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Global Chip Sales Outlook Jumps

With a corporate PC refresh in full swing, one industry trade group is improving its three-year forecast for the semiconductor industry.

The Semiconductor Industry Association (SIA) said it is anticipating sales of $214 billion in 2004, $223 billion in 2005, $221 billion in 2006, and close to $250 billion in 2007. The results forecast stronger-than-expected growth of 28.6 percent for 2004 and a compound annual growth rate (CAGR) of 10.4 percent through 2007, the SIA said.

Previously, the San Jose, Calif.-based consortium predicted sales in 2004 to increase by 19.4 percent to $194.6 billion, with a slight dip in 2005 and light growth in 2006.

SIA President George Scalise attributed the strong demand to microchips for a broad range of applications in end-use markets such as PCs and cell phones.

The continued expansion of broadband and the Wi-Fi revolution are driving the use of sophisticated semiconductor technologies. The SIA report suggests the two networking technologies should propel capital expenditures for telecommunications in the 5-to-10 percent range in 2004, the first increase since 2000. The automotive market is also expected to continue to grow with semiconductor content per automobile increasing by 10 percent each year.

"The current cycle appears to be one of the more balanced cycles in the history of the industry, with growth coming from a very broad range of applications and in all geographic regions," Scalise concluded. "While this growth rate is lower than the historical growth rate of the past several decades, it represents very healthy growth for a $200-plus-billion industry."

One of the hot sellers in the next few years is the consumer electronics space, according to SIA's stats as well as numbers from analyst firm iSupply. The reason is that devices are using a combination of traditional CPUs as well as NAND Flash memory and advanced DRAM . For example, DVD players are expected to grow by 10 percent - lower than the 30 percent growth forecasted, but on a larger-than-expected base following strong growth in 2003. Sales of digital video recorders (DVRs), however, are experiencing explosive growth -- nearly triple the unit volume of 2003 - and DVRs have four times the semiconductor content of DVD players.

DRAM and Flash Rule

Although they are the most volatile segment of the semiconductor industry, DRAM sales are projected to grow by 55.8 percent to $26 billion in 2004 before declining to $22.6 billion in 2007, according to the SIA's forecast. The major application for DRAMs is in personal computers, but DRAMs are also increasingly used in handsets.

Flash memory sales are projected to grow by 48.9 percent to $17.5 billion in 2004 and to $20.5 billion in 2007, a CAGR of 15.1 percent. Flash memory devices are used in cell phones, digital still cameras, and a broad range of other applications.

"Flash has a different dynamic than DRAM," SIA lead researcher Doug Andre said during a Webcast Wednesday. "DRAM will take some of the market from NAND and the problem in 2006 is a slower NOR market in 2006."

After DRAM and Flash memory, the SIA suggests the next hottest seller should be optoelectronics. The devices, which include image-sensors that are used in camera phones and digital still camera applications, are projected to grow by 37.3 percent to $13.1 billion in 2004 and to $16.9 billion in 2007.

Personal computer sales are expected to fuel the rest of the field. PCs, which represent about 30 percent of the semiconductor market, are now forecast to grow by 13 percent in 2004 compared to an earlier forecast of 11 percent growth. Microprocessors, Microcontrollers, discrete components, analog devices, digital signal processors, and MOS logic devices are all expected to grow by double-digits this year.

Asia Pacific Remains Red Hot

The continued shift market to the Asia-Pacific region does not show any signs of slowing down. The SIA's numbers suggest the region currently accounts for 40 percent of the global semiconductor market, and is expected to reach 43 percent by 2007. Semiconductor sales in the area alone are projected to grow to $106 billion in 2007.

China is one of the fastest growing areas with 15 percent of the total market. Japan is projected to remain steady at approximately 22 percent of world semiconductor consumption.

Europe now consumes approximately 20 percent of all semiconductors. The forecast projects that this market share will continue as European electronics equipment manufacturers shift production to Eastern Europe rather than Asia. Semiconductor sales in Europe are projected to grow from $32.3 billion to 2003 to $45.9 billion in 2007, a CAGR of 9.2 percent.

Bringing up the rear are the Americas, which have been declining in market share from 22 percent of the worldwide market in 2002 to 19 percent in 2003. This decline is projected to continue, falling to 17 percent by 2007 as equipment manufacturing continues to shift to Asia. Sales in the Americas are now projected to grow from $32.3 billion in 2003 to $41.5 billion in 2007.

The estimated drop in sales drew additional concerns from analysts that the November Presidential election would fuel additional mixed markets.

"However the [presidential] election comes out, there is still enough momentum for the GDP growth in semiconductors in 2005," Scalise said in response.