here, and a billion there, and pretty soon, you are talking about some real money.
AMD Reduces Prices on Black Edition Microprocessors
AMD’s "Black Edition" processors have an unlocked clock multiplier. This feature allows gamers to manipulate the chip frequency with fewer obstacles than are usually associated with overclocking. For example, some gamers have increased HyperTransport bus speed from the default 200MHz, which not only increases CPU clock-speed, but also alters HyperTransport bus and memory frequency. This allows components other than the microprocessor to be able to handle increased speeds.
AMD has reduced the price of the "Phenom II X4 940 Black Edition" chip from $225 to less than $200 and has also reduced the price of "AMD Athlon X2 7750 Black Edition" CPU from $74 to $69.
AMD Reduces Prices on GPUs
In July, AMD will reduce the price of its 4800 family of graphic processors (GPU). This product group is from the ATI Redeon. The price of the 4890 will drop from $249 to $199, the 4870 from $199 to $149, and the 4850 to less than $100. AMD's most significant competitor in the arena is NVIDIA, who is seen as vulnerable with their product somewhat out-of-date.
AMD is preparing for the release of Windows 7 OS, with a DirectX 11 compatible ATI Radeon. This product group will be the marketed as the 5800 family.
Hard Disk Drives
3.5" HDD
Shortages continue in the 500-GB through 1.5 TB SATA units. The 500 GB ($57-$60), 1-TB ($89-$93), and 1.5-TB ($120-$124) prices are the result of a shortage expected to continue into the near future.
2.5" HDD
Demand for the 160-GB through 500-GB SATA units is stable.
IDE drive production continues to decrease as the market moves to the SATA interface. Spot shortages in the IDE interface may be expected.
(Source: www.converge.com)
The overall proportion of total computer costs for data storage continues to rise.
Storage will soon account for more than half of total computer hardware and software costs.SSD Drives are still more expensive than conventional HDD. An SSD Drive now costs about $2 per gigabyte while a HDD drive costs less than $1 per gigabyte. The price of an SSD continues to improve (SSD drives once sold for more than $25 per gigabyte), and with manufacturing volumes anticipated, the price difference should be further reduced.
SSDs are an ideal storage solution for netbooks. You can buy an 80 GB HDD for $30-$35, but that would only get you 15 GB of flash capacity. At the current technology node (42 nm), it is not possible to manufacture at $1/GB, but when the manufacturing node reaches 24 nm, this price looks feasible. Look for 24 nm volume production in 2011.
