May 4 2009
The U.S., not China, will lead the semiconductor industry out of recession, according to the report "The Global Market for Equipment and Materials for IC Manufacturing," recently published by The Information Network, a New Tripoli, PA-based market research company.
Positive economic news continues to come out of Mainland China. In April, China's purchasing managers' index hit 53.5, its second month above the crucial 50-level and fifth successive monthly rise. Goldman recently upgraded China's GDP growth from 6% to 8.3% and Morgan Stanley from 5.5% to 7% following a successful implementation of the $586bn stimulus plan and remarkable bank loan growth of $680bn in Q1. In a recent report on China by BCA Research the authors state: "The export sector remains the weakest link in the economy but the government-sponsored infrastructure construction boom has been quickly gaining momentum, partially offsetting collapsing external demand."
"In other words, the U.S., the largest consumer purchasing body, has cut back on demand for China's products, particularly consumer electronic products," noted Dr. Robert N. Castellano, president of The Information Network. "The upsurge in China, whether the statistics are 'Communist Propaganda' or not, have done nothing for the IC industry, but instead have caused commodity prices such as oil and copper to rise as a result of the upturn in building infrastructure."
Many signs point to a global recovery in the IC sector. According to the SIA, "demand has stabilized somewhat, albeit at substantially lower levels than last year. While all major product sectors showed month-on-month growth, there continues to be limited visibility in end markets". In addition, Intel and Texas Instruments report inventory has been worked off while TSMC reports a "rebound in its second quarter business and believes overall business in the second half of 2009 will be considerably better than that of the first half".
The clearest signal comes from our leading indicators, although at this time it is unclear as to the shape of the recovery -- more likely U or V rather than L or W.
"Objective, concrete evidence comes from the positive activity in our proprietary leading indicators in the U.S. Both our long and short indicators turned up in late 2008, pointing to a business recovery cycle and giving visibility that the days of the recession are numbered," added Dr. Castellano. "Out coincident indicator, which includes statistics such as GDP, jobs, sales, and income in the U.S. economy is still negative but leading indicators suggest it will soon turn up, probably in the third quarter. Ours are indicators that have been correlated with economic activity dating back to the 1930s."
As the recession eases, companies and consumers will unleash pent-up demand and make the electronic purchases driving the semiconductor market. However, the equipment vendors will not be so lucky. Our global leading indicator has only just started turning up for many companies, as pointed out in a press release of April 14. Historically our leading indicator correlates precisely with semiconductor equipment inflections five months out, so we don't anticipate an upturn until at least August 2009.