Push or pull?

A lively debate broke out at the recent SEMICON West show in San Jose, California, according to nay sources. I don't think fisticuffs ensued, but the members of a semiconductor executive panel disagreed heartily with each other over this question: Will the semiconductor industry recover due to consumer pull or technology push?

According to a recent press release issued by Semiconductor Equipment and Materials International (SEMI), a semiconductor industry association based in San Jose that sponsors the SEMICON shows, the executives' opinions were very divided.

On the side of technology push sat Scott Kulicke, the chairman and CEO of Kulicke & Soffa Industries, a major semiconductor assembly equipment provider. Kulicke argued that integrated circuit (IC) advances enable new products but that delays in ramping up wafers based on 130-nanometer technology have triggered a shortage of new products for buyers to purchase. When technology, though, provides consumers with new goodies, consumers respond wholeheartedly.

To support his case, Kulicke related the example of Japan's obsession with picture phones, those enablers of photo messaging. Japanese buyers have devoured these devices, despite the fact they're in the middle of an extremely deep recession. To Kulicke, this example is a classic case of technology pushing consumer reaction.

In the opposite camp was Art Zafiropoulo, chairman and CEO of Ultratech Inc., a manufacturer of semiconductor photolithography equipment. He disagreed with Kulicke by championing the idea that spending is driven by consumer confidence, not new products. He negated the idea that a new killer application would be big enough to drive a recovery. According to Zafiropoulo, consumers will only buy products when confidence returns; when that happens, we'll see a recovery.

Consumer confidence is key, but what about the confidence of those driving the semiconductor manufacturing industry itself? SEMI weighed in with its recently released midyear edition of the SEMI Capital Equipment Consensus Forecast, a survey of some of the leading semiconductor manufacturing equipment providers. SEMI pegged a 4% sales increase for these manufacturers from the $19.8 billion they posted in 2002. The industry is anticipated to sell $20.5 billion of new chip manufacturing, testing and assembly equipment in 2003, with 2004 seeing 24% growth to $25.4 billion.

That's good news for us a notch down the chain in the electronics manufacturing business. Depressingly, when the cyclical semiconductor market is bad; it's very bad. All told, that industry declined about 60% from 2000's historic levels and the board assembly business suffered right along with it. On the other hand, an upturn for semiconductors most likely means an upturn in the assembly of those semiconductors onto printed circuit boards (PCBs). I'll be looking for your smiling eyes when this uptick finally happens.

Where's this double digit growth coming from? According to Stanley Myers, president and CEO of SEMI, chip makers are installing 300 mm wafer foundries and are gearing up for advanced technologies. Semiconductor assembly and packaging equipment will lead the recovery with a 30% growth to $1.5 billion this year, and test equipment will increase about 18% to $3.1 billion.

So, the question remains: Technology push or consumer pull? Perhaps the answer is a combination of both ideas. According to Jim Feldhan of Semico Research, a major driver for the semiconductor industry--the next killer app, in fact--will be technology advances ha the consumer market. Semico suggested that wireless networking; home uses such as automation, broadband, health care, and entertainment; global positioning systems; security; and telematics would provide the technology and consumer demand for products that would drive the semiconductor industry and, eventually, our PCB assembly market.

Consumer demand and new technology? Sounds pretty good. Now if only we could predict when.

Lisa Hamburg, Editor-in-Chief

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Editor's Note: So, what do you think? Will the semiconductor market recover due to consumer pull or technology push? Send your thoughts to me at [e-mail].