Chip shot

A stable geopolitical enviironment and an increase in PC purchases by business should contribute to modest growth in semiconductor sales through 2006, the industry's main trade group believes. In its most recent forecast, SIA predicts a compound annual growth rate (CAGR) of 9.8% from 2003 to 2006. The forecast is predicated on the assumptions that the war in Iraq has wound down, the SARS outbreak is resolved in Asia, and corporate investment in PCs returns, says George Scalise, SIA's president.

SIA sees worldwide chip sales growing 10.1% in 2003 to $155 billion, 16.8% in 2004 to $181 billion, 5.8% in 2005 to $192 billion, and 7% in 2006 to $205 billion (see chart upper right). During an on-line news conference in mid-June, Scalise noted that manufacturing has migrated to the Asia/Pacific region. The region represents the largest market for semiconductors worldwide in 2003. Japan, Europe, and the Americas follow. Scalise said that U.S. consumption has dropped to approximately 20% while Asia/Pacific will capture approximately 40% of the global chip market by 2006.

All product sectors will see double-digit increases in 2004 with digital signal processors, flash, and optoelectronics among the highest performers. However, DRAM sales will fare best, growing 43% in 2004. In fact, the overall 2004 increase of 16.8% for all combined product sectors "is largely driven by memory" sales, Scalise said.

Fueling the memory surge is the spread of DRAM content to a wide range of consumer products other than PCs, such as autos and digital cameras. The amount of memory in smart phone handsets, for instance, makes them "comparable to a full PC in the 1990s," Scalise pointed out.

SOURCE:SIA; ILLUSTRATIONS BY JAMES SCHLESINGER

Even though SIA's outlook is relatively rosy, the June forecast marks the latest in a series of downward revisions by the trade group. The association predicted a more robust growth rate of approximately 23% for 2003 in its June 2002 forecast.

One "helpful element" for the forecast is an increase in capacity utilization, which stood at less than 65% in mid-2000, Scalise noted. SIA foresees capacity utilization at leading-edge nodes to run at 96% by 2004. Utilization rates at "trailing nodes" such as 0.35 µm, now in the high 70% range, "should approach 90% by the fourth quarter of 2003," said the association's president.

Asked whether the recent $350 billion tax cut will have an effect on U.S. chip sales, Scalise said SIA's sources indicate that "enhanced consumer demand" is on the horizon. SIA is waiting to see whether stronger consumer spending will "cascade" through to the industrial sector, he added.