worldwide ic industry economic update and forecast

INTRODUCTION

The semiconductor industry data in ASIC 1998 is analyzed and presented using two differentmethods. One describes the ÒmarketÓ for semiconductors while the other examines the semicon-ductor ÒproductionÓ or ÒsalesÓ of the device manufacturers. In ICEÕs analysis, total worldwidesemiconductor production equals worldwide semiconductor consumption in any given year.Figure 2-1 shows some of the assumptions and definition guidelines to which ICE will adherethroughout ASIC 1998.

INTEGRATED CIRCUIT ENGINEERING CORPORATION 2-1

2 WORLDWIDE IC INDUSTRYECONOMIC UPDATE AND FORECAST

Figure 2-1. Figure Key

• All figures that include “market” in the title: market is considered equal to consumption. The North American market is what is sold within the geographical borders of North America.

• The sum of individual companies’ “sales” exceeds the total world “production.” A company's sales could include its device sales, whether produced internally or externally, and its sales of wafers to another semiconductor company. Production figures attempt to not double-count “foundry” sales.

• “Merchant” semiconductor production, sales, or market figures include North American captive (e.g., Digital and Hewlett-Packard) merchant sales, but not internal transfers at the captives.

• All figures that describe “sales or production by company” include all sales or production regardless of where the devices are produced or sold. For example, all of Texas Instruments' semiconductor sales or production, including those from its Japanese and European facilities, would be listed in the North American company semiconductor segment.

• In all of ICE’s sales and production figures, internal transfers and ASIC NRE revenue are included.

• “Semiconductor” sales and production figures include ICs and discretes but do not include hybrids.

• The former Eastern European market and production figures are not included in the European or world forecasts (but are discussed at the end of this section).

Source: ICE 11339L

Figure 2-2 lists ICEÕs ASIC 1998 economic assumptions. These economic expectations are thebases for ICEÕs semiconductor industry estimates and forecasts. As shown, 1996Õs IC market wasmore influenced by ASPs (-10 percent) than by unit shipments (+2 percent). The 1997 forecastedassumptions will be discussed in greater detail later in this section.

Figure 2-3 shows the 1992 through 1996 actual GNP or GDP (Gross Domestic Product) changes,and the 1997 forecast for five major economies. The big story for the first half of the 1990Õs wasthe weakness of the Japanese economy and the strength of the yen. However, beginning in 1996,the yen began to weaken significantly and the Japanese economy began to rebound.

In October of 1996, the Liberal Democratic Party (LDP) gained further strength in JapanÕs politi-cal landscape. Many economic observers now believe that because of the LDPÕs historical recordof ÒcarefulÓ change, the needed push for swift fiscal policy measures and deregulation will nottake place. Even the LDP conceded that without major changes in the current economic infra-structure, Japanese GDP annual growth will hover around 1.75 percent for the rest of the decade.

Worldwide IC Industry Economic Update and Forecast

INTEGRATED CIRCUIT ENGINEERING CORPORATION2-2

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*1997 and beyond worldwide figures use 2Q97 exchange rates (see currency fluctuation comments in Figure 2-8).

U.S. GNP/GDP GROWTH U.S. ELECTRONICSYSTEM PRODUCTION

WORLDWIDE ELECTRONICSYSTEM SALES

WORLDWIDE MERCHANTIC UNIT SHIPMENTS

WORLDWIDE MERCHANT IC ASP

2.0

3.9

2.5

1.0

–0.7

3.0

7

4 4

2

5

8

17

45

64

8

18183L

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Ch

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-1

0

1

2

3

4

97969594939291908988 0

3

6

9

12

15

979695949392919089880

5

10

15

20

97969594939291908988

-10

-5

0

5

10

15

20

25

979695949392919089880

5

10

15

20

97969594939291908988

(FCST) (FCST)

(FCST) (FCST)

(FCST)

4.0

2.5

3.43.1

13 13

9 911

14

68

2123

–8

5

–8

6

1216

24

–10

2

1717

6

13

4

0

14

8

16

Source: ICE

Figure 2-2. ICEÕs Economic Assumptions*

For 1996, three of the five major economic regions displayed less growth than was registered in1995. In the U.S., the strong 1996 3.4 percent GDP increase surprised many, with 1997 growth fore-cast to moderate only slightly. The European economy was the slowest growing of the five majorregions in 1996.

With the Asia/Pacific region representing about 56 percent of the worldÕs population (expected tobe 62 percent in 2020), and with this segment focusing on improving infrastructure for industry,1996 GDP growth rates for the Pacific Rim and China were still very strong. As shown, the 1996GDP growth rates of the Pacific Rim region and China were about twice that (or more) of the U.S.,Europe, and Japan.

Since 1994, the Chinese government has engaged in an ÒausterityÓ program in an attempt to coolits economy to an eight percent annual GDP growth rate. Because it is almost impossible to pre-cisely hit such targets, it is now believed that the Chinese economy will expand by about nine per-cent in 1997.

The varying and moderating GDP growth rates of the major economic regions, as well as strongcapital expenditure budgets, are expected to help keep semiconductor industry growth in anarrow range for the remainder of the 1990Õs. Many still believe that 1984Õs 50 percent increase inthe semiconductor market can not be duplicated. However, if the Japanese economy was boom-ing in 1995 instead of slumping, the semiconductor market would have once again approached orexceeded that 50 percent growth figure!

One factor that has historically had a significant effect on the reporting of worldwide sales andmarket levels is exchange rates (Figure 2-4). When examining the sales and market figures, it mustbe remembered, for example, that if a Japanese company had the same sales (in yen) in 1996 as in1995, when converted to and reported in dollars, a 14 percent decrease would have been shown!



Country/Segment

U.S.

Europe

Japan

Pacific Rim

China

1992 1993 1994

2.0

0.8

1.5

5.9

12.8

3.0

–0.6

0.2

6.2

10.2

4.0

2.5

0.8

7.6

11.3

Sources: Consensus Economics/Blue Chip Economic Indicators 18934G

Percent Growth

1995

2.5

2.9

0.9

7.9

9.5

1996

3.4

1.4

3.6

7.1

8.7

1997(FCST)

3.1

2.2

1.9

6.1

9.0

Figure 2-3. Real GDP Growth

ICE uses 2Q97 exchange rates for the 1998 market forecast and beyond. Most European andJapanese currency levels have had a noticeable impact on the overall semiconductor market fig-ures over the past few years. Strong European currencies and a very strong yen helped inflate the1994 and 1995 semiconductor market figures when reported in dollars.

For 1996, currency fluctuations had a tremendous ÒnegativeÓ impact on the semiconductor dollarmarket figures. In 1996, European and Japanese market figures (when reported in dollars) wereÒdeflatedÓ by about four and 14 percent, respectively.

Figure 2-5 illustrates how quickly the Japanese yen gained strength in early 1993. Besides makingthe Japanese sales and production dollar figures look stronger, it is estimated that each time thedollar falls one yen, the Japanese auto and electronics industries lose 50 billion yen (Å $500 mil-lion) a year in revenue. However, as shown, the yen has recovered to levels not seen since 1Q93.This has been welcome news to most Japanese companies.

ELECTRONIC SYSTEM PRODUCTION

Figure 2-6 examines the market relationship between semiconductor component and electronicsystem production. The semiconductor compound annual growth rate (CAGR) is forecast to bealmost twice the rate of electronic systems due to the continuing increase in the use of semicon-ductors in electronic systems. As will be shown later in this section, IC value in PCs is about 30-35 percent of the total system price.

Because of the increasing pervasiveness of semiconductors in electronic equipment, the overallÒpercent semiconductorÓ figure will increase over time. For example, the Òpercent semiconduc-torÓ figure averaged 10.9 for 1983-1991 and is forecast to average 17.9 percent for 1992-2002. Theaverage yearly gain of the Òpercent semiconductorÓ figure from 1996 through 2002 is forecast atabout 1.6 percentage points.



Country(Currency)

U.K. (Pound)

France (Franc)

Germany (Mark)

Japan (Yen)

1995/1994(%)

19931993/1992

(%)

3

10

11

8

0.67

5.72

1.66

110

–18

–8

–6

13

0.65

5.54

1.62

102

3

4

3

8

1994 19951994/1993

(%)

0.63

4.99

1.44

94

1996/1995(%)

–2

–2

–5

–16

1997/1996(FCST, %)

6

15

–16

–7

1996

0.64

5.11

1.51

109

1997(FCST)

0.60

5.88

1.75

117

11406ADSource: ICE

Figure 2-4. Japanese and European Exchange Rates (Per Dollar)



18935JSource: ICE

Yen

Per

Do

llar

127

120

106 106.5

108 107

104

999996

84

95

102

106108 109

113

82

90

98

106

114

122

130

3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q1992

122119

115

1993 1994 1995 1996 1997

Figure 2-5. The YenÕs Dramatic Fluctuations

400

600

800

1,000

1,200

1,400

1,600

2002200120001999199819971996199519941993199250

100

150

200

250

300

350

400

Wo

rld

wid

e E

lect

ron

ic E

qu

ipm

ent

Sal

es(B

illio

ns

of

Do

llars

)

Wo

rld

wid

e S

emic

on

du

cto

r P

rod

uct

ion

Val

ue

(Bill

ion

s o

f D

olla

rs)

PercentSemiconductor

Year

11.6 13.4 15.7 18.8 16.2 17.416.2 18.7 22.6 25.620.4

*Including captive "if sold" value.11082AESource: ICE

6885

110

150138

149

176

209

390

2531,010

1,120

1,520

312

1,380

1,243

922

851800

701

633585

1992-2002Worldwide Electronic

Equipment SalesCAGR = 10%

1992-2002Worldwide SemiconductorProduction Value*CAGR = 19%

Figure 2-6. Semiconductor and Electronic Equipment Sales Trends (1992-2002)

In estimating the worldwide electronic system production, ICE subtracted the electronic compo-nent values from published (EIA, EIAJ, etc.) total electronics production figures so as not to doublecount or overestimate actual system sales. The electronic components segment includes all activedevices (e.g., ICs and discretes) as well as relays, speakers, antennas, disks, capacitors, etc. Becauseall of these components are used in building various electronic systems, including their salesvolume with system sales would falsely inflate (by double counting the component values) truesystem sales figures.

As was shown, semiconductor components accounted for 16.2 percent of total electronic systemsales value in 1996 and are forecast to be 25.6 percent in 2002. It should be noted that 1996Õs per-cent semiconductor figure dropped 2.6 percentage points. This significant decline was a result ofthe correction from the ÒinflatedÓ DRAM pricing effects that impacted the 1994 and 1995 figures(in which the percent semiconductor number displayed an unsustainable average annual increaseof almost three points). It should be obvious that consistent semiconductor industry growth ulti-mately depends upon a healthy electronic system market. This relationship has continuouslyproven to be inseparable.

As shown in Figure 2-7, North America is the largest producer of electronic equipment in theworld. It should be noted that almost all of the 1984-1996 loss in the North American share of elec-tronic equipment production was offset by gains in the ROW region.



2002(FCST)

NorthAmerica

40%

ROW27%

Europe20%

Japan13%

Europe18%

Japan16%

ROW11%

NorthAmerica

55%1984

$275B

1996

Europe19%

Japan16%

ROW25%

NorthAmerica

40%

$851B

1997(FCST)

Europe19%

Japan16%

ROW25%

NorthAmerica

40%

$920B $1,520B

Source: ICE 13747W

Figure 2-7. Electronic Equipment Production

North American system producers are heavily concentrated in the fast growing PC and telecom-munications segments. Although the overall U.S. economy grew less in 1995 than in 1994, the PCand telecommunications markets were still very healthy. This trend continued throughout 1996,and is the reason the U.S. gained one point of marketshare in 1996.

Through 2002, ICE forecasts that the North American region will hold onto its 1996 marketsharewhile the ROW region will increase two points. It is forecast that the Japanese region will con-tinue to lose marketshare, declining three points from 1996 to 2002 and displaying only a sevenpercent CAGR.

The expected loss of system production marketshare in the Japanese region is not due to a fore-casted slumping economy through 2002. The loss is primarily due to the continued shift ofJapanese-owned system production to ROW locations. The Japanese companies attribute thismovement to the need to take advantage of lower labor costs, getting ÒcloseÓ to many electronicsystem markets (e.g., China) that are currently in their infancy, and fleeing the highly regulatedand restrictive Japanese infrastructure.

The trend of North American, Japanese, and European system producers taking advantage of lowoffshore labor costs, coupled with the demonstrated capability of Korea and other Asia-Pacificcountries to supply personal computers and other electronic systems, is spurring the steadyincrease in ROW-based electronic system production. Figure 2-8 shows worldwide electronicequipment production by producing region for 1993-1996 as well as ICEÕs forecast for 1997.



North America

Japan

Europe

ROW

Total

GEOGRAPHICSEGMENT

ELECTRONIC SYSTEM PRODUCTION ($B)

1993/1992 would show about a 6 percent gain withoutexchange rate fluctuations.1994/1993 would show about an 8 percent gain withoutexchange rate fluctuations.1995/1994 would show about an 11 percent gain withoutexchange rate fluctuations.1996/1995 would show about a 10 percent gain withoutexchange rate fluctuations.

11337YSource: ICE

1993

242

118

130

143

633

1993/1992PERCENTCHANGE

8

6

7

12

81

1

2


274

126

139

162

701

13

7

7

13

112


311

140

161

188

800

13

11

16

16

143


339

137

166

209

851

1997(FCST)

370

142

178

232

922

9

–2

3

11

64


9

4

7

11

8

3

4

Figure 2-8. Worldwide Electronic System Production

Using local currencies instead of U.S. dollars shows that worldwide electronic system productionhas surged from only a six percent increase in 1993 to a 10 percent growth rate in 1996. Using localcurrencies instead of estimated 1996 exchange rates, JapanÕs electronic equipment productionwould have registered a strong 13 percent increase in 1996 instead of a two percent decline.

THE WORLDWIDE ELECTRONICS INFRASTRUCTURE

The worldwide electronics marketplace can be thought of as an inverted pyramid (Figure 2-9). Ingeneral, the semiconductor, semiconductor equipment, and semiconductor materials markets areall ultimately dependent upon healthy electronic system sales.

As shown, 1996 was a very difficult year for the overall semiconductor industry. It was oneof the very rare years where the semiconductor market declined while the electronic systemmarketplace grew.



3

ELECTRONIC SYSTEM SALES

$851B ($922B)

SEMICONDUCTOR SALES

$138B ($149B)

1

SEMICONDUCTOR EQUIPMENT

SALES $36B ($33B)

2

13402AC

Including CaptivesIncluding Wafer Fab,Assembly, and Test EquipmentIncluding Chemicals and Gases,Packaging Materials, Wafers, and Photomasks

1

2

3

Source: ICE

( ) = 1997 Forecast

$20.3B

($23.2B)

SEMICONDUCTORMATERIAL

SALES

1997/1996Percent Change

(FCST)

8%

8%

–8%

14%

1996/1995Percent Change

6%

–8%

15%

12%

Figure 2-9. 1996 and 1997 Worldwide Electronics Marketplace

Semiconductor equipment sales carried significant momentum in 1996 to display a 15 percentincrease. ICE forecasts that capital spending for semiconductor production equipment willdecline eight percent in 1997 as DRAM manufacturers fully ÒadjustÓ to the overcapacity situation.

Semiconductor material suppliers usually follow the growth of IC unit volumes. However, the12 percent increase in the 1996 semiconductor materials market was much better than the two per-cent growth shown in the IC unit market. The conversion to 200mm wafers, more complexprocesses (e.g., increasing number of mask layers), the increased use of consumables (e.g., CMPand more etch steps), and higher pin count packages contributed to the difference.

Figure 2-10 shows the discrete, IC, and total semiconductor markets segmented by system-typeusage from 1991 to 2002. As shown in Figures 2-11 and 2-12, the IC market is driven primarily bythe computer industry whereas the discrete segmentÕs greatest demand still comes from consumerand industrial systems. 1993 was the first year that the computer segment represented more thanhalf of the IC market (up two points from 1992). In 1996 the computer segment represented about55 percent of the total IC market. The military market now represents about one percent of totalsemiconductor sales (down from 2.3 percent in 1991) and will most likely continue to shrink fromeven this low level moving into the next century.



SemiconductorMarkets

1991($B)

Percentof Total

1994($B)

Percentof Total

1995($B)

1996($B)

Percentof Total

Actual

IC MARKETS

Computer

Consumer

Communications

Industrial

Automotive

Military

Total IC Market

Computer

Consumer

Communications

Industrial

Automotive

Military

Total Discrete Market

Computer

Consumer

Communications

Industrial

Automotive

Military

TOTAL SEMI MARKET

21.9

11.0

6.0

4.1

2.1

1.1

46.3

1.2

4.2

1.6

2.2

1.0

0.2

10.5

23.2

15.2

7.6

6.3

3.1

1.3

56.8

47.4%

23.8%

12.9%

8.9%

4.6%

2.4%

100.0%

11.5%

40.2%

15.7%

21.1%

9.4%

2.1%

100.0%

40.8%

26.8%

13.4%

11.2%

5.5%

2.3%

100.0%

54.1%

17.6%

14.2%

8.6%

4.1%

1.4%

100.0%

14.2%

31.5%

18.6%

24.6%

10.3%

0.8%

100.0%

48.6%

19.5%

14.8%

10.8%

4.9%

1.3%

100.0%

56.5%

15.6%

14.3%

8.1%

4.4%

1.1%

100.0%

14.4%

30.6%

17.7%

25.7%

10.9%

0.7%

100.0%

51.1%

17.5%

14.7%

10.4%

5.2%

1.0%

100.0%

49%

26%

44%

34%

53%

12%

43%

35%

29%

26%

39%

41%

10%

33%

48%

27%

41%

36%

49%

12%

41%

55.1%

15.5%

15.5%

8.1%

4.8%

1.0%

100.0%

16.5%

29.0%

18.1%

25.2%

10.5%

0.7%

100.0%

50.0%

17.3%

15.8%

10.3%

5.5%

1.0%

100.0%

55.3%

15.0%

16.3%

7.7%

4.9%

0.8%

100.0%

17.0%

28.0%

18.2%

25.7%

10.5%

0.6%

100.0%

50.3%

16.7%

16.5%

10.0%

5.6%

0.8%

100.0%

8%

4%

13%

3%

10%

–9%

8%

10%

3%

7%

9%

7%

–16%

7%

8%

4%

13%

5%

9%

–10%

8%

21%

13%

24%

16%

22%

–2%

20%

19%

8%

14%

15%

14%

–8%

13%

21%

12%

22%

16%

21%

–2%

19%

57.9%

11.0%

18.6%

6.8%

5.4%

0.3%

100.0%

21.5%

21.2%

18.9%

27.1%

11.1%

0.2%

100.0%

54.4%

12.0%

18.6%

8.8%

6.0%

0.3%

100.0%

–11%

–9%

–1%

–8%

—

–17%

–8%

7%

–12%

–5%

–9%

–10%

–1%

–7%

–10%

–10%

–1%

–8%

–3%

–15%

–8%

48.9

15.9

12.8

7.8

3.7

1.3

90.3

2.0

4.5

2.7

3.5

1.5

0.1

14.3

50.9

20.4

15.5

11.3

5.2

1.4

104.6

72.7

20.1

18.4

10.4

5.7

1.4

128.7

2.7

5.8

3.4

4.9

2.1

0.1

19.0

75.5

25.9

21.8

15.3

7.7

1.5

147.7

64.9

18.3

18.3

9.5

5.7

1.2

117.9

2.9

5.1

3.2

4.5

1.9

0.1

17.7

67.8

23.4

21.5

14.0

7.5

1.3

135.6

70.3

19.1

20.7

9.8

6.2

1.1

127.2

3.2

5.3

3.4

4.9

2.0

0.1

18.9

73.6

24.4

24.2

14.7

8.2

1.2

146.2

202.4

38.5

65.0

23.8

18.9

1.0

349.6

8.1

8.0

7.1

10.2

4.2

0.1

37.7

210.5

46.4

72.2

34.0

23.1

1.1

387.3

DISCRETE MARKETS

SEMICONDUCTOR MARKETS

1995/1994% Change

Percentof Total

1997($B)

Percentof Total

Percentof Total

1996/1995% Change

2002($B)

1997/1996% Change

1996/2002CAGR %

Forecast

Source: WSTS 21672A

Figure 2-10. 1991-2002 Worldwide IC, Discrete, and Total Merchant Semiconductor Usage



0

4

8

12

16

20

24

28

32

36

40

44

48

52

56

60

MilitaryAutoIndustrialComm.ConsumerComputer

System Type

Per

cen

t M

arke

tsh

are

= 1991= 1996= 2002

Source: WSTS 21671A

Figure 2-11. IC Dollar Volume End-Use Trends

0

4

8

12

16

20

24

28

32

36

40

44

48

MilitaryAutoComputerComm.IndustrialConsumer

System Type

Per

cen

t M

arke

tsh

are

= 1991= 1996= 2002

Source: WSTS 21670A

Figure 2-12. Discrete Dollar Volume End-Use Trends

One of the hottest areas of the semiconductor market since 1994 has been the communications seg-ment. In many countries the telecom business is booming even more than the PC industry. ICEestimates that the communications segment of the worldwide semiconductor market has gainedmore than two points since 1991.

Each of the major IC market regions (i.e., Japan, North America, Europe, and ROW) has a very dif-ferent makeup of end-use consumption (Figure 2-13). As shown, the North American market ishighly dependent upon the computer industry. In fact, the computer and communications indus-tries represented 81 percent of all IC usage in North America in 1996!

The Japanese IC market is more reliant on the consumer systems industry. With economic uncer-tainty running high among the Japanese population and no new blockbuster-hit consumer prod-ucts being introduced, Japanese IC consumption for consumer systems has been flat since 1992.Being shut out of many of the high-volume desktop PC markets thus far, many Japanese compa-nies have emphasized laptop PCs and other office-automation equipment (e.g., printers) and tele-com system sales.



$28.7B

Consumer29%

Industrial10%

Communications14%

Computer42%

Auto 5%

$39.6B

Consumer 5%

Industrial 7%

Communications15%

Computer66%

Auto 5%

Military2%

$24.4B

Consumer11%

Industrial11%

Communications25%

Computer45%

Auto7%

Military 1%

North America Japan

Europe18453HSource: ICE

$25.2BConsumer

20%

Industrial4%

Communications10%

Computer64%

Auto 2%Military <1%

ROW

Figure 2-13. 1996 Merchant IC Usage by Region and End Use

One of the bright spots in the 1996 European market was the communications segment. With theÒopeningÓ of Eastern Europe, a tremendous pent-up demand for telecommunications systems stillexists. Establishing this infrastructure requires a tremendous amount of IC-based telecom equip-ment. As shown, communications ICs represent one-fourth of EuropeÕs total IC market.

The ROW sector has benefited from its participation in the high-growth PC industry. As shown,almost two-thirds of ROW IC consumption was in the computer segment in 1996. The ROW ICmarket segment was just slightly ahead of Europe as the third largest consuming region for ICsin 1996.

WORLDWIDE SEMICONDUCTOR PRODUCTION UPDATE AND FORECAST

Figure 2-14 shows the semiconductor industryÕs annual growth rates for 1974 through 2002. The1989-1992 period was the longest period ever in the semiconductor industry where growth was 10percent or less in each year. Even the 1992 ÒboomÓ year turned out to be a record fourth year ina row where growth did not top 10 percent. As shown, 1993-1995 turned out to be the ÒboomÓyears even in the face of the oftentimes slumping Japanese and European economies.



–20

–15

–10

–5

0

5

10

15

20

25

30

35

40

45

50

20022001200019991998199719961995199419931992199119901989198819871986198519841983198219811980197919781977197619751974Year

Per

cen

t C

han

ge

14%

–17%

–12%

36%

28% 28% 28%

25%

5%

2%

21%20%

34%

10%

4%

7%9%

26%

30%

37%

–8%

8%

18%19%

21%23%

25%

47%

19%

*Including captive (FCST)

10386ABSource: ICE

Figure 2-14. Worldwide Semiconductor Production* Growth Rates ($)

It is now conclusive that the four-year semiconductor industry ÒboomÓ cycle coinciding with U.S.presidential election years (1980, 1984, 1988, 1992, and 1996, etc.) is no longer intact. This cyclewould have had 1992 and 1996 being boom years while 1993-1995 would have been ÒslowerÓyears. Of course it is currently obvious that just the opposite occurred.

Although foreign currencies helped inflate the early 1990Õs semiconductor market figures asexpressed in dollars, there was very strong ÒrealÓ growth from 1993 through 1995. Using constant2Q97 exchange rates, ICE forecasts that the CAGR for the 1996-2002 worldwide semiconductorindustry will be a healthy 19 percent. A long-term positive outlook for the PC market coupledwith an absence of extended significant overcapacity for leading-edge IC production are the mainreasons for ICEÕs bullish forecast for the 1996-2002 semiconductor marketplace.

ICEÕs long-term worldwide merchant semiconductor sales forecast is given in Figure 2-15. 1994was the first year the merchant semiconductor industry passed the $100 billion level and 1995 wasthe first year the merchant IC-only market passed the $100 billion mark. ICE forecasts that themerchant semiconductor market will reach $387 billion in 2002.



1992

1993

1994

1995

1996

1997*

1998*

1999*

2000*

2001*

2002*

51,840

68,180

90,270

128,645

117,940

127,225

152,408

182,427

223,260

277,665

349,546

12

32

32

43

–8

8

20

20

22

24

26

10,410

11,830

14,320

19,040

17,700

18,940

21,210

23,970

27,565

31,975

37,730

–1

14

21

33

–7

7

12

13

15

16

18

62,250

80,010

104,590

147,685

135,640

146,165

173,618

206,397

250,825

309,640

387,276

10

29

31

41

–8

8

19

19

22

23

25

YEARIC

MERCHANT

PERCENT GROWTHOVER

PREVIOUS YEAR

DISCRETEMERCHANT

PERCENT GROWTHOVER

PREVIOUS YEAR

TOTALMERCHANT

SEMICONDUCTOR

PERCENT GROWTHOVER

PREVIOUS YEAR

11077AE

*Using 2Q97 exchange rates

Source: ICE

Figure 2-15. Worldwide Merchant Semiconductor Production Forecast ($M)

1996Õs negative worldwide semiconductor market was due to two major factors. The first was theplunging price of DRAMs. The second was the currency conversion situation, especially the yen.It should be noted that when using local currencies instead of U.S. dollars, and not includingDRAMs in the 1996 market figures, the worldwide semiconductor market would have shown a 10percent increase!

Is a $387 billion merchant semiconductor market a ÒreasonableÓ expectation for 2002? Figure 2-16 attempts to show why ICE believes that it is reasonable.

The figure shows the history of the worldwide merchant semiconductor market from 1975 to1996 in five-year and six-year increments with a six year range extended to the year 2002. Therange of five-year and six-year CAGRÕs from 1975 to 1996 went from a low of 12 percent to a highof 25 percent.



10

1

100

1,000

15% '90-'96 CAGR

4.4

13.6

23.7

57.5

135.6

387 19% '96-'02 CAGR268 12% '96-'02 CAGR

517 25% '96-'02 CAGR

19% '85-'90 CAGR

12% '80-'85 CAGR

25% '75-'80 CAGR

1975 1980 1985Year

1990 1996 2002

20436CSource: ICE

Bill

ion

s o

f D

olla

rs

Figure 2-16. Worldwide Merchant Semiconductor Market History and Forecast

From 1985 through 1996 the merchant semiconductor market grew at an annual rate of 17 per-cent. Given the positive long-term outlook for a continuation of strong semiconductor end-usemarkets (e.g., wireless telecommunications, PCs, etc.), ICE believes that a 1996-2002 CAGR of 19percent is a reasonable expectation. It is interesting to note that when using a 19 percent CAGR,the merchant semiconductor market would pass the $1.0 trillion level in 2008!

Figure 2-17 examines ICEÕs ASIC 1998 assumptions. As shown, the key trends that are expectedto cause a lower growth rate over the next five years compared to 1993-1995 are increased capac-ity and a lower growth rate for PC systems. Despite the ÒcorrectionÓ in 1996, ICE is still forecast-ing a very positive long-term worldwide semiconductor market outlook as is evidenced by the 19percent 1996-2002 CAGR.

THE WORLDWIDE SEMICONDUCTOR MARKET

Figure 2-18 shows the quarterly IC market trends for 1991 through 1996. IC average selling price(ASP) continued to rise until 1Q96 when the DRAM ASP plummeted. Although the worldwidemerchant IC market increased 43 percent in 1995, IC unit volume was up only about 18 percent.Thus, the majority of IC market growth in 1995 came from ASP increases, not unit volumeincreases.

As shown in Figure 2-18, ICE believes that 2Q97 was the low point for IC ASPs through 1997.Moreover, ICE expects that 1Q97 was the beginning of a gradual recovery in the IC market thatwill carry throughout 1997 and into 1998.



Figure 2-17. ASIC 1998 Assumptions for 1997-2002

• Capacity– Fab equipment suppliers catch up with orders.– Synchronous 16M DRAMs ship in high volume, DRAM producers ramp up 64M DRAMs.– Excess capacity for DRAMs exists throughout 1997.– Total IC supply and demand in relative balance in 1998.– Leading-edge capacity (≤0.35µm) still tight at foundries.

• PC market growth rates slow from 1994-1995's 20%+ to 15-18% in 1996-1998.

• The worldwide PC unit market (not including NC computers) will display a 15% CAGR from 1996-2002.

– PC unit shipments will grow from 71M in 1996 to 160M in 2002.

20327DSource: ICE

Figure 2-19 shows semiconductor ASPs and unit volume shipments for 1991-1997. The cause offluctuations in the market as measured in dollars is usually more easily understood by examiningASP and unit volume changes. As was shown earlier, the total IC market in 1996 was more influ-enced by ASP than by unit volume changes.

It is interesting to compare semiconductor ASPs and shipments from the late 1980Õs with the earlyto mid-1990Õs. As shown, IC ASPs in the first seven years of the 1990Õs displayed higher annualincreases compared with the late 1980Õs while unit volume average increases declined. For dis-cretes, annual average unit volume increases of 11 percent are close to the norm (about the sameincrease as total system sales dollars) with ASPs staying flat in the 1990Õs instead of decreasing.

Figure 2-20 shows the discrete and IC unit volume shipments from 1982-1997. After a flat semi-conductor unit shipment year in 1992, healthy growth for IC and discrete unit volume was regis-tered in 1993, 1994, and 1995. A surge in automotive and telecommunications use of discretesemiconductors, as well as some inventory building, were the main reasons for the strong gain indiscrete unit shipments in 1994 and 1995.



7,000

9,000

11,000

13,000

15,000

17,000

19,000

21,000

23,000

25,000

27,000

29,000

31,000

33,000

35,000

4Q3Q2Q1Q 4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1.90

2.00

2.10

2.20

2.30

2.40

2.50

2.60

2.70

2.80

2.903.00

1991 1992 1993 1994 1995 1996 1997

Dollars

ASP

Units

Bill

ing

s in

Mill

ion

s

AS

P (

$)

19204GSource: WSTS

(FCST)

Figure 2-18. Total Merchant IC Market (Dollars and Units in Millions)

Both IC and discrete unit volume shipments in 1996 were about flat when compared with 1995.One reason for IC unit shipment rate of growth declines is the continuation of the trend of high-density devices replacing numerous low-density units.



YEAR

1991

1992

1993

1994

1995

1996

1997 (FCST)

1991-1997CAGR

1986-1990CAGR

46.4

51.8

68.2

90.3

128.7

117.9

127.2

$1.35

$1.51

$1.75

$2.17

$2.68

$2.40

$2.22

34.4

34.3

39.0

41.6

48.0

49.1

57.3

10.5

10.4

11.8

14.3

19.0

17.7

18.9

$0.093

$0.093

$0.098

$0.102

$0.106

$0.102

$0.092

112.9

111.8

120.4

140.2

179.6

173.5

205.9

56.9

62.2

79.8

104.6

147.7

135.6

146.2

$0.386

$0.426

$0.502

$0.575

$0.649

$0.609

$0.555

147.3

146.1

159.4

181.8

227.6

222.6

263.2

MERCHANTMARKET ($B) ASP UNIT

VOLUME (B)MERCHANT

MARKET ($B) ASP UNITVOLUME (B)

MERCHANTMARKET ($B) ASP UNIT

VOLUME (B)

ICs DISCRETES TOTAL SEMICONDUCTOR

13745WSource: ICE

18%

20%

9%

7%

9%

13%

10%

9%

—

–2%

11%

11%

17%

18%

6%

6%

10%

11%

Figure 2-19. Worldwide Merchant Semiconductor Market, ASP, and Unit Volume Shipments

+7%+15%+2% +17%

+14%0%+4%+13%+6%+17%+17%+21%–13%

+54%+31%

+17%

+28%

–3%+19%

+8%–1%+6%

+9%+7%

+11%+16%

+10%0%+28%

+25%

Discretes

ICs

Un

its

(Bill

ion

s)

11083ADSource: WSTS

Year

0

20

40

60

80

100

120

140

160

180

200

220

1997199619951994199319921991199019891988198719861985198419831982(FCST)

Figure 2-20. Worldwide Merchant Semiconductor Unit Shipments

Another reason for flat 1996 unit sales is the paring down of inventory by the electronic systemhouses. Although a significant amount of excess IC inventory was not built-up in 1995, systemsuppliers began lowering the ÒtypicalÓ level of parts supply they keep in inventory. For example,while many PC suppliers were keeping three to four weeks worth of IC inventory in 1995, in 1996,IC inventory levels were down to only two days at some companies!

As is almost always the case, an overcapacity situation leads to steady or declining pricing.Conversely, a shortage of capacity will usually lead to dramatically increasing prices. To helpgauge the capacity situation in the semiconductor market, ICE has tracked worldwide capitalspending as a percent of worldwide semiconductor sales from 1979-1996.

As one would imagine, the 26-27 percent spending of 1984-1985 led to significant overcapacitywhile the 16 percent spending rate in 1986-1987 ultimately led to a capacity shortage during the1988 expansion. ICE estimates that it currently takes about a 21 percent spending rate to meet therelentless capacity needs of the semiconductor industry.

Figure 2-21 shows the IC ASP trends from 1982-1997. Also shown on the chart is the average cap-ital spending as a percent of semiconductor sales for each three- or four-year period.

As shown, each period where capital spending averaged over 21 percent or more, IC ASP stayedflat or declined. Even during the boom year of 1984, IC ASP increased only five percent.However, when the spending rate averaged less than 21 percent, IC ASP displayed significantincreases (from 1986 to 1988 and from 1992 to 1994). The 1996 ASP decline was a direct result ofthe ÒexcessÓ spending (particularly for DRAMs) by the IC industry in 1995. ICE forecasts that1997 will display an ASP decline as well.

Figure 2-22 shows the percentage of the market represented by each geographical region for 1982,1992, 1995, 1996, 1997, and 2002. Drawing upon the same assumptions used for ICEÕs electronicsystem production forecasts (shown earlier), the Japanese market is expected to significantlydecline in share while the North American and European segments are forecast to stay relativelyflat. The ROW region will continue its role as the fastest growing region by gaining three pointsof marketshare by 2002. Figure 2-23 shows the 1996 to 2002 CAGR forecast for the four majorsemiconductor market regions.

Figure 2-24 shows 1992-1996 actuals and ICEÕs 1997 and 2002 forecasts for the merchant semicon-ductor market by region. The Japanese market would have displayed only a 12 percent 1993-1996CAGR if expressed in yen! Figure 2-25 shows some key points drawn from the data shown inFigure 2-24.



Ultimately, the evolution of the semiconductor market (i.e., consumption) will follow the elec-tronic system industries. ICE expects the electronic system production base to continue to slowlymigrate to Singapore, Korea, Taiwan, etc., and along with it, an increasing percentage of the semi-conductor market. As has been discussed, the opposite is forecast to happen in Japan.

It is generally agreed that the ROW semiconductor market with the greatest potential in the late1990Õs and early 2000Õs is China. China is the worldÕs largest consumer market, with 1.2 billioncitizens whose incomes are rising rapidly. Currently, though, only a small fraction of Chinesemake enough money to be significant consumers for electronic systems. That means that there istremendous potential demand for all sorts of products, including consumer electronics, comput-ers, communications, and other electronic equipment as the Chinese standard of living increases.

Computers and communications are of particular importance to the Chinese government. ThecountryÕs market for personal computers was 350,000 units in 1993, and is forecast to reach 2.5 mil-lion units by the year 2001. In the area of communications, telephone subscriptions totaled 26 mil-lion units in 1993, and are forecast to jump to 73 million by the year 2001.



$0.95 $0.96$1.01

$0.96$1.00

$1.09

$1.32$1.39

$1.28$1.35

$1.51

$1.75

$2.17

$2.68

$2.40

$2.22

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60

$1.70

$1.80

$1.90

$2.00

$2.10

$2.20

$2.30

$2.40

$2.50

$2.60

$2.70

$2.80

$2.90

1997199619951994199319921991199019891988198719861985198419831982

+1%+5% –5%+4% +9%

+21%

+5% –8%+6%+12%

+16%

+24%

+24%

–10%

–8%

Year

13748ZSource: ICE

AS

P (

$)

1992 - 199419%*

1995 - 199729%*

1982 - 198524%*

1986 - 198817%*

1989 - 199121%*

*Capital spending as a percent of semiconductor sales.

(FCST)

Figure 2-21. Merchant IC ASPs (1982-1997)

Of course, strong demand for electronic products means strong demand for semiconductors. Asshown in Figure 2-26, ChinaÕs dollar value consumption of ICs is forecast to increase on the aver-age of about 32 percent per year from 1993 to 1997. In 1996, the majority of those ICs were builtinto consumer products such as TVs, audio equipment, and game machines. However, demandfor ICs for communications equipment, personal computers, and VCRs will experience thestrongest growth in the coming years.

To support demand for ICs, the country has had to depend on imports, where over two-thirds ofChinaÕs IC units are imported. This is a situation the Chinese government is eager to continue tochange. In fact, the country would like to build enough ICs to support its own needs, and alsoexport a significant amount of devices to the Asia-Pacific market.

As was shown earlier, the 1993-1997 Chinese IC market is forecast to grow a strong 32 percent.Using a conservative 30 percent average annual growth rate, the Chinese IC market in 2002 wouldbe a significant $13.9 billion.



0

10

20

30

40

50

60

70

80

90

100

1982$14.4B

2002$387.2B

6%

21%

28%

45%

26%

22%

18%

34%

Year

Per

cen

t

12132AB

North America

Japan

Europe

ROW

Source: ICE

1992$62.3B

18%

19%

32%

31%

1995$147.7B

1997$146.1B(FCST)

21%

20%

27%

32%

22% 23%

21% 21%

25% 23%

32% 33%

1996$135.6B

(FCST)

Figure 2-22. Worldwide Merchant Semiconductor Markets



0

4

8

12

16

20

24

Region

CA

GR

%

23%

21%20%

12%

19%

20207DSource: ICE

ROW NorthAmerica

Europe Japan TotalMarket

Figure 2-23. 1996-2002 Semiconductor Market CAGR by Region

1993($B)

1994/1993PercentChange

1994($B)


1995($B)

2.5

4.7

2.1

2.5

11.8

23.0

19.6

12.8

12.8

68.2

25.5

24.3

14.9

15.3

80.0

25

14

24

33

21

37

26

37

36

32

36

23

35

35

31

3.1

5.4

2.6

3.2

14.3

31.2

24.5

17.5

17.1

90.3

34.3

29.9

20.1

20.3

104.6

26%

31%

45%

47%

35%

39%

36%

42%

58%

43%

38%

34%

43%

56%

41%

3.9

6.7

3.8

4.6

19.0

43.5

33.4

24.8

27.0

128.7

47.4

40.1

28.6

31.6

147.7

2002(FCST, $B)

8%

2%

11%

9%

7%

13%

–2%

7%

13%

8%

13%

–2%

7%

12%

8%

1996-2002CAGR (%)

13%

7%

16%

17%

13%

21%

13%

21%

24%

20%

20%

12%

21%

23%

19%

18946HSource: ICE

1997(FCST, $B)

3.9

6.0

4.0

5.0

18.9

44.7

28.0

26.0

28.5

127.2

48.6

34.0

30.0

33.5

146.1

7.5

9.1

9.0

12.1

37.7

122.0

60.0

77.5

90.0

349.5

129.5

69.1

86.5

102.1

387.2



1996($B)

–8%

–12%

–5%

—

–7%

–9%

–14%

–2%

–7%

–8%

–9%

–14%

–2%

–6%

–8%

3.6

5.9

3.6

4.6

17.7

39.6

28.7

24.4

25.2

117.9

43.2

34.6

28.0

29.8

135.6

Discrete Markets

North America

Japan

Europe

ROW

Total Discrete

IC Markets

North America

Japan

Europe

ROW

Total IC

Semiconductor Market

North America

Japan

Europe

ROW

Total Semiconductor

Semiconductor Markets

Figure 2-24. Worldwide Merchant Semiconductor Market Forecast

LEADING SEMICONDUCTOR SUPPLIERS

Figure 2-27 provides a breakdown of worldwide IC sales by North American, Japanese, European,and Rest-of-World (ROW) companies for 1975-1996. As can be seen, sales by North Americancompanies were overwhelmingly dominant in the mid-1970Õs. However, by the mid-1980Õs themajority of the worldÕs IC sales were about evenly split between North American and Japanesecompanies. By 1990, the Japanese had increased their share of worldwide IC sales to 48 percent,but in 1992 JapanÕs economy weakened causing their share to begin falling. A persistent economicslump in the following years coupled with the KoreansÕ success in the MOS memory marketcaused the Japanese share to continue falling. The Japanese share fell further in 1996 primarilybecause of the yen to dollar exchange rate and the decline in the DRAM market.



Figure 2-25. Worldwide Merchant Semiconductor Market Forecast Highlights

YearIC Market

($B)IC Market(Unit B)

Domestic ChinaIC Production

(Units B)

PercentDomestic

1993

1994

1995

1996

1997 (FCST)

1.25

1.74

2.38

3.00

3.75

0.85

1.00

1.50

1.90

2.35

0.20

0.25

0.45

0.60

0.80

24

25

30

32

34

Source: China Ministry of Electronics, Industrial Technology Research Institute, SEMI

22761

Figure 2-26. IC Market In China

– In yen, the Japanese semiconductor market from 1993-1997 is forecast to increase at only a 10% CAGR. The total semiconductor market showed a 16% CAGR during this same timeframe.

– Exchange rate fluctuations were the main cause behind the –14% drop in the 1996 Japanese market. The weak Yen will

will again be the primary cause of the negative 1997 Japanese market.

– ROW IC market became larger than that of Europe in 1995.

– ROW and European semiconductor regions are forecast to be larger than Japan by 2002.

– The North American IC market is forecast to beover $120 billion in 2002, more than twice the size of the

Japanese IC market.

Source: ICE 21050B

For the past 21 years European companies have continued to represent between seven and tenpercent of worldwide IC sales. Meanwhile, the share of the ROW companies (primarily Koreanand Taiwanese) surpassed that of the European companies in 1992, reaching 15 percent in 1995and 14 percent in 1996.

A ranking for the worldÕs top ten merchant semiconductor sales leaders in 1996 is given in Figure2-28. The sales for these companies as a group decreased six percent during the year. Together,they held roughly 60 percent of the overall semiconductor market. The most notable thing aboutthis chart is that most of the companies that showed a decrease in semiconductor sales for 1996are heavily involved in DRAMs. Another interesting note is that SGS-Thomson entered the topten semiconductor rankings for the first time. The 1996 top fifteen worldwide integrated circuitsales leaders are listed in Figure 2-29.



Year

70%

18%

10%

2%

63%

27%

8%

2%

43%46%

9%

2%2%

36%

48%

10%6%

36%

42%

32%

14%*

Per

cen

t

= North American Companies

= Japanese Companies

* Korean companies' share was 11 percent in 1995 and 9 percent in 1996.

= European Companies

= ROW Companies��

13743USource: ICE

0

10

20

30

40

50

60

70

80

��

��

��

��

��

��

199619951990198519801975

46%

8%7%

15%*

Figure 2-27. Marketshare of Worldwide IC Sales ($)



Rank

1995 1992

Company1996 ICSales($M)

1996Discrete

Sales($M)


1

2

3

4

5

7

6

8

9

14

—

3

1

2

5

4

6

11

N/A

8

14

—

Intel

NEC

Toshiba

Hitachi

Motorola

TI

Samsung

IBM Microelectronics

Mitsubishi

SGS-Thomson

Total

17,870

9,950

6,970

7,254

6,745

6,700

6,385

5,100

3,545

3,522

74,041

—

1,050

1,755

1,040

1,479

50

315

—

605

600

6,894

17,870

11,000

8,725

8,294

8,224

6,750

6,700

5,100

4,150

4,122

80,935

31

–10

–18

–16

–8

–14

–20

–11

–18

16

–6

18072NSource: ICE

1996

1

2

3

4

5

6

7

8

9

10

—

1996 TotalSemi Sales

($M)

Figure 2-28. Worldwide Top Ten Merchant Semiconductor Sales Leaders

Rank

1995 1992Company


1

2

3

4

7

6

5

8

9

13

14

10

11

12

16

—

2

1

5

3

4

6

9

N/A

8

15

13

27

7

21

13

—

Intel

NEC

Hitachi

Toshiba

Motorola

TI

Samsung

IBM

Mitsubishi

SGS-Thomson

Philips

Hyundai

Fujitsu

LG Semicon

Matsushita

Total

1996 TotalIC Sales

($M)

17,870

9,950

7,254

6,970

6,745

6,700

6,385

5,100

3,545

3,522

3,253

3,150

2,880

2,500

2,325

88,149

31

–10

–16

–19

–7

–14

–22

–11

–20

19

11

–28

–28

–31

–11

–8

20458CSource: ICE

1996

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

—

Figure 2-29. Worldwide Top Fifteen Merchant IC Sales Leaders

worldwide ic industry economic update and forecast

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