3-5pc MEMS growth this year modest slowdown for 2009

MIG MEMS Executive Congress Report

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3-5pc MEMS growth this year, modest slowdown for 2009

The investor organizations have also warned that the bar for getting funding in the future was going to be much higher

Monday, November 17, 2008

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USA: The MEMS sector will finish 2008 with 3-5 percent growth, and see only a modest slowdown in 2009, industry analysts agreed at the MEMS Industry Group's Executive Congress in Monterey, earlier this month. However, investor organizations warned that the bar for getting funding in the future was going to be much higher.

"The first half of 08 was really great, but the last quarter was a disaster in the automotive business, and there are some questions of reductions and postponements of orders in the consumer sector," said Yole Développement managing director Jean-Christophe Eloy, noting that no cars will be manufactured in Europe in December. So MEMS industry growth now looks like it will be about 5 percent in 2008.

As for Q1 09, "No one knows what will happen," he says. "Our customers in automotive and consumer markets we've been talking to say they have no idea." At best, 2009 may equal the 5 percent growth of 2008, Eloy argues, as there's plenty of healthy growth potential from new applications, even in the consumer area, and medical components makers are not postponing investment, though of course Q1 and Q2 could be worse than expected. "Still, we see 15 totally new products in 2009 that will have a big impact on the market," says Eloy. "So we're not forecasting a decline, just flat."

For equipment makers, however, things will be worse, he notes, as capital spending will likely be cut back in the uncertainty, and end of year orders are likely to be pushed out. There's also lots of excess capacity in the industry. "None of the 250 companies producing MEMS want to disclose their utilization, so we're guessing," says Eloy. "But most utilization is very low, 40-50 percent maximum. It will take two to three years to work through."

The sector's move to 8-inch wafers is adding big chunks of capacity to be absorbed. Ten MEMS companies are already using 8-inch wafers, and 12 more plan to move to the larger diameter in the next 18 months or so. Some of these companies will likely forge ahead with their investment because they need the larger diameter to do wafer level packaging, while others need the capacity for high volume automotive or consumer applications. But some others will now likely push out their plans a while now.

Other analysts are somewhat less optimistic. Marlene Bourne, president and principal analyst of Bourne Research, projected negative growth in 2009 for all MEMS applications except sensors for industrial automation, which she argued remain by far the best market opportunity. She figured the MEMS sector will see 3-4 percent total growth in 2008, after modest 5.8 percent growth to $8.6B last year. She was already been forecasting slower growth in major maturing MEMS markets back in April before the downturn, seeing neglible unit growth averaging only 6.4 percent through 2012, while extreme cost pressures in consumer markets hold revenue growth down to 5.5 percent. "I'm starting to feel like the Eeyore of the industry," said Bourne.

Jeremie Bouchaud, director and principal analyst for MEMS at iSuppli, hazarded no specific prediction for next year, but was optimistic that consumer spending for items like MP3 players and games under $200 or so for Christmas would keep up MEMS sales through 2008. He reiterated his five year forecast made last summer for 13.5 percent average annual growth in units, with 7% annual price erosion, for 6 percent growth in revenues, as the big markets for inkjet print heads and optical MEMS for TVs decline, but the rest of the market enjoys healthy double-digit growth. That means a doubling of units shipped over the next five years, and an $8.8B market in 2012, driven by growth in sensors for automotive, consumer and mobile phone applications.

Bouchard noted that online sales of software applications that use motion sensing by accelerometers was generating revenue for both cell phone makers and network operators, assuring inclusion of the sensors in phones. The top three paid downloads from the Apple store are games that use the accelerometer. Location based services that depend on inertial navigation using accelerometers, gyroscopes and perhaps magnetic and altitude sensors should similarly generate revenue in the future.

If the market watchers had no clear vision of big changes, the investors were quite emphatic that it was a new reality for funding companies. "The IPO market is now closed, and when it reopens, companies will need to have a larger market and one or two quarters of profitability to go public," said Intel Capital's Tammi Smorynski, senior investment manager. She noted acquisitions haven't slowed, but valuations have dropped from the good old days of a few months ago. "Intel remains very interested in sensors, sensor networks, and low power applications," said Smorynski, citing particular interest in things like accelerometers and gyroscopes, though only if the products have a potential market large enough for a reasonable return on venture capital, which was admittedly often difficult for low cost consumer components. "You can't get to a $100M market with $.30 items," she said.

The crowd was also buzzing about leading venture capitalist Sequoia Capital's recent letter and presentation to the CEO's of all its venture companies, telling them, as one summarized it, to cut costs by 20 percent and get to cash flow positive or die, since this unprecedented downturn was likely to last for a long time.

On a brighter note, Michael Connelly, partner at McDermott Will & Emery, noted he was seeing an increase interest from foreign investors in US technology companies. Where is money easiest to get? "Dubai has an excess of money and sees now as the time to invest," he said. "China is on its way, with a lot of money sitting there and is quickly pushing to resolve the governmental issues to buy foreign for the future of China. Some 40 percent of Chinese investors want to go abroad, especially to the US, or at least they did a month ago."

Source: SEMI, USA

©CIOL Bureau

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