Chip Sales Slower But Still Strong in ’08

This year will not match 2007 in terms of sales or growth, but it will still be an up year in the semiconductor business. That’s the conclusion of a report from In-Stat, which places revenue growth for 2008 at just 2.4 percent, with stronger sectors offsetting weaker ones.

The consumer segment will be the strongest in 2008, with growth at 5.9 percent, despite a credit crunch and the housing market taking a pounding. Jim McGregor, In-Stat research director and principal analyst for semiconductors, said consumers still want their gadgets.

“Consumers are two-thirds of the [semiconductor] economy and the ones driving it, and they are still spending,” he told “Electronics still ranks high on spending for disposable income. It’s amazing to see people are willing to spend hundreds of dollars on a new cell phone or iPhone, but they’ll cut back on other things, like eating out or gas.”

If there has been pullback, it’s on the corporate level. In particular, the financial services sector, which buys a lot of computing power (18 percent of the market, according to IDC), is in serious trouble. Bear Stearns (NYSE: BSC) won’t be buying any servers any time soon.

“The financial industry is a huge industry for continued tech investment,” McGregor said. “When you see financial institutions taking huge hits, obviously you’re going to see some pullback in spending.”

Mercury Research President Dean McCarron, who follows the semiconductor markets, sees chances for growth in business markets fading as well. “Right now my read on the processor market is that we’re coming in toward the bottom end of seasonality,” he said. “We won’t know for sure until financials, but it seems we’ve seen a mixed shift to weaker, more value-oriented product. Trends are lower than I was expecting.”

Both Intel (NASDAQ: INTC) and India derive more than 75 percent of their income from outside the U.S., which is not experiencing a financial meltdown, and those markets remain healthy. China, India and other high-growth segments remain very positive, with some in the double digits for growth, McGregor said.

“I think the global economy has to fall off a cliff for us to go into a negative situation for electronics,” he said. “Certain segments will go through swings based on supply and demand balances, but overall the market appears very healthy.”

However, McCarron has some concerns about the rest of the world. “At the beginning of the year, the presumption was that the economic uncertainties were related to the U.S., and since 80 percent of the PC market is now outside the U.S., the impact was going to be limited. Now it seems other regions are affected as well,” he said.

This is due to the dropping value of the U.S. dollar and some concerns about the U.S. economy going forward that the rest of the world is sharing. This means some swings in fortune in different sectors.

The segment swinging the most is flash memory, which continues to be dogged by oversupply hurting prices. Intel has already warned of this, with predictable results.

But demand remains for flash memory products, and capacity continues to come online, so the market will likely remain soft.

The only real business sector McGregor saw as weak was automotive, as Americans with cash-and-credit problems are impacting car sales. On the PC side of things, notebooks are expected to maintain their strength and high-growth rates, well above that of desktops and servers.

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