ISuppli again raises semiconductor forecast

August 03, 2010 // Dylan McGrath

Market research firm iSuppli Corp. again raised its forecast for the semiconductor market this year, saying it now expects revenue for the industry to hit $310.3 billion, up 35 percent from 2009.

The forecasted $80.7 billion increase compared to last year would be the largest annual increase in dollar terms in the semiconductor industry's history, according to iSuppli (El Segundo, Calif.).

Last week, rival market research firm IC Insights Inc. (Scottsdale, Ariz.) also predicted that chip industry revenue would rise by a record amount in 2010. Last week, market research firm VLSI Research Inc. also raised its forecast for the 2010 chip market, saying it expects the market to increase by 30 percent this year despite looking market uncertainty.

In May, iSuppli predicted that the semiconductor market would growth 31 percent this year.

Dale Ford, senior vice president at iSuppli, said in a statement that the 2010 chip market was already set for strong growth due to consumer demand for electronic products, but that growth is looking better than expected because of several factors, including rising prices and inventory build ups.

"All this is causing chip revenue to bulge to awesome dimensions this year," Ford said.

The forecasted semiconductor revenue growth is based on a strong increase in the sales of electronic equipment, iSuppli said. Factory OEM revenue for electronic equipment is projected to grow by $131 billion to reach $1.54 trillion in 2010, up 9.3 percent from 2009, the firm said.

Following deep cost and inventory cutting efforts in 2009, the semiconductor industry has been pushing to build up stockpiles across the supply chain to support the strong growth in demand for electronics, iSuppli said. This also has enhanced semiconductor growth beyond what end demand would seem to dictate, according to the firm. Historical and projected IC revenue growth. Source: iSuppli Corp.

"Careful management of semiconductor inventories and tight controls on manufacturing capacity have resulted in an environment where supply is not able to match demand," Ford said. "As a result, prices for many semiconductor segments are inflated."

Every major chip category is projected to grow by more than 25 percent in 2010, iSuppli said.

ISuppli drew distinctions between the projected growth in 2010 and that of 2000, when a second consecutive boom year related to the dot com craze created an unsustainable bubble of demand. While that bubble burst in 2001 and led to chip industry contraction of 28.6 percent, the 2010 growth represents a recovery from the collapse of 2009 and is projected to continue into 2011, iSuppli said.

While the growth of 2010 is being compared to that of the year 2000, it is important to note that the nature of this cycle is completely different from the 2000 period. The booming growth of 2000 followed a strong expansion in 1999 and was driven by an unsustainable bubble of demand. That bubble popped in 2001 with a collapse of 28.6 percent. In contrast, the 2010 growth represents a recovery from a collapse in the prior year of 2009 and is forecasted to continue into 2011, iSuppli said.

Ford said there are widespread fears of a so-called "double dip," a scenario in which the economy will contract again following a tepid recovery. "ISuppli does not agree with a double-dip outlook," Ford said. "Rather, iSuppli projects a return to more standard growth patterns in the second half of 2010 and into 2011 that will result in semiconductor revenue growth of 7 percent next year.”

ISuppli projects that the industry will enjoy seven sequential quarters of growth before a seasonal downturn occurs in the first quarter of 2011, the firm said. This will be the longest period of consecutive quarterly growth since the industry grew by 19 straight quarters between 1991 and 1995, the firm predicted.

The memory segment will generate some of the strongest growth among chip markets in 2010, iSuupli said, projecting that DRAM revenue will rise by more than 86 percent, while NAND flash memory will expand in excess of 33 percent. This will cause overall memory revenue to rise by 56 percent for the year, the firm projected.

ISuppli is offering for sale through its website a new report on projected semiconductor growth in 2010.

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