Gartner raises 2005 chip industry growth forecast

Market researcher Gartner raised its global chip industry revenue growth forecast a tad, but predicted three sluggish years for chips in 2005 to 2007.

Gartner raised its forecast for global semiconductor industry revenue growth for several reasons, including signs of stronger than expected sales of personal computers and mobile phones, a researcher at the company said Monday.

Chip industry revenue will likely grow 5.9 percent this year to US$232.9 billion, up from a previous estimate of 3.4 percent growth, Gartner said.

However, the revised forecast is still a drop from the semiconductor industry's 23.4 percent growth last year, and 2005-2007 are likely to be "three years of sluggish growth" before chips take off again in 2008, said Andrew Norwood, a vice president of research in Gartner's semiconductor division, during the company's 11th annual Semiconductor Roadshow in Taipei.

"It's very strange to see three years of sluggish growth" due to the boom-bust nature of the chip industry, said Norwood. Normally, the chip industry runs in fairly regular three year cycles, of one or two strong years followed by a downturn -- caused mainly by chip companies building too many new factories. Companies tend to invest more in expensive new chip factories during upturns, until too many come online and cause a glut.

Memory chip production, out of step with the rest of the industry, is the reason for the strange pattern that Gartner predicts for the semiconductor industry over the next few years, Norwood said.

Makers of commodity memory chips, mainly DRAM (dynamic RAM) and NAND flash memory, have not invested in new factories at a normal pace because of heavy losses during the previous downturn. They've become more cautious, Norwood said.

Normally a strong year like 2004, when memory chip revenue grew 43.4 percent US$48 billion, would be followed by a downturn. Instead, the segment won't see a downturn until 2007, Gartner predicts, after 3.2 percent revenue growth this year, and 0.6 percent growth in 2006. In 2007, memory chip revenue will likely decline 9.6 percent, Gartner said.

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Dan Nystedt

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