Chip Industry Up for Recovery?

Welcome signs have been on the rise signaling the recovery of the semiconductor markets.

Major market researchers upgraded their market prospects for the semiconductor industry as the chip sales have been growing in the second half of this year. The U.S. market watcher Gartner Group adjusted its growth forecast of the semiconductor market upward from a previous 8.3% to 11.2% for the year. Isuppli, another market research institute also predicts a 9% growth rate for the year. Reflecting these rosy prospects, chip stock prices have taken a simultaneous move upward. The share price of Samsung Electronics rose on August 19 to close at 430,000 won, a little short of the record high of 432,000won per share.

Is the chip industry taking on the upward trends?

Referring to a constant recovery of the semiconductor market in the second quarter this year, Gartner analyzed that market conditions are dramatically improving. The market researcher suggested as evidence the operation rate of over 80% of chipmakers along with a rising demand for silicon wafers, a material used to make semiconductors. Gartner also translates stabilizing inventory and chip prices as well as soaring demand for PCs, mobile phones, PDAs, and Digital appliances as positive factors.

Seo Do-won, chief researcher at Korea Investment and Securities Co., Ltd. (KITC) said, “Incomes for chipmakers are increasing as the cost for D-RAM manufacturers is dropping whereas marketing prices are kept intact.” He also noted, “The recovery of the IT industry is materializing.” Chairman Michael M. of Flextronics, a world‘s leading company with expertise in outsourcing electronics also backed up the theory of an IT recovery, saying, “A large-scale recovery of the IT sector is expected considering that a majority of IT-relevant firms will need to replace their worn out equipment.”

Optimism is still premature

There are skeptics as well who believe the optimism for chip recovery premature. They explained that the PC market, the largest consumer of semiconductors, does not seem to be recovering in full swing and that the investment of the major chipmakers is still sluggish. Major chipmakers, such as Intel, and Texas Instrument, are still focusing on dividend distribution rather than on reinvestment for new technology development, which provides another gloomy factor for chip market prospects.

“The D-RAM market has only small room for further improvement and the LCD market also has a limitation for massive growth”, projected Woori Securities` analyst Choi Suk-po, adding “It is too early to expect a full-blown recovery of the chip industry.”

Tae-Han Kim freewill@donga.com