Semiconductor Outlook: Proceed With Caution
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SAN JOSE, Calif. -- While the telecommunications industry is slumping along though its overbuild stage, it's the semiconductor makers who may be paying the price in the near future, according to analysts with In-Stat/MDR.
A outlook report issued at the Microprocessor Forum 2002 here last week shows 2002 should finish on a rather "flat note," while 2003 should see about 18 percent growth to $164 Billion.
"Based on everything we can see right now, 2004 could be another screamer - we've got a growth rate of 35 percent. But, I'll be really honest with you all, 2005 is a complete wildcard," said Christie Van Gaal, senior director of content development with In-Stat/MDR.
Gaal specifically points to severe overbuilding of infrastructure for a variety of segments at the core of the network during 1999 and 2000. Capital expenditures at the telecom level, for example, are expected to be off by about another 20 percent in 2002, and down again more moderately in 2003. She says the conundrum leaves chipmakers facing no growth in 2003 for major pieces of the WAN, telecoms and ISPs. Beyond that, says Gaal, is anyone's guess.
"There is just no visibility whatsoever in a couple of respects," said Gaal. "Back in the day, you could pretty much expect 2 or 3 years of good growth followed by the inevitable imbalance of supply and demand, which would result in a drop in the market, even during sound economic times. What we've witnessed since 1996 is only a couple of good years of growth. And, the situation we find ourselves in today has been exacerbated by the fact that a huge portion of the semi end-use markets have experienced a similar situation of supply being wholly out of whack with demand. So, when we were running this out into 2005, 2006, we discovered that we were at a loss as to which of these years is likely to experience the beginning of the next downturn."
Some of the rough spots in the development include: MultiService switches, which should see another 4 percent decline in 2003; Optical transport is expected to drop another 10 percent; and Voice Circuit Switches, Packet Telephony and Cellular Base Stations, which are facing no growth next year.
The news is not all gloom and doom, however, as In-Stat/MDR's numbers indicate some growth on the consumer side, which is being fueled, in part, by digital video, digital audio, video games and digital cameras. The need for high-speed access is also helping drive demand for new chips. Analysts here see related bright spots with DSL, IP service switches, and to a much lesser extent the router market. A recent poll on internetnews.com also points to consumers out spending corporations and the government as the market continues to rebuild.
Automotive not so shabby either as semiconductor-rich features becoming more and more ubiquitous in mid range cars, not just in the luxury segment of the industry.
Another area of growth for the chipmakers is select LAN and CPE equipment, which In-Stat/MDR says should increase at least 20 percent next year. LAN pieces include wireless capabilities including a ramp up in 802.11a and 802.11g products.
Handsets are set to have a great 2003, according to In-Stat/MDR. The blitz of new color displays, a shift in 1x in CDMA, carrier deals to get people to get a new handset, Motorola's expected offering of WAP 2.0 GSM in Europe and GPS location technology like the one in currently half of all Sprint PCS phones are all expected to propel the market from a $60 billion industry worldwide in 2002 to close to a $70 billion one in 2003. The trend is expected to rise to $101 billion by 2006.
But the overall picture for chipmakers going forward from September shows very little in terms of activity, according to In-Stat/MDR and the analysts don't expect the rest of the year to pick up.
"Rolling into 2003, we're not really convinced that there will be an upsurge in activity during the first half of the year - so we've forecasted the year in a 'gaining momentum' fashion, setting the stage for some very strong growth in 2004," said Gaal.