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Global economics to keep chip bubble afloat

Posted: 06 Feb 2007 ?? ?Print Version ?Bookmark and Share

Keywords:IC market? semiconductor? chip? Future Horizons? Future Horizons?

The semiconductor market will grow by 12 percent in 2007 and by a further 16 percent in 2008, according to Malcolm Penn, chief executive of market analysis company Future Horizons.

As usual Penn found himself at the bullish end of the spectrum of analysts' opinions, which is showing a spread of 5 to 12 percent for 2007 chip market growth.

Penn made his assessment based on the view that there will be a belated return to ASP growth aligned with continuing unit demand over the next couple of years.

However, his analysis is also based on the assumption that there will be no major shocks to the global economy and that price wars among the leading vendors of processors and memory will get no more extreme than they are already.

As the electronics industry has moved from being a low volume, high margin professional proposition to a high volume, low margin consumer one, it has become inextricably linked to the overall global economy, Penn said. Global GDP has shown four years of historically strong growth, despite high oil prices for the last two years, and some economists are predicting a collapse soon. However, other economists see the building of the emerging Asian economies as a stimulus to the world economy in the same way that the rebuilding of Europe and Japan was in the 1950s and 1960s, which produced a prolonged boom.

But because of that strong consumer-based linkage Penn issued a word of caution. "If there is something that derails the world economy it will take the chip industry with it," Penn told the audience at a one-day industry forecast seminar.

Penn admitted that his 20 percent growth prediction for 2006 global chip market growth was wrong, but said he feels his analysis of the year was valid with the exception of average selling prices (ASP) which remained stubbornly low. The current consensus is that the semiconductor market grew by about 9 percent to about $250 billion. "The analysis was OK but the number wasn't very good," he said.

"Unit demand was up 18 percent, but memory and microprocessor price wars caused a three quarter delay to price increases." Penn said that the Intel-AMD processor war in 2006 knocked about 4 percentage points off annual growth in 2006.

He added that while it was hard to predict how individual companies might react in 2007 and 2008, the existence of the price-wars was already built-in to a degree and that meant there was upside should peace break out, assuming demand remains strong and that there has not been overinvestment in manufacturing capacity.

"ASPs bottomed in April 2006. There's now potentially six to 12 quarters of ASP recovery in prospect," Penn said.

- Peter Clarke
EE Times Europe

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