Analog Devices On Global Semicon Industry

Flat To Slightly Increasing Revenues Likely For Global Semicon Industry: Analog Devices

BANGALORE, INDIA: Analog Devices has been built on three cultural pillars, innovation, performance, and excellence. Acknowledged as a global leader in data conversion and signal conditioning technology, it serves over 60,000 customers.

Here, Somsubhro Pal Choudhury, managing director, Analog Devices India Pvt Ltd, gets into a conversation with Pradeep Chakraborty regarding the current state of the global semiconductor industry, the global semiconductor capital spend, etc. Excerpts:

EFY: How do you see the global semiconductor industry performing this year so far? Is it on target?

Somsubhro Pal Choudhury: Till date this year, the overall semiconductor industry has shown muted performance, obviously in the face of strong headwinds from the global economy, after a very strong dollar growth of 32 per cent in 2010 coming out of the global recession and slight growth in 2011 for both the semiconductor industry and the analog/mixed signal sector where Analog Devices is focused on.

The industry came back from an inventory correction late last year and Q1 2012, grossed $24.4 billion for the month of May 2012, which was a 1.4 percent increase over the prior month according to ISupply. Year to date revenue is still down, compared to last year for every month. We see that projections from the top tier market research firms have been adjusted from earlier this year.

EFY: Several gurus have pointed out that the industry will reach $301 billion this year. What's your take and why?

Somsubhro Pal Choudhury: Obviously, it depends on which market research firm that tracks the global semiconductor market that you ask. Gartner and iSuppli had numbers anywhere between $307-312 billion in 2011, while the worldwide semiconductor trade statistics (WSTS) reported $299.5 billion in 2011.

If you use the 2011 numbers from Gartner and ISuppli, and check the 2012 projections from them, and discount it based on the global economic situation in the last few months, I would still see it northward of $301 billion. With WSTS, on the other hand, it might be barely able to make it!

It is probably too close to call given that the overall semiconductor industry can be fairly unpredictable, affected by price erosion, particularly in memory and commodity products.

So far, this has been down year-on-year for all five months for the semiconductor industry. The 2H is expected to improve, but to show overall growth, it has to improve significantly. Last year, the second quarter was not great so comparative numbers might be easier to meet.

So, comparing apples to apples, the industry might see flat to slightly increasing worldwide revenues. The exact number is best quoted by the above market research companies.

While the original estimates was a rise in 2012 and this can be seen on building up some amount of stockpile by the semiconductor firms expecting growing demand, but since then, Euro crisis, lackluster job growth in US, slowing of China and India, have all acted as headwinds.

EFY: Why does the outlook remain to be one of 'cautious optimism'?

Somsubhro Pal Choudhury: Given the fundamental role that semiconductors play throughout the global economy, 'OPTIMISM' describes the long-term sentiment, particularly, for analog and mixed-signal technology, which enables so many growing and increasingly important emerging applications in energy, healthcare, industrial, transportation and communication.

However, in the short term, looking at the headwinds from the global economy, 'CAUTION' prevails. As you rightly pointed out, 'Cautious Optimism' is on everyone's mind today looking at the global economy.

By the end of Q1 2012, according to iSuppli, the semiconductor stockpiles held by chip suppliers increased, driven by the anticipation of higher demand from customers, but that expectation has not materialized.

We hope that the US GDP growth is bolstered from the current 1.9 per cent today, after the presidential elections this year and decisions on taxes, fiscal deficit and healthcare taking a definitive direction.

The Euro crisis will obviously take a longer time to recover even though it seems like Europe's political leaders had committed themselves to the creation of a banking union allowing troubled countries easier access to euro-zone rescue funds.

We believe the sentiment will improve in India with the Prime Minister likely taking up the Finance portfolio and the stalled regulations re-initiated, and China, with low inflation at 2.2 per cent, are expected to turn up the growth drivers with investment boost.

At the end, it is all about the end demand. Except for smartphones and tablets, the other sectors from a global perspective are currently weak based on the headwinds.

EFY: How do you see the global semiconductor capital spend this year and why?

Somsubhro Pal Choudhury: According to industry analysts, capital spend is down 3 per cent this year, mostly driven by 28nm/20nm capacity. These technology nodes are extremely expensive.

Capital spending at Analog Devices was approximately $123 million in 2011 and planned to be in the range of $100-$125 million in 2012. ADI products are manufactured both in our internal fabs and at foundry partners, and generally use between 65nm and 250nm process nodes today.

EFY: What is the situation today regarding fabs?

Somsubhro Pal Choudhury: Utilization in the ADI Fabs has been running approximately at 70 per cent of the equipped clean room in use. There have been industry reports that 28nm is tight. Other nodes should be ok in terms of the foundry capacity.

EFY: Are any new fabs coming up in 2013? If yes, where?

Somsubhro Pal Choudhury: Analog Devices does not have plans to add any new fabs in 2012-2013. A few years back, we completed restructuring of our global manufacturing infrastructure which increased our capacity and consolidated our wafer fab operations in two premier locations in USA and Ireland.

With respect to the industry at large, this is best addressed by the Semico Fabs projection database.

EFY: How do you see the industry progressing in 2013/14?

Somsubhro Pal Choudhury: As we represent a subset of the semiconductor market, we are not in a position to comment on the forward looking forecast for the entire semiconductor industry. We do expect some of the dark clouds that currently overhang to be gone by next year as discussed earlier.

EFY: How do you see the Indian semiconductor industry progressing in 2012? What more needs to be done to give it a boost?

Somsubhro Pal Choudhury: The Indian semiconductor industry continues to be in the growth phase in 2012, albeit the steep drop in industrial production from 2011. The YoY growth is likely to be lower than what semiconductor companies experienced in previous years. Segments like IT, industrial and defense continue to be in the growth phase.

Analog Devices' focus is in industrial, defense, healthcare, automotive and telecom infrastructure, which, despite recent regulatory concerns, represent good long-term growth for ADI's converter, amplifier, RF and power technologies.

The slide of the rupee against the US dollar has also had some impact on the industry as a very large portion of the semiconductors consumed in India are currently imported.

The initiatives drawn up by the government to boost Electronics System Design and Manufacturing (ESDM) in India are a step toward driving up electronics manufacturing in India.

Providing preferential market access to domestically manufactured electronics products for government procurement and procurement by government licensees would provide a boost to ESDM and the local sourcing of semiconductor parts.

Providing incentives for setting up of electronics manufacturing clusters and introducing a Modified Special Incentive Package Scheme to encourage manufacturing of high-priority electronic products are steps that are targeted to boost the electronics manufacturing, create an eco-system and further lead to growth of the semiconductor industry in India.

-- Pradeep Chakraborty

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