Electronics360 Editorial Director Bruce Rayner talked with Dale Ford, vice president of IHS Electronics & Media, on June 20 about the IHS updated forecast for the global semiconductor industry. What follows is an edited transcript of that conversation.
Electronics360: Give us an overview of what you’re seeing for the remainder of 2013 in the electronics sector and for the semiconductor sector in particular. What are some of the big-picture trends we will see play out over the next six months?
Dale Ford: We have just put out our latest forecast [June 17] so it’s a great time to talk about what we are seeing now as we move into the second half of the year. Based on the industry’s performance in the first half of the year, many companies and observers in the market are really becoming pessimistic about the full-year growth for the semiconductor industry. They are pulling their expectations all the way down to the range of 1.5 percent and 2.5 percent growth for the year.
IHS pulled its forecast down as well but not that low. Previously in March we published our growth rate for the global semiconductor industry at 5.6 percent for the year. We’ve always been expecting the second half to be key to growth.
Now, in our latest forecast, we pulled the annual forecast down to 4.7 percent. But we have not become as pessimistic as other players. The reason so many people are becoming more negative is because of what they saw happened in the first quarter of the year. The overall semiconductor industry fell sequentially from the fourth quarter 2012 to the first quarter 2013 by 5.1 percent. Q1 is almost always down but that was a fairly strong decline.
What you have to realize though is that the exchange rate between the Japanese Yen and the US dollar played a big role in pulling that growth number down. The policies of Japan’s Prime Minister Shinzo Abe and what’s he’s been encouraging for a new monetary policy by the Bank of Japan has had a big impact on the dollar-to-yen exchange rate and, in turn, the growth rate of the global semiconductor industry.
As a result, even though the revenues of the Japanese semiconductor companies were essentially flat in the first quarter, when you translate the numbers into dollars, revenue for the Japanese semiconductor companies went down by 8.7 percent. And that pulled growth for the entire global semiconductor industry down to a 5.1 percent decline from what would have been a 3.6 percent decline.
So that’s had a big impact on the psychology of the semiconductor industry and those watching the market. And it had a big impact on the second quarter semiconductor market growth because the dollar-to-yen exchange rate continued to worsen in the second quarter.
But as we look to the second half of the year, we see signs of things coming into play that show expectations improving for a stronger second half, not just by IHS but within the U.S. Federal Reserve. In fact, during the week of June 17, we saw the Federal Reserve Chairman Ben Bernanke announce he will bring an end to quantitative easing, the economic stimulus policy he’s been engaged in [since November 2008].
Now, the stock market reacted very negatively to that announcement, not because the market saw it being negative for the economy but because of issues with how the financial part of the change in policy will work.
So, the end of quantitative easing is an indicator of economic improvements. The Fed is saying that the U.S. economy is becoming strong enough to move forward on its own without the need for the stimulus.
So I see that as a good sign, as we move into the second half of the year, for improved growth prospects that will help pull up the electronics and semiconductor industry in the second half of 2013. The fundamentals are improving. The economy is the primary driver of growth in electronics and semiconductor industries now and those fundamentals seem to be improving in the second half.
Electronics360: So as the U.S. economy improves there are global implications?
Dale Ford: Yes, it has global implications. Now, China is having a tougher time more recently. They’ve seen their level of manufacturing activity go down much lower than they’d want, so they are looking at some stimulus in China, which is a different director compared to the U.S.
Europe is getting more control of its debt issues and starting to pull out of the deep pit it’s been in. They have worked through a number of the crises they’ve had and are putting in place systematic solutions that will help in Europe in the long run. But Europe is still the weakest of all major regions.
And hopefully in Japan the new economic policies of the Abe government will also help Japan to strengthen.
Electronics360: So first half was down with some strengthening in the second half. What about 2014?
Dale Ford: We see ourselves at the start of a new cycle in the semiconductor industry. IHS believes we started this new cycle in the fourth quarter of last year. We expect 2014 will actually be the peak of a new cycle. We see this year coming up to 4.7 percent growth and we see ourselves actually growing over 7 percent in 2014. So we see that this cycle will continue to build in strength and 2014 will be a fairly strong year of growth for the semiconductor industry.
Electronics360: Reasons for the strong growth in 2014? Specifics?
Dale Ford: There are some key areas to look at. One is the economy, which we’ve already talked about. But a key driver in all of this is the strengthening of the mobile space, followed by the automotive and industrial sectors. These are the strongest growth drivers for electronics and semiconductors.