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Wednesday, December 16, 2009

Marketing on the Rebound

Investment analysts have always liked the semiconductor materials and equipment industry because of its stock volatility. The boom and bust cycles that periodically afflict the industry create great trading opportunities. Whether up and or down, you need a stock to move to make a quick return on the stock market. It may be hard to predict a market turn on the Dow, but many smart people think they can correctly estimate the swings in the purchasing behavior of foundry’s and IDM from industry stats like the SEMI Book to Bill.

The volatility of the semiconductor market also creates market share opportunities for the players. In many product areas, market share gains and losses occur on the market upswing, as capacity is constrained, and on the downside. Share gains when fab or OSAT capacity reaches high level offers opportunities for price leaders, second sourcers, “me-too” products, and sometimes for anyone who can simply ship an order. Market share gains during the downswing can come from aggressive price cutting, preference for stable market leaders, missteps in sustaining service levels, or sustained product competitiveness.

At this time, during the upswing, technology buys typically lead the rebound. Through our World Fab Forecast product, we have been seeing investments in advanced 32nm and 45nm technologies pick up throughout the last quarter. Technology-driven markets inherently provide an opportunity for market share gain; offer what no else has or be the first to deliver what people need, and voila, orders will appear. But chasing advanced technology—especially during this slump when staffs are thin and money is tight—can lead to mistakes, expensive ones. TSMC has reportedly suffered yield problems after the rollout of its 40-nm process. The company promises a resolution by early 2010. Will the fix include a change in preferred vendors? And, will competitors including Chartered, IBM, Samsung, Toshiba and United Microelectronics learn from TSMC in the rollout of their 45-/40-nm processes?

Increasingly, the semiconductor equipment and materials market is characterized by segment specialization: memory, logic, microprocessor, analog/mixed signal, discrete, and opto increasingly move to their own step with unique requirements and buying patterns. Share gains can be had by segment specialization and product introduction timing. Samsung recently announced that it will invest 5.5 trillion won in memory chips in 2010 (up from 4 trillion won this year). Discrete lines are shifting to 6-inch and 8-inch wafers. LED chip output will grow over 75% per year.

Capacity buys have not yet appeared with virtually no capacity growth from 2008 to 2010, but they are right around the corner. Some reports have fab utilization rates at 93% in 4Q09. Many expect semiconductor revenue growth of 10% to 22% in 2010, so chips prices will rise and capacity shortfalls will happen soon. While there are no new fabs planned for 2009, new fab construction may mushroom quickly to meet the need for more capacity in 2011 and beyond.

With the upswing taking shape, there is renewed, intense pressure on sales teams to bring home orders. To support an aggressive sales effort, astute companies are restoring marketing budgets to 2008 and 2007 levels and more. It’s a race to sell on the upswing and those companies who are unable or slow to respond to the specific and lucrative opportunities for market share gains will lose in an increasingly narrow marketplace. Some firms are still paralyzed by the dramatic industry slump, unable to pull the trigger on marketing and new product plans. They may think that marketing no longer plays a prominent role in their business plans, that the industry has entered a new era where “marketing is dead.” They may think that simple customer roadmaps and key account planning is all that’s required to ride the upturn back to prosperity.

Successful marketers are already executing programs to aggressively sell on the upswing. They have technology statements and segment plans. They are getting ready to aggressively support capacity buys that will grow throughout the next two years. They are planning to gain market share and they smell their competitors’ blood. It’s no longer about survival; its about winning, its about growing.

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