10 Updates

The Semiconductor Cycle Is Dead...Again!

Apr 30 2014, 9:18pm CDT | by

I want to be the first to say it: The Semiconductor Cycle is dead! This is something that is brought up every time the semiconductor cycle has an extended upturn.  It’s also said every time the...

Filed under: news

 
 
 

12 weeks ago

The Semiconductor Cycle Is Dead...Again!

Apr 30 2014, 9:18pm CDT | by

I want to be the first to say it: The Semiconductor Cycle is dead!

This is something that is brought up every time the semiconductor cycle has an extended upturn.  It’s also said every time the industry is at the end of a downturn.  Just when the next change is about to happen, then more and more industry leaders start to pronounce the end of semiconductor cycles until everyone starts to believe it.

I figure, who better to start that ball rolling than a semiconductor industry analyst.

But do I believe it?  Not for a second!

So why bring it up now?  Because we are at the onset of a period that has all the earmarks of an extended upturn, and that will bring people out of the woodwork prognosticating the end of the semiconductor cycle.  Rather than just joining these folks, I figured I would be both the first to proclaim the end of the semiconductor cycle as well as the first to debunk that line of thought.

This post’s graphic shows how prices for both DRAM and NAND flash have been relatively stable for over 18 months.  With this stability comes profitability for chip makers and a general sense of well-being in the semiconductor industry.

The semiconductor industry largely expands through organic growth.  Chip makers typically re-invest their profits more aggressively during this phase of the semiconductor cycle.  A couple of years later this aggressive investment blossoms into an oversupply, and a price collapse ensues .  You can almost set your watch to the rhythm: Two years up, two years down.

Since a sizable portion of the market consists of undifferentiated commodities, and since production is capital intensive, producers are highly motivated to run their factories at full bore at all times .  When an overcapacity strikes, they take advantage of the lack of differentiation and cut prices to take away enough market share to find homes for their factories’ output.

The competitor who lost this market share responds by cutting prices even lower, and a race to the bottom ensues, causing a collapse.

Hasn’t the Industry Rationalized?

Investment analysts often ask me if it will be different this time, if the recent consolidation in DRAM (and certain smaller sectors) won’t cause suppliers to become “Rational” and invest more moderately.  Some point to other industries that have undergone similar changes: US railroads and automotive aftermarket products.

Although I have heard these arguments a few times, I have been unable to locate studies that show these markets to have changed.  Perhaps a reader can point me in their direction.  For now I must be skeptical that this even occurred.  It has the hallmarks of a myth.

But say that this did happen in these other industries, and say that somehow, without collusion, semiconductor makers could pace their factory upgrades and expansion to perfectly match the market’s growth.  There would ensue an extended period of profitability.  Life would be good.

Life would be so good, in fact, that outside investors would place bets on a new entrant to the market.  That would throw a wrench into the works, creating an oversupply, and the market would undergo another collapse.  This is not conjecture – it’s what happened when Japan entered semiconductors in the late 1970s, Korea in the late 1980s, and Taiwan in the middle 1990s.

In other words, it’s certain that there will be a collapse.  The only question is when it will hit.

Why Will this Cycle be Extended?

Although a lot of very good analysts dedicate a significant effort towards predicting chip consumption , and produce very reasonable demand forecasts, my company has had a lot of success tying the timing of semiconductor cycles to prior years’ capital investments.  This usually produces very good results, but things look a little different this time.

Memory processes have reached a threshold which promises to be tough to cross.  In particular NAND flash looks like it will cause a lot of grief to process engineers and fab managers.  Two transitions are taking place today, both of which require the use of new materials and processes that have never before been successfully brought into production.  Without going into a lot of detail, allow me to say that Objective Analysis is warning our clients that budding shortages could extend into 2016 or even 2017.

Nothing Has Changed

In summary, though, the industry hasn’t changed.  It’s a capital-intensive undifferentiated market , with a lag time between investments and production volume, and this is the recipe for industry cycles.

Investors should plan for continuing semiconductor growth but keep their eyes wide open for signs of an oversupply.  It may not occur until 2017, but it will happen, and when it does it is likely to surprise all those folks who confidently stated that the semiconductor cycle had died.

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

Cambodia's Famous Battambang Circus
KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rak ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

New Zealand All Blacks Squad Announcement
KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

Federal Aviation Administration Bans All US Flights To Israel
KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the De ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri Hishammuddin Hussein ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

INDIA-CHINA-DIPLOMACY-TRADE
PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selata ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

Government Weekly Cabinet Meeting
KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million in compensati ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

Iskandar Johor Open - Previews
JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocati ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

EurAsia Cup presented by DRB-HICOM - Day One
PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Kidex) tod ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Bangladeshi plane catches fire at Nepal airport, passengers safe
Kathmandu, July 28 (IANS) A Bangladeshi aircraft caught fire while landing at Kathmandu's Tribhuvan International Airport (TIA) Monday afternoon, officials said.
 
 
Shift work can worsen asthma, pneumonia
London, July 28 (IANS) A research has found that drugs widely used to treat lung diseases like asthma or pneumonia work better with the body clock.
 
 
Decoded: What triggers sexual arousal in you
New York, July 28 (IANS) Know why just looking at an attractive face stimulates sexual arousal? Well, it takes two to tango!
 
 
Turn your selfie into emoji with this app
New York, July 28 (IANS) Tired of seeing the same yellow-faced smileys? In an age of selfies, how can emojis be far behind?
 
 
 

Latest from the Network

Indian shuttlers miss out on mixed team bronze
Glasgow, July 28 (IANS) Indian shuttlers failed to replicate the performance of the 2010 Commonwealth Games at the 2014 edition here as they lost the mixed team bronze medal playoff 2-3 to Singapore at the Emirates...
Read more on Sport Balla
 
Bangladeshi plane catches fire at Nepal airport, passengers safe
Kathmandu, July 28 (IANS) A Bangladeshi aircraft caught fire while landing at Kathmandu's Tribhuvan International Airport (TIA) Monday afternoon, officials said. Airport police said the wheels of Biman Bangladesh...
Read more on Business Balla
 
Narang settles for men's 50m rifle prone silver
Glasgow, July 28 (IANS) Indian shooters continued to bring home more medals as Gagan Narang won the country's third medal Monday clinching the men's 50-metre rifle prone silver at the Commonwealth Games here. Earlier...
Read more on Sport Balla
 
Nepali parties prepare to make Modi visit a success
Kathmandu, July 28 (IANS) Three major political parties of Nepal, at a meeting here chaired by Prime Minister Sushil Koirala, Monday decided to make the upcoming visit of Indian Prime Minister Narendra Modi to the...
Read more on Politics Balla
 
Fans hospitalised following Keith Urban's concert
Washington, July 28 (IANS) Australian singer Keith Urban's concert ended with about 22 concert-goers getting admitted into a hospital for alcohol-related problems. For many fans, Urban's Saturday night show in...
Read more on Celebrity Balla
 
Israel embarks on 'unlimited ceasefire' policy in Gaza
Jerusalem, July 28 (IANS) Israel embarked on an "unlimited ceasefire" policy in Gaza Monday morning after 21 days of conflict claimed over 1,030 Palestinian lives. The new policy, adopted amid mounting international...
Read more on Politics Balla
 
Australia faces false imprisonment claims by Tamil asylum seekers
Sydney, July 28 (IANS) Over 150 Sri Lankan Tamil asylum seekers, who were brought to mainland Australia after nearly a month Sunday, have claimed damages for false imprisonment in the high seas by the country's...
Read more on Politics Balla
 
Looking forward to champagne after delivery: Kimberley Walsh
Los Angeles, July 28 (IANS) Singer Kimberley Walsh has revealed she's planning to take a bottle of champagne with her to the hospital when she goes into labour. She is seven months pregnant with her first child with...
Read more on Celebrity Balla
 
Discus thrower Jai Deep narrowly misses bronze in para event
Glasgow, July 28 (IANS) Indian para-discus thrower Jai Deep narrowly missed out on the bronze medal finishing fourth in the men's F44/42 final of the Commonwealth Games here Monday. England's paralympian Dan Greaves...
Read more on Sport Balla
 
Shooter Narang wins men's 50m rifle prone silver
Glasgow, July 28 (IANS) India's ace shooter Gagan Narang won the men's 50-metre rifle prone silver in the finals of the Commonwealth Games here Monday. Australian veteran Warren Potent, 52, clinched the gold and...
Read more on Sport Balla