The global semiconductor industry is expected to grow in the low single-digit range next year, following a modest revenue increase this year, Fitch Ratings said in a statement posted on its Web site last week.
The industry's outlook for next year is stable, driven mainly by solid demand for consumer electronics, the ratings agency said in the statement on Thursday.
The positive outlook follows a similar forecast offered by Rick Tsai (蔡力行), the chief executive officer of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) in October.
But in contrast to Fitch's low single-digit growth forecast, Tsai told investors on Oct. 25 that revenues for the industry could increase by a figure in the mid-to-high single digits next year, with foundries enjoying even higher growth rates.
The prospects for the industry have been clouded by the anticipated slower demand in the US and European markets because of the fallout of subprime mortgage problems. But Fitch believes increasing consumer spending in developing economies will offer a partial offset, the statement said.
Consistent with the growing demand for consumer electronics in developing countries, semiconductor companies will be more likely to "use foundries for process development and manufacturing, outsource back-end packaging, and test and form research and development partnership," Fitch said.
That will benefit TSMC and rival United Microelectronics Corp (UMC,
Fitch offered TSMC a stable outlook next year and said the company would see growing opportunities for consumer electronics applications like liquid-crystal-display driver integrated circuits (IC) and power management ICs as a result of more outsourcing orders and its acquisition of eight-inch facilities from Atmel Corp.
"More conservative capital spending in 2008 is also likely to support TSMC's capacity utilization and hence its profitability," the ratings firm said.
Tsai said that the company would cut capital spending significantly next year after spending US$2.6 billion this year. He did not give an exact figure.
As for UMC, Fitch also gave a stable outlook on the company, but did not expect UMC to carry out a share buyback plan like TMSC to provide benefits for shareholders aside from annual dividend giveouts, the statement said.
TSMC started repurchasing its shares on the open market on Nov. 14 after an earlier agreement it reached with major shareholder Royal Philips Electronics NV. The company planned to buy back as many as 800 million shares before Jan. 13 for NT$48.5 billion (US$1.5 billion).
Overall, Fitch said the semiconductor industry "will experience less volatility and relatively more predictable free cash flow" next year, but warned of challenges such as pricing pressures, a memory chip surplus and slightly elevated inventory levels.
Memory manufacturers will be particularly impacted by the excess supply next year after many of the industry's DRAM and NAND flash makers have boosted their manufacturing capacities this year to meet rising demand for consumer electronics.
The gross margin will narrow next year amid a highly competitive market, Fitch said.
In contrast to Fitch's bearish outlook, Citigroup's semiconductor analysts appeared much more upbeat on the memory segment in view of a larger-than-expected plunge in DRAM prices in recent months, a Citigroup report issued on Friday said.
Citigroup forecast the memory sector's downward trend would bottom out in the late first quarter of next year and recover in the first half.
The US brokerage upgraded Samsung Electronics Co and Hynix Semiconductor Inc of South Korea.
It also maintained buy ratings on Powerchip Semiconductor Corp (力晶半導體), Qimonda AG, Elpida Memory Inc, Micron Technology Inc and Sandisk Corp, the report said.
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