Gartner Raises Forecast For Global Semiconductor Revenue

Market researcher Gartner Inc. raised its forecast for worldwide semiconductor revenue this year to $226 billion, and downplayed fears that the market was showing signs of an excess of supply.

Compared with 2003, semiconductor sales are expected to increase by 27.4 percent, the Stamford, Conn., firm said. Gartner had previously predicted a jump of more than 25 percent.

An increase in inventory at the end of the second quarter had raised concerns among semiconductor vendors and distributors, who feared an excess of supply. However, inventories in the supply chain were at the "low end" of the caution zone, and are normal in a rising market, Gartner said.

Nevertheless, despite improving market conditions over the last several quarters and revenue growth this year that indicates the industry is currently in a "boom" cycle, semiconductor manufacturers are not breaking out the champagne, Gartner analyst Richard Gordon said.

Even though it's unlikely the industry could suffer anytime soon a severe downturn like the one that occurred in 2001 following the dot-com debacle, the memory is still fresh in the minds of executives, Gordon said. In addition, manufacturers and distributors are adjusting business strategies to the overall slowdown in the industry's long-term growth rate, Gordon said."It's a structural issue that they're trying to deal with, as they make their long-term business plans," Gordon said.

From the early 1970s to 1995, the semiconductor industry grew an average of 15 percent to 20 percent a year, according to Gartner. Since 1996, the industry has been growing 10 percent to 15 percent a year on average, a trend that's expected to continue.

Gartner's five-year forecast calls for 27.4 percent growth this year, 9 percent next year, a 2 percent drop in 2006, and 10 percent and 15 percent growth in 2007 and 2008, respectively.

The dip is part of the normal cycle in the chip business. Manufacturers build too much capacity in the good years, which leads to lower prices in the market from the increased supply, Gordon said. Revenues tend to start rising again after supply and demand come back into balance.