Gartner Inc. cut its forecast for semiconductor growth and warned the $200 billion industry to prepare for two sluggish years of overcapacity and mounting price pressure, according to a report from Reuters news service.
“Semiconductor market growth peaked in the third quarter of 2004 and is now trending downward on a rolling annual basis,” Gartner said in a report released at the Reuters Technology Summit.
“Market growth in 2005 and 2006 will be about flat,” the report also said.
Gartner forecasted 3.4 percent growth in chip sales this year, with 2.1 percent growth in 2006, which is a significant slowdown from nearly 24 percent growth last year.
The latest forecast for 2005 suggests that the growth rate will decline by more than one-third from the 5.2 percent growth target given in December, Gartner said.
“We’re returning now to a more stable growth rate,” said Martin Reynolds, a Gartner technology analyst, in the report.
The slowdown is attributed partly to falling prices of memory from Micron Technology Inc. and Samsung Electronics Co. Ltd.
Gartner forecasts global memory chip sales to fall 11.2 percent to $42.8 billion by 2006 from $48.3 billion in 2004.
“It is this outlook for the memory sector that is likely to hold back more positive overall semiconductor market growth in 2006,” the report said.
By the time 2007 arrives, Gartner predicts 10 percent annual growth, followed by 15 percent in 2008, pushing the industry to nearly $300 billion in sales.
“The next semiconductor market up-cycle will bring a return to healthy annual growth in 2007 and a market peak in 2008,” Gartner continued.
Although reduced, Gartner’s forecast is more bullish than the most recent outlook from the Semiconductor Industry Association, which expects sales to be flat this year after a strong 2004.
Asia remains the engine for chip industry growth, having grown 41 percent last year, with China expected to become the largest consumer of chips this year, displacing Japan and the U.S., according to market researchers at IC Insights.
Sales growth will be uneven this year, Gartner predicted, as chipmakers sales decline in Q1 and stabilize in Q2, as inflated levels of chip inventories continue to be normalized.
The long-term risk for the chip industry shows up at the end of the decade, when cellular phone and personal computer markets reach saturation, Gartner said. Those markets will become replacement, rather than growth markets, as growth led by first-time buyers is replaced by existing customers upgrading equipment every few years, the report added.
Moreover, business spending on those technological mainstays could wane, Gartner warned, with corporate spending on computing and communications infrastructure no longer able to be relied on to deliver strong double-digit, long-term semiconductor industry growth, the report concluded.
Standard & Poor’s also released similar predictions for semiconductor industry growth.
