Chip industry to see utilisation rates stabilise

The global semiconductor manufacturing industry is expected to take one small step back from the precipice in the second quarter, as utilisation rises for the first time in a year, according to iSuppli.

Utilisation of worldwide semiconductor capacity is expected to rise to 60 per cent in the second quarter of 2009, up from 49 per cent in the first quarter. This will mark the first quarterly sequential increase in total semiconductor utilisation since the second quarter of 2008.

“The expected rise in utilisation rates in the second quarter signals the semiconductor industry has entered into the recovery phase,” said Len Jelinek, director and chief analyst, semiconductor manufacturing for iSuppli. “Semiconductor suppliers already have cut their fab workforces and have shut down pieces of manufacturing equipment that they have identified as excess gear that is not needed to serve the present low level of demand. These actions are paying off, boosting utilisation rates at these fabs.”

Because of these headcount reductions and equipment shutdowns, total semiconductor manufacturing capacity declined to 732 million sq in of silicon in the first quarter of 2009, down from 756 million sq in of silicon in the fourth quarter of 2008.

With capacity having come into better alignment with demand, utilisation is expected to rise to 75 per cent in the third quarter of 2009 before experiencing a modest decline in the fourth quarter. After remaining flat in the first quarter of 2010, utilisation will climb during the following quarters.

On the demand side, semiconductor manufacturers late in the first quarter reported minor improvements in order rates.

“The results of these actions will be manifested in the form of improving margins for semiconductor integrated device manufacturers (IDMs) and pure-play foundries in the second quarter,” Jelinek said. “Depending on how effectively they’ve cut costs and adjusted to reduced demand, companies will be able to show their investors solid financial improvements, especially in terms of cash flow.”

For the overall semiconductor industry, rising utilisation sets the stage for more solid chip pricing in the future. This could help the chip industry to return to revenue growth in the coming quarters.

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