Its official – having a cell phone has become more important to people than wearing shoes. You think I’m kidding? I heard it twice in the past two weeks; most recently during a presentation given by Bill McClean, of IC Insights at the Arizona Chapter of IMAPS luncheon last week. He offered up these statistics: There are 6.8B people in the world. Worldwide cell phone subscriptions just passed 5.3B. Only 4.5B people wear shoes. It makes me think of the 1981 movie, “The Gods Must be Crazy,” about the effect the discovery of a coca cola bottle had on a bushman in an African village. According to McClean, this was one of many reasons to be optimistic about the next few years in the semiconductor industry. “Other forecasters are predicting slow growth in 2011. We’re not,” he said.
With a worldwide GDP of $57.1T and WW electronic system production at $1.24T for 2010, there’s room to grow. So McClean says we can expect to see a 10% increase in the semiconductor market for 2011. He also pointed to growth of individual nations around the world. India is growing at 9%. China edged out Japan last year. The country is a big economy now, and still growing at a rate of 9-10%. In fact, the government is trying to slow growth to stem inflation. China is currently the largest market for cell phones and the second largest for PCs. McClean says this is expected to continue over the next 5 years.
In the US, the Federal Reserve is expecting 3.6% growth in 2011, and even the major economists are predicting 4%. “If that happens it will be good year worldwide; anything above 4% is excellent economic growth,” noted McClean. He explained that economists are taking into account the 9% unemployment rate, but that economic growth really depends on the behavior of the 90% who are employed, rather than the 9% who aren’t. “If we weren’t seeing cuts in the public sector, we’d be looking at 5% growth,” he explained. “As it is, 4% is still above average.”
So how does all this affect the semiconductor industry? According to McClean, it’s all good news. The semiconductor industry has had a good correlation with GDP growth recently. When the GDP was down to -1.6% in 2009, semiconductors only experienced a 9% decline. Given the severity of the downturn, that’s not steep. “If you’re under 63 years old, you’ve never experienced as bad a worldwide economy as 2009,” noted McClean. With GDP growth expected worldwide over the next two years, all the economists are forecasting a better 2012 than 2011. This sets up a good base.
An important thing to note, said McClean, is that this is the 5th time in the last 30 years when after a recession, the semiconductor industry was booming. This is due to pent up demand during the recessions. People hold off from making purchases, but when they’re feeling better they go for it. Knowing this trend, it should give those of us in the industry a different perspective when we enter the next one. If you can hold on, the recovery will be good. Since global recessions happen every 7-9 years, the next one to watch out for will be in 2017.
Getting more specific, McClean noted that system sales are good, and forecasting above average growth over the next few years. He added that while both Gartner and IHS iSuppli are predicting a bad semi market in 2012, IC Insights completely disagrees. “If we’re not over-capacity and seeing good GDP, then we’re going to have a good semi market. There’s no rational for having low 2% growth in 2012.”
Another interesting point of reference is PC unit shipment trends. Despite the downturn, there were still more PCs sold than the year before. This indicates a break in the marketplace for electronic system demand. PCs aren’t a luxury item anymore, they’re a necessity. This is shows a good underlying demand for ICs. McClean predicts double digit growth – about 12% – for PC shipments overall, including netbooks and tablets. We can expect a 9-10% increase in the cell phone market, largely driven by the movement to smartphones. Even better, there is 10x the IC value in a smart phone as compared to a basic phone. There are 4x the amount of flash memory in a smart phone. “In five years, these systems will look different, but whatever the form, it will be good for the semiconductor industry,” he said.
