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Gartner: Tough times ahead as industry shifts to 32nm

Posted: 07 Dec 2007 ?? ?Print Version ?Bookmark and Share

Keywords:Gartner report? semi industry? chip forecasts?

Market watcher Gartner Inc. has pulled down its forecast for the semiconductor industry for this year and next, warning times will only get tougher as the industry moves to 32nm process technology. The industry could still slip into recession next year, depending on issues in the broader economy, analysts said at an annual briefing this week.

Winners, losers
Separately, Gartner released preliminary market share figures for 2007 that showed Toshiba Corp., Qualcomm Inc. and Hynix Semiconductor Inc. as the biggest winners and Advanced Micro Devices Inc., Freescale Inc. and IBM Corp. as the biggest losers.

"The market is maturing and it is time for further consolidation," said Bryan Lewis, a VP of research for semiconductors at Gartner. "If you don't have scale or a clear way to add value, you need to consider exiting this business," he added.

The chip industry will grow just 2.9 percent this year, down from 3.9 percent forecast earlier and growth will only reach 6.2 percent in 2008, down from 8.2 percent. The good news is Gartner is now forecasting 8.5 percent growth in 2009, up from 6.1 percent. Overall, Gartner projects a 4.8 percent compound growth rate for semiconductors from 2006 to 2011.

The tightening situation has been created by continuing price pressure in growing consumer markets such as cellphones and LCD TVs and an oversupply of DRAMs. Lewis warned a recession of as much as a 5-percent contraction in chip sales could kick in next year if oil prices do not moderate and if holiday sales are disappointing.

Economists working with Gartner are not currently forecasting a U.S. recession in 2008. However, the probability of such a macro-economic recession has risen from just 10 percent in June to 35 percent in a November forecast.

As 32nm designs start in 2009 and move into production in 2010, the situation will worsen. The costs of developing a 32nm device from scratch could hit $75 million.

"This will drive consolidation and collaboration," said Lewis, recommending chipmakers and OEMs move to configurable platforms such as the Texas Instruments Inc.'s OMAP or NXP Semiconductor's Nexperia. "As we move to 32nm, these sorts of silicon platforms will become a must," he added.

For chipmakers, process development costs for 32nm could hit $3 billion, twice the level for 65nm process technologies. Costs for a 32nm fab are estimated to reach $3.5 billion, Lewis said.

Gartner released a report earlier this week saying ASIC design starts will be down 4 percent next year. However, the complexity and selling prices for these chips is rising slightly.

"We are shipping a rising number of gates in a smaller number of chips," Lewis said.

'Follow Nokia'
As few as 10 companies will drive leading-edge ASIC work, Gartner estimates. In this environment, the company recommends OEMs follow the lead of cellphone giant Nokia by shrinking their internal chip design teams and working closer with a smaller number of large chipmakers to design silicon.

As the climate tightens up, Gartner is estimating capital expenditures from chipmakers will decline 13.7 percent in 2008, down from a 4 percent decline forecast earlier. "Whether a recession is coming or not, overcapacity started flooding chip markets in the second half of 2007," said Lewis.

Specifically, Hynix added significant memory capacity, gaining 20-percent market share in the process to become the third fastest-growing chip company in 2007. The capacity rise is fueling a memory price war that has helped drive down industry growth projections.

Toshiba was the fastest-growing chip company in 2007, rising 27.8 percent, according to Gartner. The company benefited from strong sales of flash, imagers and chips for the Sony PlayStation 3. AMD, the biggest loser of the year, fell 22.4 percent while Intel rose 8.2 percent. IBM also had a difficult year, coming off a double-digit surge in 2006, in part due to overproduction of PS3 chips, Lewis said.

- Rick Merritt
EE Times

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