RealTime IT News

Chip Sales Slowdown Seen Ahead

A less favorable supply-and-demand balance for memory products is putting a damper on an otherwise record-breaking semiconductor sales forecast, an industry trade group said Wednesday.

The Semiconductor Industry Association (SIA), which updated its annual forecast for 2004-2007, said it is anticipating record sales of $214 billion in 2004 followed by essentially flat sales in 2005. The forecast projects that sales will grow by 6.3 percent in 2006 and by 14.2 percent to $259 billion in 2007.

NVidia president and CEO Jen-Hsun Huang said the industry is seeing a fundamental change in the forces driving the semiconductor industry.

"More than 50 percent of the $214 billion in semiconductors sold in 2004 will go into products purchased by consumers rather than corporate IT departments," Huang said. "This proportion will continue to grow in the years ahead as consumers all over the world are captivated by the richness and portability of digital media. Advances in computing, digital media processing, and wireless technology are enabling our industry to create lifestyle-changing devices and gadgets that we could only imagine a few years ago. The changing nature of our customers will affect every aspect of our business, from product design to marketing to demand forecasting."

Huang is hedging his bets as NVidia has diversified its GPU offerings to handhelds and digital televisions.

Still, memory seems to be a problem area. Despite a growth of 61.2 percent to $26.9 billion in 2004 for the DRAM market, the SIA is predicting a decline of 14.7 percent to $23 billion in 2005. The often volatile segment of the semiconductor industry was a major factor earlier this summer when quick thinking by Asian supply chain partners helped salvage August's chip sales. The Asia-Pacific market is expected to be the hottest overall growth sector, with 2007 anticipated to show off 16.2 percent gains to about $111 billion. That would be double or nearly double what the rest of the world is expected to produce in the same time frame (Americas - $44.3 billion, Europe - $47.2 billion, and Japan - $57.1 billion).

Even though the industry is expected to return to stronger growth in 2006 and 2007, Alan Niebel, CEO of Web-Feet Research disagrees with the SIA's predictions for next year, especially in the realm of memory.

"They are seeing the pricing propaganda and the amount of new players coming into the market," Niebel told internetnews.com. "DRAM is always in a cyclical sales path because 70 percent of it goes for producing PCs. An over supply of DRAM means that you can't do much more than upgrading it and most people don't update or upgrade a computer after purchasing it.

Niebel said the memory market should remain on a better growth pattern as Flash memory is picking up the slack in consumer and communications devices like DVDs, digital video recorders and broadband modems. The SIA predicts the flash memory market will decline by 1.8 percent to $15.5 billion in 2005 followed by two years of growth to a record $18.3 billion in 2007.

The only other segments of the semiconductor industry that are expected to maintain growth of more than 2 percent in 2005 include optoelectronics, which are often used in camera phones and digital signal processors .

Another major factor in future progress seems to be the price of oil and gasoline. Huang said the residual effects of the price-per-barrel were trickling down not only into disposable income for consumer devices but also into enterprises concerned about powering their massive data centers.

"It is breaking into people's lives in a very broad way," he said.