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Semiconductor Growth Slowed in 2007, Held Back by Price Declines8 Feb 08Semiconductor sales grew just 3.2% last year, largely due to collapsing memory prices. This year should see a partial rebound. Worldwide sales of semiconductors reached $255.6 billion in 2007, a 3.2% increase from the $244.7 billion in the previous year, according to the Semiconductor Industry Association (SIA). This was the slowest rate of growth since the recessionary-dampened 1.3% gain in 2002. Semiconductor sales climbed almost 9% in 2006. Following such a strong showing, predictions for 2007 were widely divergent, with the consensus calling for marginal growth. However, excess inventory concerns at the end of 2006 put a damper on the first half of 2007, resulting in falling prices, poor capacity utilization rates, and slackening equipment spending—all despite rising unit sales.
Emblematic of the strong pricing pressures experienced by the industry, average selling prices (ASPs) for both DRAMs and NAND flash declined precipitously through the year. NAND flash revenues were up 26%, but unit shipments climbed even faster, at nearly 46%, while ASPs declined 13.7%. Total bit shipments for DRAMs nearly doubled in 2007, but total revenues fell 7.4% due to a 39%-plus drop in ASPs. Moreover, Global Insight's DRAM spot price index plummeted 59% during the course of the year. As might be expected, operating rates have flagged—capacity utilization abroad has been in the upper 80% range, while the U.S. rate is about 75%. Likewise, capital spending on semiconductor manufacturing equipment has tailed off. After several very robust years, the North American book-to-bill ratio has spent a prolonged period below 1.0, starting in February 2007 (at 0.98) and then on through to December (at 0.89). Investment in semiconductor manufacturing equipment has seen several strong years, but substantial previous purchases, weak prices, and soft utilization rates provide little incentive to invest.
Despite weak pricing, semiconductor sales were bolstered by strong demand in three key end-markets—computers, mobile phones, and consumer electronics. More than 34 million MP3 players were sold in the United States during 2006, and growth remains at around 20% annually. Sales of HDTVs also continue to advance strongly, as prices decline and high-definition programming becomes more widely available. Cell phone shipments exceeded 1.0 billion units in 2006 and reached 1.2 billion in 2007, while cell phone service in emerging markets continues to expand strongly. Unit shipments of computers, which account for approximately 40% of all semiconductor consumption, also saw double-digit growth. Global Insight is cautiously optimistic about 2008, with world semiconductor sales forecasted to increase 5.5%, to about $270 billion. Unit shipments should grow, but overall ASPs will remain under pressure. One reason for this optimism is the robustness in key end-markets—namely, consumer items like digital TVs and cameras, cell phones, and MP3 players—where semiconductor content keeps swelling, enabling lower costs plus improved functionality. Moving into 2009, the industry should maintain solid growth, as the continuing adoption of leading-edge chip manufacturing technology pushes more advanced chips onto the market. by John Bauman
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