November  20 , 2007

Half Full /Half Empty, Volume 1, SIA

(c) copyright View from Silicon Valley, 2007.  All rights reserved.



Washington insists the US economy is strong.  Wall Street assures us "all is well."  In true California style, Sacramento insists there is no problem which cannot be overcome with a positive attitude (and maybe another bond issue).

Mainstream media articles increasingly complain economic conditions touted by Washington (or Wall Street or Sacramento) are different from those seen on Main Street.

You can get news and insight on falling house prices, tight credit conditions, burgeoning inflation, falling national employment and/or any of a half-dozen areas of concern anywhere, so we're not going to bother you with our opinion.

However, there are several Silicon Valley-specific statistics we believe need highlighting.  How your situation is personally affected by them, probably dictates your opinion of the Silicon Valley economy.

First up is the Semiconductor Industry Association's (SIA's) monthly report on semiconductor sales.  We update the last four years of SIA data every month on our web site at: http://www.viewfromsiliconvalley.com/id257.html

MSM headlines universally tout SIA sales as strong.  Looking at the top-line figures, it's hard to disagree.  Over the last four years, SIA total sales are:

2004: $213.0B
2005: $227.5B
2006: $247.7B
2007: $250.1B*  (*= run-rate)

Adding year-over-year growth since 2004, you find:

               vs.'06 vs.'05 vs.'04
2004: $213.0B
2005: $227.5B                 6.8%
2006: $247.7B          8.9%  16.3%
2007: $250.1B*  1.0%  10.0%  17.4%  *= run-rate

If you're running a semiconductor company, this is strong stuff!  Your millions of options shares are worth big bucks. 

If you live, work or sell in SIA's "Asia Pacific" region, the news is even better:

               vs.'06 vs.'05  vs.'04
2004:  $88.8B
2005: $103.4B                 16.5%
2006: $116.5B         12.7%   31.2%
2007: $120.3B*  3.3%  16.4%   35.5%  *= run-rate

This is titanic growth for such a mature industry.  This is not just half-full, your cup is brimming over!

Now if you want to find a weakness, you point out 2007 is only up 1%, which might be a cause for concern.  Even 2007's 3.3% growth in Asia Pacific could be observed as less than China's admitted rate of inflation (running ~6.8% if memory serves).

While we agree, this is quibbling compared to what we see as the real downside in SIA results.

If you depend on "Americas"-originated semiconductor sales, the same snapshot develops a somewhat different picture:

               vs.'06 vs.'05 vs.'04
2004:  $39.1B
2005:  $40.7B                 4.3%
2006:  $44.9B         10.3%  15.0%
2007:  $41.6B* -7.4%   2.1%   6.4%  *= run-rate

Yikes! 

Americas-based SIA results are actually down -7.4%!  The compound SIA annual Americas growth rate since 2004 is only 1.36%.

Three years of strong top-line SIA growth yielded growth below CPI inflation.  (Not that we concede CPI is representative of the inflation experienced on Main Street, but that's another series of missives...)

Conclusion:
If you buy, sell or build with semiconductors in the US, the glass can reasonably be graded as "half empty."

How's your stock option package?