Market Watch - iSuppli - Chip Bubble Deflates, Spansion Unveils NOR Security Scheme
July 10, 2006 | iSuppli Corp.
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Highlights of This Week's Issue
Semiconductor Bubble Deflates--but Doesn't Pop
Double ordering, rising prices, surging inventories--all the warning signs that the semiconductor bubble is about to deflate--are in strong evidence at the mid point of 2006, digging up unpleasant memories of the catastrophic downturn of 2001. However, things won't be as bad this time around, iSuppli Corp. predicts, with the semiconductor bubble of 2006 ending not with a bang, but with a hiss, as the market's excesses are steadily deflated.
iSuppli Tweaks 2006 Semiconductor Forecast
After a better-than-expected first quarter, iSuppli has upgraded its semiconductor forecast slightly for 2006. In the newly issued forecast, iSuppli's expected growth for 2006 has inched upward by a half-percentage point, going to 7.9 percent, up from 7.4 percent previously. Worldwide semiconductor revenue will rise to $255.7 billion in 2006, up from $237 billion in 2005, iSuppli predicts.
Spansion Announces Memory-Security Plans for Mobile Phones
In what could be termed a watershed event in the NOR flash business, Spansion Inc. plans to offer a technology for its NOR memories that is designed to enhance mobile-phone security, indicating that NOR suppliers are shifting their focus away from density and cost somewhat and more toward adding greater value to their products.
LG Reclaims Top Position in Plasma Panels in Q1
After three quarters of declining market share and the loss of its leadership in the Plasma Display Panel (PDP) industry, South Korea's LG Electronics reclaimed the number-one position in the first quarter, according to new rankings from iSuppli Corp.
iSuppli Tears Down HD-DVD Player, Announces China Webinar
Is Toshiba Corp. hoping to buy a head start in the battle for the next generation of DVD technology? The answer is yes, according to the market research firm iSuppli, which recently dissected Toshiba's new HD-A1 HD-DVD player and priced all of its components. El Segundo, Calif., Jun. 22, 2006--Join iSuppli on Wednesday, Jun. 28 for a special Webinar updating the status of China's electronics industry.
Jonathan Cassell is the editorial director and manager, public relations for iSuppli Corp. and the editor of the weekly iSuppli Market Watch newsletter. Contact Cassell at jcassell@isuppli.com
Supply Buzz
BY JONATHAN CASSELL
Double ordering, rising prices, surging inventories--all the warning signs that the semiconductor bubble is about to deflate--are in strong evidence at the mid point of 2006, digging up unpleasant memories of the catastrophic downturn of 2001. However, things won't be as bad this time around, iSuppli Corp. predicts, with the semiconductor bubble of 2006 ending not with a bang, but with a hiss, as the market's excesses are steadily deflated.
iSuppli analysts have noted shortages of parts including standard logic, analog and power semiconductors. Furthermore, certain power MOSFETS, varieties of optical transceivers, some capacitors and analog devices in specific package types were put on allocation during the quarter. At least one supplier is reporting allocation for SRAMs.
Lead times for capacitors have extended to as long as six months.
But despite strong demand from end markets, the wave of allocation may be the result of unsustainable factors that arose early in the year.
"There's a feeling there was a bubble in early 2006 that wasn't real," said Gary Grandbois, principal analyst, analog ICs/semiconductor forecast for iSuppli. "The market was pumped up by rising prices for certain parts. For example, National Semiconductor Corp. and Texas Instruments Inc. were raising their prices on commodity linear products. This helped give the suppliers a revenue push."
However, the increase in prices is only a temporary phenomenon, iSuppli believes.
"Average Selling Price (ASP) increases are never sustainable," Grandbois said. "Demand and shortages can create a temporary rise in ASPs, but it won't continue forever."
Suppliers were emboldened to raise prices by unexpectedly strong demand from certain application markets.
"Demand didn't wane in some areas where it was expected to, like mobile phones and PCs," Grandbois noted. "These areas were expected to drop off--but didn't."
Mobile-phone shipments rose 26.1 percent in the first quarter compared to the same period one year earlier, exceeding iSuppli's expectations, and prompting an upgrade of our 2006 wireless forecast. PC shipments in the first quarter rose 12.8 percent compared to a year earlier, also showing surprising strength.
The strength of demand in the first quarter spurred inflated expectations for sales in 2006 and contributed to a buildup in semiconductor inventory in the second quarter. Excess semiconductor inventories in the electronics supply chain are expected to swell to $1.25 billion by the end of the second quarter, up 11 percent from $1.13 billion in the first quarter. Much of that increase was in the PC supply chain.
While the rise in excess inventories is considerable, it is not sufficient to spur concerns about the size of chip stockpiles. Suppliers generally remain optimistic about demand in the second half and thus expect inventories to be worked down, particularly in the PC supply chain. However, that hopefulness is declining some in the face of concerns over demand.
"Suppliers are optimistic, but not as much as they have been in the past at this time of year," said Rosemary Farrell, analyst, inventory/electronics industry for iSuppli. "This confidence is predicated on things going well in the second half of the year. However, optimism is declining slightly."
The attitude of tempered optimism is warranted; semiconductor growth in the second half of 2006 will be lower than it typically is during the last six months of the year, iSuppli predicts.
"Our forecast builds in a weaker-than-normal second half," Grandbois said. "We expect a plateau in prices. This will contribute to the slowing of the market.
"I wouldn't say we are going off of a cliff--but there was a pop and now we are stabilizing," Grandbois said. "This doesn't mean that markets are crashing or will go away."
Given these factors, iSuppli is not predicting overcapacity among semiconductor manufacturers this year, a factor that will keep pricing from declining too rapidly, according to Len Jelinek, director and principal analyst, semiconductor manufacturing, for iSuppli. However, Jelinek warned that overcapacity could arise in 2007 if demand softens.
Grandbois noted that iSuppli has raised its forecast for 2006 semiconductor revenue growth to 7.9 percent, up from 7.4 percent previously, reflecting our outlook for an orderly deflation of the semiconductor bubble.
Jonathan Cassell is the editorial director and manager, public relations for iSuppli Corp. and the editor of the weekly iSuppli Market Watch newsletter. Contact Cassell at jcassell@isuppli.com
Supply Chain Vision
iSuppli Tweaks 2006 Semiconductor Forecast
BY GARY GRANDBOIS
After a better-than-expected first quarter, iSuppli Corp. has upgraded its semiconductor forecast slightly for 2006. In the newly issued forecast, iSuppli's expected growth for 2006 has inched upward by a half-percentage point, going to 7.9 percent, up from 7.4 percent previously. Worldwide semiconductor revenue will rise to $255.7 billion in 2006, up from $237 billion in 2005, iSuppli predicts.
The rise in the 2006 semiconductor revenue outlook comes despite a slowdown in the markets for electronic equipment. Worldwide electronic equipment revenue growth will decline to 6.8 percent in 2006, down from 8.2 percent in 2005.
However, electronic equipment demand remains very strong, and continues to be driven by the healthy PC, mobile- phone and consumer-electronics markets. Furthermore, improving conditions in the semiconductor industry, bolstered by rising Average Selling Prices (ASPs) and lengthening lead times, are propelling chip growth to a higher level than that experienced by the end-equipment markets.
Figure 1 presents iSuppli's forecast of worldwide semiconductor and electronic equipment revenue growth. As highlighted in the figure, semiconductor market growth will peak in 2007 and then bottom out in 2009.
Memory outpaces the market
Two major product families are behind the semiconductor market's growth in 2006: analog and memory ICs. Standard linear analog ICs are experiencing a very strong resurgence because prices are being pushed up by suppliers in order to pass on increases in material costs. A healthy mobile-phone market, which is expected to post nearly 14 percent unit growth in 2006, also is important to the growth of analog ICs.
Memory IC growth is being led by the continuing strength of flash, an area that is expected to expand by 27 percent in 2006. Flash memory growth, combined with the 8 percent rise in DRAM revenue expected in 2006, will generate total memory IC growth of nearly 15 percent for the year.
Every silver lining has a cloud
However, the semiconductor market outlook for 2006 isn't all rosy.
The higher-than-expected growth seen in the first quarter will be followed by some sluggishness in the market in the second half. Second-half growth of 5 percent is less than normal seasonal expectations (see Semiconductor Bubble Deflates--but Doesn't Pop, Page 2). Orders appear to be weakening and inventories are rising.
The iSuppli forecast update is only a modest revision because the market outlook, while positive, remains somewhat tentative for the rest of 2006.
Gary Grandbois is a principal analyst with iSuppli Corp. Contact him at ggrandbois@isuppli.com
More information about this topic will be available in iSuppli's upcoming report, Electronic Component Forecast Update Market Tracker--Q3 2006.
Memory Barometer
Spansion Announces Memory-Security Plans for Mobile Phones
BY MARK DEVOSS
In what could be termed a watershed event in the NOR flash business, Spansion Inc. plans to offer a technology for its NOR memories that is designed to enhance mobile-phone security, indicating that NOR suppliers are shifting their focus away from density and cost somewhat and more toward adding greater value to their products.
Spansion recently previewed plans to add a new feature to its NOR memory offerings for mobile phones that is intended to bring new levels of security to wireless handsets. This feature will be implemented via a security ASIC, which is included in Spansion's Multichip Packaging (MCP) offerings. Spansion's MCPs also incorporate the company's MirrorBit-based code and data storage solutions and some RAM, either pseudo RAM (pSRAM) or mobile SDRAM.
The security ASIC uses various forms of encryption, authentication and random-number generation to provide features, including virus recovery capabilities and secure data-storage and communication protocols for mobile commerce. The ASIC also includes a device-management feature that can render a phone inoperative if stolen. This feature also allows phones to be used as mobile terminals, allowing secure access to enterprise databases.
The company plans to introduce a security software developer's kit in the fourth quarter, followed by MCP samples in the first half of 2007 and production of MCPs commencing in the second half of 2007.
Spansion said its hardware-based solution delivers a higher level of security than traditional software approaches because it employs hardware-protected zones of memory that are accessible by the user, the service provider and the mobile-phone manufacturer.
The security ASIC resides in between the host processor and the code and data memories. The device provides a "pass-through" mode that allows a phone to conduct normal code and data accesses and executions, while also enabling it to react appropriately when needed to monitor and facilitate secure transactions.
The fact that the security engine is located inside the memory MCP is noteworthy for two reasons.
First, it allows accesses of secure code and data from the memory to be confined within the MCP itself. Thus, the electrical signals associated with the secure transactions are not passing through any Printed Circuit Board (PCB) interconnects, where they possibly could be intercepted.
The second reason is that secure transactions using the ASIC do not place any overhead burden on a system's host processor, in contrast to software-based solutions.
iSuppli views Spansion's announcement as a landmark event because for the first time, a memory supplier is providing value-based solutions for mobile phones that go beyond the traditional goal of delivering more memory bits at a lower cost. Throughout the history of the mobile-phone memory business, the focus has been squarely on providing the highest density at the lowest cost. However, with growth in the NOR market having slowed over the past few years, Spansion is seeking new approaches to drum up revenue.
Spansion's move also exposes the company to the full ecosystem surrounding the mobile-phone business, affording it the opportunity to address other systemic issues that could be solved using memory-based approaches. The company's security ASIC provides a solution that potentially could enable wireless service and content providers to transform mobile phones into truly ubiquitous mobile terminals that are adaptable to many tasks. This represents an excellent opportunity for the wireless industry to improve its average revenue per user.
Spansion's security solution will not relieve the company of the burden of providing memory solutions at a compelling cost per bit--but it will serve to widen the company's opportunity base, allowing it to deliver innovative and valuable solutions to the handset market.
Spansion already is the largest supplier of flash memory to mobile-phone manufacturers with revenue of $393 million in the first quarter, according to iSuppli. This announcement and the potential for future value-add products will go a long way in ensuring Spansion will continue to be a key supplier in one of the largest markets for flash memory.
Table 1 presents iSuppli's ranking of the top-five NOR flash memory suppliers in the first quarter of 2006.
Mark DeVoss is the senior analyst, flash /SRAM/MCP for iSuppli Corp. Contact him at mdevoss@isuppli.com
More information on the NOR flash market can be found in DeVoss' report entitled: NOR Flash: On the Road to Recovery? For more information, please visit: http://www.isuppli.com/catalog/detail.asp?id=7838
On Display
LG Reclaims Top Position in Plasma Panels in Q1
BY RIDDHI PATEL
After three quarters of declining market share and the loss of its leadership in the Plasma Display Panel (PDP) industry, South Korea's LG Electronics reclaimed the number-one position in the first quarter, according to new rankings from iSuppli Corp.
LG's share of worldwide PDP unit production rose to 31.1 percent in the first quarter, up from 27.5 percent in the fourth quarter of 2005. This put it about one percentage point ahead of Japan's Matsushita, which controlled 25.9 percent of factory units during the quarter. LG last held the top spot in the first quarter of 2005.
Table 2 presents iSuppli's quarterly ranking of the top-seven PDP panel suppliers based on percentage share of unit shipments.
Koreans come on strong
LG's rise in market share is due to its capacity additions and the resulting increase in panel output. This development reflects a long-term trend of the South Korean PDP suppliers advancing at the expense of their Japanese and Taiwanese rivals.
In the first quarter of 2006, South Korean suppliers LG and Samsung SDI collectively accounted for 54.5 percent of PDP unit shipments, compared to 40.5 percent in the first quarter of 2004.
LG and number-three PDP supplier Samsung SDI not only are increasing capacity, but also are improving the quality of their panels and focusing on cost reduction, both at the component and at the production levels. The two South Korean suppliers are migrating to larger fab sizes and cutting more panels from each mother glass.
As the Korean suppliers increase their capacity, Japanese players are losing ground in PDP production. Matsushita is the only Japanese company that is keeping pace with the South Korean players in terms of capacity expansions. The Taiwanese players are exiting the market because they are not seeing much technology transfer from their partners and thus are finding it hard to keep up with the intense competition.
Consolidation is the name of the game
Profitability has been challenging for the majority of the PDP makers, despite rising consumer uptake of plasma TV sets. Beyond lack of profitability, multiple factors are driving consolidation in the market, including swiftly declining panel prices, slower sales growth and increasing competition with alternative technologies in the large-screen TV market.
These factors caused Taiwan's CPT and Formosa to drop out of the PDP business, leaving the market with only five major suppliers.
In other market consolidation developments, Pioneer Corp. last year acquired NEC Corp.'s PDP business. Furthermore, Fujitsu Ltd. decided to relinquish its majority stake in Fujitsu Hitachi Plasma Display Ltd. (FHP), in favor of Hitachi Ltd., in order to achieve profitability.
Consumer market the main driver for PDP growth
Despite increasing competition from LCD sets, consumers continue to be attracted to plasma TVs because of their slim form factor, their rapidly declining prices and their widespread availability. The 42-inch Enhanced Definition (ED) plasma is the cheapest way to own a large-sized flat-panel TV. Prices for these sets start as low as $1,200.
The 42-inch XGA PDP models also are becoming attractive to consumers because of declining prices, and the 50- inch is not far behind. These TVs are available for as low as $1,900, making them very attractive to consumers.
But despite their wow factor, plasma TVs are facing stiff competition from LCD TVs in the 40- to 44-inch range, whose production is rising rapidly.
With seventh-generation and 7.5-generation fabs going online during the next couple of years, the LCD panel makers will be able to reduce the production costs of 40-/42-inch panels to match plasma. Because of the sheer scale of their production capacities, the LCD suppliers will be fully capable of having a big impact on plasma in its dominant size range by the 2008 to 2009 timeframe.
The short-term forecast for plasma is aggressive, as the industry tries to capture maximum share while LCD-TVs remain the more expensive alternative. n
Riddhi Patel is a senior analyst with iSuppli Corp. Contact her at rpatel@isuppli.com
Supply Lines
iSuppli Tears Down HD-DVD Player, Announces China Webinar
BY JONATHAN CASSELL
iSuppli Analysis Shows Toshiba Taking Loss on Initial HD-DVD Player Shipments
El Segundo, Calif., Jun. 23, 2006--Is Toshiba Corp. hoping to buy a head start in the battle for the next generation of DVD technology? The answer is yes, according to the market research firm iSuppli Corp., which recently dissected Toshiba's new HD-A1 HD-DVD player and priced all of its components.
According to iSuppli's teardown analysis, Bill-of-Materials (BOM) costs alone for the HD-A1 exceed its $499 U.S. retail price. The HD-A1's estimated $674 BOM figure excludes costs for manufacturing, testing, cables, remote control and packaging. Those additional costs could easily push the total cost of the HD-A1 to more than $700 per unit.
The finding suggests that Toshiba is subsidizing the HD-A1 in an attempt to gain early market share over players that use the rival Blu-ray high-definition DVD standard. Initial Blu-ray players are scheduled for launch by Samsung Electronics Co. Ltd., Sony Corp. and others this summer. These products will have retail prices starting at $999.
Like many early models, the HD-A1 does not have an especially efficient design.
"The Toshiba HD-A1 is basically a combination of a low-end PC and a high-end DVD player," noted Andrew Rassweiler, teardown services manager and senior analyst for iSuppli.
Moreover, the HD-A1 utilizes a general-purpose microprocessor instead of more cost-effective Application Specific Standard Product (ASSP) semiconductors typically used in consumer-electronics products. The HD-A1 employs an Intel Corp. Pentium 4 as the main microprocessor, as well as Broadcom Corp.'s BCM7411 for High-Definition (HD) video decoding and four ADSP-2126x SHARC programmable Digital Signal Processors (DSPs) from Analog Devices Inc.
The total estimated cost of these semiconductors is $137.
The HD-A1 also uses $125 worth of memory, including a 1Gbyte Dual Inline Memory Module (DIMM) from Hynix Semiconductor Inc., three other types of DRAM, a 256Mbyte flash memory disk from M-Systems and 32Mbytes of MirrorBit flash memory from Spansion.
Adding in other chips brings the total Integrated Circuit (IC) cost of the HD-A1 to about $247 per unit.
Figure 2 presents iSuppli's breakdown of BOM costs in the HD-A1.
"It's unusual to find this level of subsidization outside of the video-game console and mobile-phone markets," explained Chris Crotty, senior analyst, consumer electronics at iSuppli. "Presumably, Toshiba anticipates making back any initial HD-A1 losses with subsequent products. There is little question that Toshiba had to use a high-cost design for its first model. But there is a big question as to whether pricing its player so much less than Blu-ray is worth the financial risk," Crotty added.
Reviews of the HD-A1 have been mixed, and the unit lacks the full 1080p resolution available in the competing Blu- ray models as well as in Toshiba's own $799 HD-XA1 version of the player. Toshiba is hoping to build a lead over its Blu- ray rivals, some of which have recently announced further product launch delays.
What's at stake is leadership in the market for next-generation, high-definition DVD equipment. Next-generation equipment is one of the few remaining growth segments in an otherwise peaking DVD market, which is facing increasing competition from alternative content-delivery mechanisms, including video-on-demand, Internet downloading and even Disney's resurrected MovieBeam service.
iSuppli forecasts that factory shipments of all next-generation DVD equipment--both HD-DVD and Blu-ray--will soar to 65 million units in 2010, up from 1.6 million units in 2006. But unlike other industry experts, iSuppli's Crotty doesn't foresee a clear winner in the battle between HD-DVD and Blu-ray.
"This is not a repeat of VHS vs. Beta," Crotty said. "The market dynamics are very different. The most likely outcome is stalemate, with the savvy manufacturers introducing dual-format players as early as the 2006 holiday season."
iSuppli Hosts China Electronics Webinar
El Segundo, Calif., Jun. 22, 2006--Join iSuppli Corp. on Wednesday, Jun. 28 for a special Webinar updating the status of China's electronics industry.
This unique 90-minute briefing, entitled China Research Services Summer Market Update, will deliver insights into market dynamics, development trends and partnerships between component suppliers, distributors and electronics manufacturers in China.
Agenda topics and speakers will include:
* China Semiconductor Distribution Market, presented by Byron Wu, director, China research
* China IPTV and Digital Set Top Box Market, presented by Nancy Dang, senior analyst, China research
* China Mobile Phone and Mobile TV Market, presented by Tina Teng, analyst, wireless communications
The Webinar will take place on Wednesday, Jun. 28 at 5:00 P.M. U.S. Pacific Time.
Attendees can call in to the Webinar to hear the analysts' comments and can use an Internet browser to view the presentation slides. The analysts will take questions from Webinar attendees.
Journalists, please respond to this e-mail to register for this free Webinar event.
For more information on this Webinar, please visit: http://www.isuppli.com/events/default.asp?EventCode=WB
Jonathan Cassell is the editorial director and manager, public relations for iSuppli Corp. and the editor of the weekly iSuppli Market Watch newsletter. For any questions regarding this article or the research or events associated with it, please contact Cassell at jcassell@isuppli.com
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