The rebound is real.
That’s the view of many semiconductor industry analysts who believe sales this year of those increasingly commonplace mini-chips will match or exceed the record year of 2000.
"Many new applications are coming in at the same time in PC and consumer products," said Tai Nguyen, semiconductor analyst for Susquehanna Financial Group in San Francisco. "Digitization is taking place, and that drives the semiconductor business."
If sales meet expectations, it will be good news for an important Valley industry that has struggled to get back on its feet after the worst depression in its history.
Semico Research, a Phoenix-based market research firm, is predicting that worldwide sales will grow 26 percent this year to reach $212 billion. That comes on top of a gain of nearly 20 percent in 2003.
"That sounds good, but it’s taken us three years to get back to where we were," said Tony Massimini, Semico’s chief of technology.
Worldwide sales peaked in 2000 at $204.4 billion and plunged 31 percent the next year to $139 billion as the world economy slumped. Total chip sales were basically flat in 2002 at $140 billion. Final figures for 2003 aren’t in yet, but it looks like sales could approach $170 billion, Massimini said.
As the industry declined, semiconductor employment suffered in the Valley. According to the U.S. Bureau of Labor Statistics, the Valley lost nearly 7,600 jobs between 2001 and 2002, a decline of about 20 percent.
Sparking the comeback are familiar products with new features that are capturing the fancy of consumers. One of the big marketdrivers this year should be cellular phones with cameras and other features, said Sherry Garber, senior vice president at Semico. The research firm is predicting cell phone sales will grow 16 percent this year, which will come on top of 15 percent growth last year.
Another product is the digital camera, Garber said. High tech shutterbugs drove up deliveries by 50 percent last year, and Semico expects them to grow another 30 percent this year, she said.
The notebook personal computer is another product loaded with semiconductors that continues to attract buyers. Semico expects sales to grow 13 percent this year. And while desktop PCs aren’t flying off the shelves at the rate they used to, their sales are likely to grow 11 percent this year, Garber said.
Other new products high in semiconductor content such as digital TVs, DVD players and recorders and personal video recorders also figure to keep chip sales humming. In fact, Nguyen believes demand will be so strong that shortages could develop in some semiconductor products such as flash memory chips that retain their information even when power to the device is turned off. He said much of the capacity problems are in the testing and packaging segments of the business rather than manufacturing, and "I expect more companies will put more emphasis on investments in that."
The strong demand could cause price increases or at least cause prices to not fall so fast, he said.
Among companies with a Valley presence, Nguyen is optimistic about prospects for Intel and ON Semiconductor. Intel’s prime business is microprocessors that run personal computers while Phoenix-based ON Semiconductor focuses on power management chips and discrete devices — integrated circuits that do not operate alone but are essential for the functioning of the electronic product.
He said Intel is ahead of the rest of the industry in capacity to process giant 12-inchdiameter silicon wafers. Using the large wafers increases capacity by 2.5 times over plants of the same size that process 8-inch wafers, and they reduce the cost of individual chips by about 30 percent, according to Intel.
The company plans to spend about $2 billion beginning this spring to convert its Fab 12 plant in Chandler to the 12-inch standard, a project that will take about a yearand-a-half to complete. Intel already has two 12-inch plants running in Oregon and New Mexico along with a developmental plant in Oregon that will begin 12-inch manufacturing in 2005, said spokesman Chuck Mulloy. Also, Intel will start production at a 12-inch plant in Ireland at mid-year and will have the Chandler plant ready to go before the end of next year, he said.
Intel’s advanced production ability is the envy of the industry, Semico’s Massimini said. "Most companies have only one or two plants that can do that (handle 12-inch wafers). They will have five. That’s an indication of their manufacturing prowess."
Another Chandler company, Microchip Technology, overtook Motorola to become the largest volume producer of 8-bit microcontrollers in 2003, and should do well again this year because of its low costs, Massimini said.
The company’s microcontrollers are used in a wide range of products from appliances to industrial controls. Microcontrollers are making in-roads into products such as washing machines and refrigerators as replacements for mechanical controllers, he said.
But Microchip may face tougher competition this year from Renesas Technology, a new company formed by a merger of Hitachi and Mitsubishi’s semiconductor operations that is strong in microcontrollers, he said.
For Motorola, the big semiconductor news this year will be the spin-off of the sector into a separate company.
Massimini said the new company’s fortunes will depend to a large extent on how the mother company structures the deal financially. If too much debt is dumped on the new company, it will have trouble investing in the latest technologies, he said.
"They need to be able to invest and grow," he said.
If handled right, the new company could have pretty good prospects, he said. Motorola has cut production costs through layoffs and the closing of old fabs such as the Mesa plant.
Also the company is strong in high-end microcontrollers and automotive electronics, which has been a source of steady, if not booming, business, he said.
The strong outlook for the industry is not likely to translate into many new jobs, sources said. Intel, for example, plans no significant hiring in the next six to 12 months because "we want to be cautious and keep our costs in line," Mulloy said.
Also the trend to move manufacturing to the Far East is likely to continue, Massimini said.
"But you still have design and development, marketing and sales departments here," he said.
"When you look at the Phoenix area, that is what a lot of companies are tapping into here."