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.

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