China Driving Chip Growth in 2004: Report

Thanks to this year’s interest in multi-function devices in Asia,
research consultancy IDC is estimating double-digit chip sales next year.

The Framingham, Mass.-based concern’s analysts said mobile phones and PCs will be the main drivers of a healthy growth cycle for over half of the semiconductor industry, which IDC expects will grow 18 percent this year and next year.

China, which is the largest consumer of mobile phones and the second
largest consumer of PCs, will continue to drive mobile phone semiconductor
and PC semiconductor growth most of all, according to IDC’s report. The
pressure on OEMs and chip suppliers by investors to increase profits and
revenue has also been a driving force in a general industry trend toward

“As a result of this ongoing trend, China has become a fertile ground for
disruptive innovation as its low-cost suppliers naturally aspire to move up
market. IDC expects these emerging Chinese semiconductor companies will play
a key role in shaking up the competitive ranks among original equipment
manufacturers (OEMs), original design manufacturers (ODMs), and
semiconductor suppliers over the next five years,” IDC vice president of
semiconductor research Mario Morales said in a statement. “Mainland Chinese
semiconductor demand currently represents over one quarter of the $60
billion total for Asia-Pacific and will account for almost half of the
entire region by the end of our forecast period.”

The gravy train is not expected to stop anytime soon. From 2003 to 2008,
IDC predicts that the chip market should expand at a compound annual growth
rate of 12.5 percent, rising from $160 billion in revenue this year to $282
billion in 2008.

IDC said mobile phone shipments — including ubiquitous radio all-in-one
package (PHS) phones (“XiaoLingTong” in Chinese, commonly known in English
as “PAS”) — will surpass 530 million units this year. Likewise, PC
shipments are anticipated to grow by 11 percent this year, surpassing 152
million units. IDC expects double-digit growth in units for both markets in

The other reason for growth in China comes from Taiwan as the chipmaking
powerhouse begins to aggressively aggregate Internet protocols (IP). Taiwan and China are
expected to drive fabless start-up activity, while the U.S. and Europe slow
down, IDC said.

Suppliers are also expected to focus on 2.5G, WLAN, and broadband and
cellular infrastructure as the country begins to grow. And then there is the
shift in wireless and analog IP from niche
plays to essential building blocks.

IDC also said the rest of the Pacific rim has huge momentum as Japan has
surpassed the Americas as the second largest consuming region in the world.
Japan’s growth is led by export growth, while domestic demand remains muted.

So, why the big push in China to buy chips now?

“Low inflation, high productivity from established IT, new technology
product cycles, rising corporate profits, rising personal disposable
incomes, historic opening of new geographies/peoples to the capitalist
ecosystem and re-establishment of US political leadership over an always
turbulent world. These are only a handful of macro-micro fundamentals
driving higher semiconductor demand in 2003 that are gaining momentum
entering 2004,” AmTech Research analyst Rick Whittington told

IDC also said IP houses and fabless wired communication chip suppliers
will experience the most visible shakeout, while flash memory, analog, and
wireless semiconductor vendors also consolidate.

Traditional business models are also expected to evolve to benefit those
that are focusing on IP, brand, usage models and customer service. Analysts
said the successful suppliers will continue to emphasize more on market
segmentation, brand, and utility as technology becomes more transparent to

IDC’s numbers are right in line with those of the Semiconductor Industry Association
, which released its annual forecast for 2003-2006 earlier this
month. The San Jose, Calif.-based firm is projecting 2004 revenues to
increase by 19.4 percent to $194.6 billion. Beyond that, the SIA forecasts a
slight market correction of only 5.8 percent growth to $206 billion in
sales in 2005, but an upswing back to 6.6 percent to $219.6 billion in 2006.

Regionally, the Americas are expected to grow 1.9 percent to $31.9
billion in 2003, and then grow 17.7 percent to $37.5 billion in 2004. In
2005, SIA expects the market to remain nearly flat with growth of 1.7
percent to $38.2 billion, and then resume growth of 6.4 percent in 2006 to
$40.6 billion. Europe is expected to pad on 17.3 percent in 2003 to $32.6
billion, 14.7 percent to $37.4 billion in 2004, 5.9 percent to $39.6 billion
in 2005, and 6.3 percent to $42.0 billion in 2006.

The SIA said the Japanese market should grow 24.3 percent to $37.9
billion in 2003, increase 17.9 percent to $44.7 billion in 2004, 4.6 percent
to $46.8 billion in 2005, and 4.4 percent in 2006 to $48.9 billion.

But of all the semiconductor regions, Asia continues to experience the
strongest growth. It is forecast to grow 18.6 percent to $60.6 billion in
2003, 23.4 percent to $75 billion in 2004, and 8.2 percent to $81.5
billion in 2005. In 2006, Asia Pacific will report growth of 8.2 percent to
$88.2 billion.

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