As a rookie reporter, my first assignment was to follow the unexciting world of microcontrollers with the ferocity of a hound dog, and if I did a great job, the editors would let me write about Flash memory and eventually the DRAM business. This was before commercial Internet led to first a global delusionary disorder of gigantic proportions.
While tracking the business of silicon, I came to expect the release of the monthly book-to-bill ratio and the annual Semiconductor Industry Association’s annual forecasts with similar enthusiasm (and dread) as People magazine reporters anticipated the Oscars.
Analyzing the B-to-B ratios and SIA data was like reading tealeaves and trying to predict the long-term impact on overall tech business. Fast forward to today, and the news of SIA basically admitting that the 2007 semiconductor sales were going to be slower that expected (1.8% versus previously forecast 10%) didn’t even merit a sneeze on Wall Street. In fact the chip stocks rose, and ended the day up 2.9%, besting the S&P 500.
The SIA press release, in a nutshell, tells you that even though the demand for silicon keeps on increasing, the revenues and profits continue to move in the opposite direction. The Flash memory is everywhere – in our pockets, pumping tunes into our ear buds, storing our photos and capturing life on video. Macbook Pros ship with more memory than I could imagine in my rookie days as a chip reporter.
The big yawn from Wall Street to this report, according to my good buddy and veteran technology analyst Pip Coburn (the only person in my rolodex with more gray hair than me) is that there are no wild swings in the growth rate of chips. The industry is big and boring – and well a bit of a blah.
“Key backdrop is that from 1965 to 2000 the CAGR for semis was a whopping 17%, then in 2001 revenues went down 33%,” he says. SIA has forecasted a CAGR of 5.4% through 2010. “Now the assumed trend line growth is a mere 8-10%! So the wild fluctuations are done! Since they are more modest fluctuations the benefit of “playing the cycle” is much less and therefore the book-to-bill as a data point is more modest,” Pip adds.
For someone who has always looked at the world from a bottom-up perspective – chips being the tarot cards of the tech industry’s health – sometimes I wonder if there will be a new dynamic one needs to look at? I wonder if bandwidth is a metric that one needs to track more closely in order to make reasonable guesses about the future. Any thoughts?
Photo courtesy of Intel Corp.