RealTime IT News

Gartner Reports Dip in Chip Market

With projected sales this year to total $33.1 billion, the market for semiconductor equipment would be the envy of most manufacturing sectors. But the sales projections just released by research firm Gartner represent an 11.9 percent drop over last year's $37.58 billion in spending.

This year started out well. Gartner says the first quarter of 2005 marked a high point in spending to meet strong demand for computer chips across many industries.

"We expect this to a be a mild downturn," said Klaus Rinnen, vice president of Gartner's semiconductor research and design group, in a statement. "While the first quarter of 2005 marked the peak of the last upcycle, declining orders over the past few months and quarters paint a picture of slower sales for the rest of the year."

While Gartner's forecast may be cause for some concern in the industry, chip equipment sales and demand for chips fluctuates regularly. As the semiconductor industry moves into a slower growth period in its business cycle, the equipment industry is expected to respond with lower shipment rates required for slowing capacity expansion.

"We expect customers to spend cautiously, releasing orders late and hesitantly, until a strong demand trend can be established," said Rinnen.

One tiny bright spot is that Gartner says the packaging and assembly (P&A) equipment market has performed better than expected and in April has scaled back its earlier forecast of a 23.5 percent decline. Instead, Gartner projects P&A to decline 16.5 percent this year.

No such luck in the automated test equipment (ATE) market. Gartner forecasts ATE sales will decline 21 percent this year with weakness throughout all regions and product segments.

Again reflecting the oft-seen boom/bust cycle in the chip industry, Gartner sees a silver lining in the decline. Analysts said the sudden drop in spending means the ATE market is poised for an earlier start to subsequent recovery. The market is forecast to grow 25 percent in 2006, which should mark the beginning of the next industry growth cycle.

Gartner recently raised its forecast for worldwide PC shipments. Its original forecast was for a 9.9 percent increase over last year, but now it is projecting 2005 growth will be 10.2 percent, which translates into 202.1 million units.