Fitch: Consumer weakness drives negative semicon outlook
CHICAGO, USA: Fitch's 2009 Rating Outlook for the semiconductor industry is negative due to a meaningfully weaker macroeconomic environment, resulting in lower revenues for all semiconductor markets and, in particular, PCs and mobile handsets, which represent nearly 60 percemt of the global semiconductor consumption.
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CHICAGO, USA: Fitch's 2009 Rating Outlook for the semiconductor industry is negative due to a meaningfully weaker macroeconomic environment, resulting in lower revenues for all semiconductor markets and, in particular, PCs and mobile handsets, which represent nearly 60 percemt of the global semiconductor consumption.
While the overall market will be lower, Fitch expects developing economies will experience lower albeit still positive unit growth. Analog companies, typically less susceptible to industry cyclicality, will be negatively impacted by reduced global automotive production schedules and significant weakness expected for industrial products.
Overall, Fitch expects global semiconductor industry revenues, including memory makers, to decrease in the high single digits in 2009 from modestly higher revenue growth in 2008.
Excluding memory makers, which are more exposed to consumer electronics and experiencing severe pricing pressures, Fitch believes semiconductor industry revenues will decrease in the mid single digits. Fitch expects the more volatile semiconductor equipment industry will experience revenue declines in the high teens to low twenties.
While marking the industry's first revenue decline since 2001, Fitch does not expect decreases to be of the same magnitude as those of 2001 (~30 percent), although given the lack of visibility, Fitch believes there is more down- than up-side risk to current expectations. From a business and operating profile standpoint, Fitch believes semiconductor companies continue to be subject to the highest technology risk within the technology industry.
KEY INDUSTRY TRENDS: Several key trends impact Fitch's Outlook for the semiconductor industry in 2009:
Consumer electronics lead semiconductors lower in 2009:
Consumer electronics, particularly PCs and cell phone units, which have been the catalyst for semiconductor expansion over the past several years, will drive the overall semiconductor market lower in 2009. Fitch expects PC units to be flat to slightly lower and mobile phone units to decline in the mid single digits for the upcoming year. While the increasing mix of sales into developing economies should continue pressuring overall ASPs, Fitch also anticipates some ASP pressure to be mitigated by growth in higher priced smart phones in developed economies.
Additionally, Fitch continues to believe that, as the sales mix of consumer electronics increases, quickly bringing new products to market has become a competitive differentiator for original equipment manufacturers (OEM), supporting Fitch's expectations for increased use of outsourcing partners for research and development (R&D), manufacturing, and packaging and test.
More aggressive responses to evidence of slowdown:
Fitch believes the semiconductor supply chain has become more responsive to evidence of a slowdown, which should mitigate some of the impact of a weaker demand environment. Given the lack of visibility, along with concerns regarding the potential severity and duration of the current downturn, companies throughout the supply chain have announced restructuring initiatives, mostly headcount reductions but also shutting or transferring production to lower cost regions. Given the highly fixed cost nature of the semiconductor industry, Fitch expects there will be a lag in the impact of these actions and believes most programs, if successfully executed, will achieve targeted cost savings on an annual run rate basis by the end of 2009.
In addition, the semiconductor supply chain, including the equipment makers and distributors, have taken steps to reduce inventories, potentially resulting in cash generation from working capital and augmenting free cash flow. Investments into more advanced information systems, greater use of foundries and, as a result, less uneven in-house utilization rates, and increased inventory discipline by components distributors have enabled the supply chain to b