Worldwide semiconductor revenue growth is starting to slow in the second half of 2004, prompting iSuppli Corp. to trim its chip forecast for 2005, the market research firm said today.

Because this slowing will impact revenues mainly in Q4, the second half of 2004 will still generate very strong growth of 10 percent on top of the blistering increase seen in the first six months of the year, according to a revised outlook from iSuppli' Electronic Components Forecast Service. Global semiconductor sales grew by 31.4 percent in the first half of 2004 compared to the first half of 2003, but second-half semiconductor sales will decelerate to 20 percent growth compared to the same period in 2003.

In light of this, iSuppli has reduced its semiconductor revenue growth forecast for 2005 into the single digits, at 9.6 percent, down from 11.8 percent previously. iSuppli also has adjusted its semiconductor revenue forecast for 2004 to 25.4 percent, up from 24.4 percent previously.

With sales growth flattening at the end of 2004, iSuppli expects that semiconductor revenue in the first half of 2005 will grow by less that 2 percent compared to the second half of 2004. The second half of 2005 will generate more growth, with chip sales rising by 6 percent compared to the first half, the market research firm says.

However, the seasonal up-tick in the second half of 2005 will not spur a real recovery in the semiconductor industry, as a DRAM revenue downturn in 2006 will limit total semiconductor growth to only 2 percent that year. iSuppli predicts 2006 will mark the bottom of the semiconductor downturn.

The rapid decline in semiconductor industry growth is because of softening prices for chips as well as to a slowing in the electronic equipment markets, which drive chip sales. Revenue growth in the electronic equipment market will slow to 5.8 percent in 2005, down from 9.8 percent in 2004, iSuppli estimates.

Mobile phones and notebook PCS are the major culprits behind the equipment and chip slowdown, the market research firm says. Mobile-phone unit shipment growth, which has been soaring during the past two years with 30 and 18 percent growth in 2003 and 2004 respectively, will slow to only 5 percent unit growth in 2005. Meanwhile, notebook PC unit shipment growth will drop to 10 percent in 2005, one-half the 20.1 percent increase in 2004.

However, the softening of these two product categories is only a symptom of the general deceleration of the electronics market, spurred by a tentative global outlook and the weakening of consumer upgrade purchases, according to iSupploi

Throughout early 2004, semiconductor prices held firm, as supply and demand came into balance. However, with demand slackening, price erosion will emerge in late 2004 and will become a major factor in depressing worldwide semiconductor industry revenue growth in 2005, iSuppli predicts.
 
DRAM revenues will be particularly weakened by the price erosion, causing worldwide sales growth for the memory to decline to 8.6 percent in 2005, down from 56.2 percent in 2004.

iSuppli further says it remains more optimistic than its competing market analysis firms because of its positive growth outlooks for the major memory-device segments, i.e. DRAM and flash, which it anticipates will see revenue growth of 8.6 and 3 percent respectively in 2005. Unlike past downturns, the capability of memory suppliers to switch their production between DRAM and flash products will lead to more efficient capacity-utilization management than in the past downturns, the market research says.

By: DocMemory
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