By John Blyler
Is there any truth to the news that the semiconductor market is in the beginning of a cyclical bull market?
Taken in total, the available evidence seems inconclusive. On the plus side, the Philadelphia Stock Exchange (PHLX) Semiconductor Sector (SOX) index remains up more than 30% from its low in early March, as reported recently in The Wall Street Journal. The PHLX SOX is a price-weighted stock market index composed of 19 well-known semiconductor companies like Intel, Micron, National Semiconductor, Xilinx and others.
On the negative side, Intel’s outlook for the second quarter was less than impressive. Further, iSuppli has released several disparaging reports:
* Nearly 60% of China Chip Manufacturing Goes Unused in Q1 ’09
* Reports of a Memory Market Recovery are Greatly Exaggerated
Still, most of this information is backward looking based on existing chip inventory data. What is the future trend for the next six to nine months? While no one can be sure, perhaps the best indicator can be found by looking over the shoulder of today’s chip architects. What are the leading chip design companies investigating in terms of new chip projects – early trade-off analysis at the architectural level? Data from an aggregation of leading IDMS and EDA design houses, now over 70K unique chip projects since 2005, suggests that chip design investigations are on the rise (see Figure 1).
 |
| Figure 1: The number of architectural investigations for future chip projects picked up significantly in the first quarter of 2009. |
Before discussing this data, one must agree to the overly documented fact that ASIC design starts – and hence investigations – continue to decline. This decline relates to the actual number of design projects, but NOT to die sizes or chip complexity, which continue to rise. Leveling out this slow downward trend in chip investigations and starts allows us to more clearly spot year-to-year patterns. We can “ignore” this overall downward trend in the same way engineers remove a DC bias from a signal. In other words, we can subtract it out.
Let’s return to the data trends represented in Figure 1. Both the actual number and rolling average of design investigations are on the rise. The latter is a trend predictor that shows the growth/decline tendency for the next month. The upward movement of both curves is good news. In fact, this recent growth over the first quarter of 2009 represents a 19% increase from the same quarter (Q1 of 2008) last year. Indeed, the first quarter of this year is starting to look much more like the first quarter of 2007 rather than 2008 (see Figure 2).
 |
| Figure 2: A quarterly look at architectural-level chip investigations suggests that Q1 ’09 may be more like Q1 ’07 than Q1 ’08. |
This is encouraging news since it suggests that chip vendors are looking beyond the current economic crisis to six-to-nine month timeframe when demand for their products will increase. But which product segments are reflected in this growth of chip architectural investigations? Though not shown, the three most sited electronic market segments corresponding to the total design investigation data in Figure 1 include communications, consumer electronics and data processing (server) markets.
Knowing which market segments are likely to experience growth in the next six to nine months is useful, but it doesn’t answer the bigger question of how profitable a potential semiconductor bull rally might be. The answer to that puzzle lies in understanding the profit margins associated with each market segment. If current trends in electronics are any indication, then growth will occur in the embedded but not the PC space. This could mean high product volume but lower profit margin for manufacturers, because embedded chips sell below their PC counterparts. Still, a smaller profit is better than no profit.
Still unanswered is whether this increase in chip design investigations is due to a seasonal rise or whether it indicates the start of a cyclical semiconductor bull market. Only time will tell.