Chip industry won't grow in 1998, Semico says

Revenues from the traditionally buoyant semiconductor industry will fall by 1 per cent in 1998, to about $US136 billion, according to an estimate published by US consulting firm Semico Research.

The decline will be caused in part by a continuing oversupply of memory chips, which in the past few years has driven prices for those products down to rock bottom levels, Semico said. Sales of memory chips account for about 35 per cent of total semiconductor market revenues.

A shift towards lower cost PCs has caused price competition to spill over to other semiconductor markets as well, Semico said. That, combined with continued unrest in Asian financial markets, has caused the research company to downgrade its January estimate of 5 per cent revenue growth.

In contrast, unit demand for the year is expected to increase by about 1 per cent, to 256 billion units, according to Jim Feldhan, president of Semico.

"Our unit demand has not changed since December last year, but the very aggressive pricing from different segments of the (semiconductor) market has reduced revenue in the industry," Feldhan said.

Semico's estimate is bleaker than that offered by some other industry watchers. Market researcher Dataquest last month predicted 1998 global semiconductor revenues will increase 8 per cent to $US159 billion.

The semiconductor industry historically has enjoyed a compound annual growth rate of about 17 per cent, but that growth has been cyclical, and since 1996 falling memory prices have kept revenue increases down. Total revenues for 1997 were about $US136 billion, Semico's Feldhan said, while in 1996 they were $US132 billion.

The surplus of memory is expected to clear up in the second half of 1999, but it will be at least 2000 before the industry again starts to enjoy the type of revenue growth it has reported in the past, Feldhan said.

From a regional point of view, the European market is expected to be strongest in 1998, with revenues increasing by 2.5 per cent, while Asia-Pacific, Japan and the US will experience negative growth, he added.

Semico Research, in Phoenix, can be reached on the Web at http://www.semico.com/

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