Penn raises chip market growth forecast to 31%

DRESDEN, Germany — Malcolm Penn, founder and principal analyst with Future Horizons Ltd. (Sevenoaks, England), has raised his forecast for the growth of global chip industry in 2010 to 31 percent, up from 22 percent which he gave out in January 2010. The change was made on the strength of the Q1 financial results reported by chip companies and his perception of continued strength in Q2, Penn said.

Speaking at his own Future Horizon's International Electronics Forum here, Penn berated the industry for having lost of its appetite for risk and said that too many executives refused to believe good news that was apparent in the numbers coming from the Semiconductor Industry Association.

After five years of relatively paltry industry growth the industry was suffering a "loss of collective confidence," Penn said.

With demand for electronics products remaining high and a lack of investment in chip manufacturing capacity over the last few years putting chips in short supply, the chip industry is facing positive conditions that will drive up average selling prices and produce not only a good 2010 but also strong growth in 2011 and 2012. Penn puts growth at 28 percent in 2011 and 12 percent in 2012. "We've had five years of ASP hell; now five years of ASP heaven?" Penn asked.

But Penn's figures contrast with those of Jack Sun, chief technology officer of foundry Taiwan Semiconductor Manufacturing Co. Ltd. Speaking to the same audience shortly before Penn, Sun gave the more moderate view that 2010 would see 22 percent growth and that the CAGR for the semiconductor industry would be 4.2 percent for the period 2011 to 2014. The CAGR for fabless chip companies would be slightly better at 7.2 percent, he said.

Penn did express some caution about the potential for a second dip in the general economy. This could come as and when interest rates rise, as fiscal stimuli are removed and as the public is squeezed in various ways to reduce a large number of national debts around the world. But even a severe double-dip in the second-half of 2010 would still result in 15 percent growth year-on-year. But Penn also pointed out that the International Monetary Fund seemed unconcerned about this possibility. In April the IMF raised its estimate of world GDP growth during 2010 from the 3.1 percent given in October 2009 to 4.2 percent. Penn added that it is Asia not the United States that is now driving the world economy.

As he went through his quarterly figures for the balance of 2010 Penn said it was now almost inconceivable that the chip market would not grow in a range of between 28 percent on the low side to 34 percent on the high side. "In 2010 the memory chip business alone could be $75 billion and that would be $20 to $25 billion of pure profit for relatively few players," Penn said.

Only a monumental disaster of a scale similar to the banking crisis of 2008 could now derail the chip market recovery Penn asserted.

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