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Ominous signs dim IC growth outlook

Posted: 16 Feb 2007 ?? ?Print Version ?Bookmark and Share

Keywords:IC? IC growth? chip market? wireless market? GDP growth?

The semiconductor industry should again post moderate gains this year of 5 percent to 12 percent, according to chip forecasters polled by EE Times.

But analysts see some ominous signs on the horizon: a slowdown in GDP growth among various countries worldwide, little or no growth in worldwide capital spending, persistent chip inventory overhang and lackluster demand in the PC and wireless markets.

At least one research firm believes the chip market will reach the peak of its current cycle this year, meaning the sector's growth rate could be headed for a fall in 2008. That would suggest the industry will see more consolidation, divestitures and private-equity buyouts in 2007 and beyond.

Perhaps most unnerving, however, is the lack of disruptive technologies and killer applications to fuel IC demand.

Market watchers expected Microsoft Corp.'s Vista OS to have jump-started PC market activity by now, but thus far, the new OS has not been the hoped-for "genie in the bottle," according to a report from Gartner Inc.

A dearth of disruptive end-user product rollouts will keep NAND flash memory in oversupply mode at least until Q3, said Nam Hyung Kim, an analyst with iSuppli Corp. Kim foresees NAND demand outstripping supply in Q4 as inventories are worked off.

Inventory glut
Last year, the chip market "started off with a roar in Q1 and looks like it ended the year with a whimper," according to the Gartner report. An inventory glut raised its ugly head in mid-2006, causing a slowdown in IC demand and a decline in fab utilization rates by year's end, the firm reported.

This year, the fundamentals looked shaky. The inventory overhang lingers, and IC capital spending will take a "breather" in 2007, said Gartner analyst Klaus Rinnen.

But IC growth projections are all over the map. Future Horizons and Databeans Inc. each foresee 12 percent growth in 2007. Forecasts from other sourcesGartner, IC Insights, iSuppli, Semico Research, the Semiconductor Industry Association, Wedbush and the World Semiconductor Trade Statisticsrange from 6 percent growth to 10.6 percent. At the low end of the spectrum, VLSI Research Inc. reportedly projects about 5 percent growth for ICs this year.

In January, iSuppli updated its forecast to predict that 2007 will represent the peak year of the current IC cycle. Worldwide semiconductor revenue will hit $285.8 billion, a 10.6 percent rise from $258.5 billion in 2006, according to the new forecast.

After 2007, iSuppli predicts chip growth will decelerate to 8.7 percent in 2008 and then bottom out at 3.7 percent in 2009 before bouncing back with a 7.4 percent rise in 2010.

Semiconductor revenue derived from the market for wired communications gear will grow 18.2 percent in 2007, compared with 9.9 percent in 2006, according to iSuppli. Revenue for consumer-oriented chips will grow 14.4 percent in 2007, up from 10.3 percent in 2006.

The data-processing segment will increase its semiconductor demand by 9 percent in 2007, compared with only 5.8 percent in 2006, iSuppli said.

"The semiconductor industry will post improved performance in 2007 due to a healthier market for electronic equipment and stabilization in chip average selling prices," said iSuppli analyst Gary Grandbois.

A different picture
Jim Feldhan, president of Semico Research Corp., painted a different picture. The usually bullish forecaster stuck with his earlier prediction that the IC industry will come off 17 percent growth in 2006 to post only a 7 percent increase in 2007. But while iSuppli sees a downturn in 2008, Feldhan foresees growth of 14 percent to 15 percent that year.

"Our sense is that 2007 will be a correction year," Feldhan said. "Seven percent growth in 2007 will be on the optimistic side."

Indeed, the semiconductor industry promises to be the tale of two markets in 2007, Feldhan said. "The first half will be weak. By Q3, we'll see things turn around."

With the "inventory correction" dissipating by Q3, Feldhan said, the outlook for average selling prices will improve. He still sees a decline in overall ASPs for chips this year, but of only 2 percent, compared with last year's 5 percent drop.

As for the breakdown by geographical market, China is still hot, while the Americas, Europe and Japan are not, said Bill McClean, president of IC Insights Inc.

China's IC consumption is projected to grow 18 percent in 2007, though that's down from its historical average of 25 percent, McClean said. "Japan is slowing down. Europe has been slow. The Americas market is losing market share in terms of IC consumption, but at a slower rate."

IC Insights projects the semiconductor market will grow 9 percent in 2006, 7 percent in 2007 and a whopping 20 percent in 2008. "In 2007, we see nothing terrible," McLean said, "but we're setting up for a good 2008."

Analog IC research specialist Databeans is the bull of the bunch. "Semiconductor revenue growth is expected to remain on track through 2007, with an estimated worldwide revenue increase of 12 percent, up slightly from 2006," said Susie Inouye, an analyst with Databeans.

"The computer market should rebound following a significant drop in ASPs for microprocessors in 2006," she said. "In 2007, Databeans expects MPU revenue to increase by 14 percent, with unit shipments gaining 17 percent over 2006. Growth is expected to be stimulated by the beginning PC upgrade cycle that should run its course throughout the year."

Revenue driver
The consumer market, the main driver of 2006 semiconductor revenue, is expected to cool off in 2008, but should remain strong for now, according to the firm. Databeans also expects to see a surge this year in over-the-counter medical electronics, as well as increasing investments in clinical electronics.

"The wireless market, a large contributor to overall chip demand, is not expected to perform as strongly," said Inouye. "The combination of a slight inventory build during Q3 2006 and a waning mobile-phone replacement cycle will contribute to slower growth in wireless chip sales for 2007."

- Mark LaPedus
EE Times

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