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Rough year for the chip industry

Posted: 22 Sep 2011 ?? ?Print Version ?Bookmark and Share

Keywords:semiconductor market? IC industry? PC sales?

The uncertain future of the global economy, as well as mobile system transitions will affect the semiconductor market with sales growth of no more than 5 percent for this year, according to the fall forecast from IC Insights. The market analyst firm also sees that by next year, the market will slowly recover, nudging toward double-digit growth.

"Our view is the [semiconductor] market this year is flat to up five percent," said Bill McClean, president of IC Insights.

The company cut half of its 10 percent chip forecast earlier this year when the Japan earthquake hit and the U.S. economy turned soft. "If we get 3.8 percent global GDP growth this year, we'll get a little better than average system sales of seven percent growth," McClean said, upping the chip forecast slightly.

Despite the short term clouds, "the future is very bright for this industryI see no long term change in the traditional average of 8-9 percent growth," McClean said.

Projections for the U.S. economy slumped from 4 to 1.7 percent GDP growth earlier this year, driving down chip forecasts. The U.S. is expected to recover to 2.85 percent GDP growth in 2012, but it may only reach 2.2 percent if Congress fails to pass payroll tax breaks and extend unemployment benefits, he said.

The global GDP should return to a more typical growth rate of about 3.6 percent next year, buoyed by recoveries in Japan and the U.S. and continued strong growth in emerging countries such as China. China became the world's largest buyer of PCs this year and was already the leading purchaser of cars (thanks to a government stimulus program) and cellphones, consuming 300 million handsets in 2010, McClean said.

Electronic Industry Interdependence

Rising oil prices present the biggest risk to GDP growth. They soared 17 percent on a compound basis from 2002-2011 compared to just 3 percent from 1988-2002.

"I am surprised the world economy is doing as well as it is," said McClean. "We don't see global GDP hitting 4 percent over the next five years because we are caught on oil prices," he added.

Re-election years can bring upside surprises. He speculated President Obama could by administrative action approve a broad 4 percent home re-financing program next year to give the economy a quick jolt forward.

Mobile shifts in systems sales
Electronic systems sales are expected to clock in at a typical six percent growth this year, nudging up to about seven percent next year. The telecom sector leads the growth at about 12 percent this year, followed by automotive at about six percent.

Mobile devices are also on the rise. Smartphones are growing not only in units but as a percentage of all cellphones (30 percent by the end of 2011), and the average selling price of a smartphone is at $118, up from $107 last year.

"If you are not in the smartphone business, you are out of the cellphone business at this point," said McClean.

He noted a 14 percent decline in cellphone sales at Nokia, which was late to enter smartphones. Meanwhile sales have almost doubled for Taiwan's HTC, which focused on high-end smartphones.

IC Insights projects small steadily increases in PC sales for the next two quarters. Annual sales will rise from 3 percent growth this year to 5 percent in 2012 with most of the expansion coming from business buyers.

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