Has the semiconductor industry entered an era of no-profit booms? Can the semiconductor industry no longer have enough return on investment to meet the unprecedentedly high demand for capacity? At the SEMI Industry Strategy Symposium held at HalfMoon Bay, California, LamResearch President and CEO Stephen Newberry commented on the state of the industry and pointed out that it is appropriate to describe the current complex financial situation with a no-profit boom. Newberry's speech was evaluated by the participants as the best speech at the symposium, but its views were also questioned. Some people believe that the semiconductor industry is still struggling to make profits in a prosperous market.
The era of no-profit prosperity has also appeared in other industries, such as the aluminum industry in the 1970s. The no-profit boom was defined at the time as an industry running smoothly but unable to achieve sufficient return on investment to build new production facilities to meet the growing needs of customers. At the beginning of the speech, Newberry proposed whether the semiconductor industry is entering a similar era. He put forward some ideas to find the root of the problem and the current industry strategy to deal with this state. Finally, he gave the supply chain how to survive in a challenging market. Suggestions.
A noteworthy point in the current market situation is that IC components have grown faster than the previous 12 years since 2003, while the average selling price (ASP) has continued to fall to the alert level. During this period, the unit price fell faster than the unit cost, which seriously eroded the profits of the industry. Newberry compared the current market environment with the previous two periods: strong demand from 1992 to 1997 accompanied by strong price growth; from 1998 to 2002, the market was mixed and the price fluctuated sharply. By comparing the average selling price, operating profit and component growth correlation with these periods, it shows the uniqueness and sin of the current market.
Newberry also analyzed the impact of the linkage between average selling price, component quantity and operating profit on various product manufacturers. All manufacturers can feel the challenge of profit, especially for logic circuits, DRAM/NAND and NOR manufacturers. Newberry gave operating profit for the top 40 chip makers, and the data showed that average operating profit has fallen from 23% in 2003 to 12% in 2007. More notably, almost all of the profits in 2007 were created by 13 of the 40 manufacturers. In fact, 15 companies experienced losses last year. Excluding Intel, TI, TSMC, and fabless and analog circuit manufacturers, the entire semiconductor industry's profit margin is -1%, but the number of components shipped is growing.
When talking about the reasons for this situation, Newberry specifically mentioned the memory market, pointing out that too many vendors can easily obtain capital and adopt the same strategy to enter the market, resulting in oversupply. All manufacturers have adopted a strategy to reduce costs, which is a race to enter the bottom of the price. Newberry gives the financial status of various product manufacturers in history. He stressed: Obviously, cost is not a key factor in generating profits.
The current industry has reduced costs as the only way to reduce the profits of upstream industries, which has seriously affected the equipment material supply chain. Newberry pointed out that suppliers are responsible for achieving Moore's Law, achieving economies of scale, and improving yields, and they are very effective, but they cannot overcome the imbalance between supply and demand and ineffective business models. According to Newberry's data, even if the wafer equipment supplier's total profit of about $6 billion is fully compensated to IC manufacturers, it will not be able to fill the profit gap.
Finally, Newberry summed up the way the aluminum industry went out of the no-profit boom. The aluminum industry is back in good shape by making more efficient use of global data, a deeper understanding of demand and inventory trends, a tighter financial system, and broader supply chain cooperation. Newberry emphasizes that the semiconductor industry can draw on many of the same methods to capture the changes necessary to overcome current problems.
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