Analysts at IC Insights this week released an encouraging update, reporting that the top 20 semiconductor suppliers averaged a 21% sequential sales increase in Q2, a 37 point swing from the Q1 16% sequential fall averaged for the then top 20 suppliers.  (See chart below.)

As it has in several reports since December 2008, IC Insights said in its Thursday afternoon Mid-Year Update to The McClean Report that when looked at on a quarterly basis this downturn is not as far from recovery as naysayers would believe.

"The semiconductor industry continues to move through this silicon cycle very quickly on its way to recovery," Bill McClean, president of the research company, said in a statement. "Over the past few years, much has been said regarding the 'maturing' of the semiconductor industry and less volatile cycles. However, IC Insights’ new Mid-Year Update to The McClean Report shows that the trend toward a less volatile semiconductor market does not apply when looking at the industry on a quarterly basis."

IC Insights reported that much of the Q2 semiconductor sales surge was due to inventory replenishment after the severe cutbacks of Q4 2008 and Q1. Seasonal demand for electronic systems is forecast to drive Q3 semiconductor sales up by at least another 8%, the company estimated. The company earlier this month reported expectations for a second half sales surge,estimating an 18% jump in IC industry revenue.

"IC Insights continues to forecast a 17% decline for the full-year 2009 semiconductor market (the same forecast it presented in December of 2008)," McClean said. "Spurred by the bottoming of the worldwide economy from global recession in Q1, the semiconductor market is forecast to continue along its recovery path in the second half of this year and gain further momentum in 2010."

Who's up and who's down

Among the top 20 companies, IC Insights made note of three "climbers": TSMC, Hynix, and MediaTek.

TSMC, the world’s largest IC foundry, almost doubled its sales in Q2. "In fact, all of the four major pure-play foundries (TSMC, UMC, Chartered, and SMIC) registered very strong Q2 sales," McClean noted in the statement. "TSMC is expecting another 20% increase in sales in Q3. Moreover, the company raised its 2009 capital spending budget from $1.9 billion to $2.3 billion, which is good news for the struggling semiconductor equipment suppliers. Considering that the company only spent $390 million in the first half of 2009, a huge jump in spending (to $1.9 billion) is scheduled for the second half of this year!"

Hynix, one of the world’s largest memory suppliers, displayed a 40% sales increase in Q2 as compared to Q1 and replaced AMD in the top 10, according to IC Insights' data. The company cited rebounding ASPs (average selling prices) for both flash memory and DRAM as a key boost to its sales figures. "IC Insights expects that memory ASPs will continue to rise in the second half of 2009 and beyond as the severe cutbacks in memory capital spending and facility closures further restrict available capacity," McClean said.

Meanwhile fabless IC supplier MediaTek joined IC Insights' top 20 ranking by jumping six positions in Q1. The company then moved up another two spots, to number 17, in Q2 with a 20% jump in sales. "The company continues to attribute much of its success to the 'stay-at-home-economy' driving digital TV IC sales as well as continued strength in its core wireless communications business," McClean said.

However where there are climbers, there are always "descenders," and IC Insights' top 20 ranking named AMD, Freescale, and Fujitsu among the companies that slipped in Q2.

As to AMD, McClean said, "The second-largest MPU supplier in the world has continued to find that it is no fun to be in competition with the giant Intel!" According to IC Insights' data, the company fell out of the top 10 in Q2 by barely growing 0.6% while Intel increased its sales by 12%. "Moreover, AMD’s guidance for Q3 was uninspiring, saying that it expects its sales to be 'up slightly' from Q2," McClean said.

According to the researcher's data, Freescale dropped from being ranked 16th in 2008 to 18th in Q1, then to 20th in Q2 and was one of only two top companies to register a sequential sales decline in the June quarter, dipping 2%. "The company is in the midst of a major re-organization (eliminating its cellular phone business) and its fortunes are increasingly influenced by the health of the automotive industry," McClean said.

Fujitsu, the only other top company to report a sequential sales slip, dropped from being ranked 17th in Q1 to 22nd in Q2 as sales fell 9% sequentially. Nvidia replaced Fujitsu in the Q2 top 20 ranking. "The company stated that its flash memory and automotive device sales suffered the most in Q2," McClean said. "However, Fujitsu believes that its customers’ excess device inventories have now been depleted and that consumer demand is picking up."