IDC forecasts 8 percent growth for chips in 2006

IDC forecast chip market growth of 8 percent for 2006, on 2005 results that are already better than expected.

Growth in the global chip market next year will outpace that of 2005, which has already been far better than expected, as spending in telecommunications and IT markets drives chip revenue up 8 percent to more than US$240 billion, market researcher IDC said Wednesday.

Underpinning the strong growth is a solid global economy, which will encourage consumers and corporations to sustain their spending patterns over the coming year, IDC said.

Chip market revenue growth for this year is expected to beat IDC's original forecast. After a few revisions, that forecast currently stands at 5 percent growth to nearly US$224 billion. The market researcher entered 2005 predicting a 2.5 percent drop in chip revenue, which highlights how tough it is to accurately forecast demand.

"We didn't anticipate demand would be so strong this year," said Mario Morales, vice president of IDC's semiconductor research, during a meeting with journalists in Taipei, noting mobile phone and PC shipment growth in particular.

The growth in chip sales was driven by overall growth in the IT and telecommunications markets, which will likely both end 2005 with over 5 percent growth, IDC predicted. This is due mainly to healthy corporate spending and purchases of PCs and mobile PCs.

The same products will be important again in 2006, as will consumer electronics goods including games consoles, such as Microsoft Corp.'s recently launched Xbox 360 and Sony Corp.'s highly anticipated PlayStation 3, and home items such as digital TVs, said Morales. Memory chips, and NAND flash memory in particular, will also be a factor in the growing chip market, since the chips are being used in ever more gadgets.

In fact, the consumer segment of the chip sector will likely double in size to US$30 billion by 2009, driven by strong demand for chips that provide better storage, higher performance, increased power management and wireless connectivity, Morales said.

The analyst even dispelled fears of rising inventories during the current quarter, which is the hottest time of the year for chip makers as they hurry to get chips inside consumer devices for the holiday shopping season.

"We believe inventories are under control," Morales said.

DRAM (dynamic RAM) could be the biggest drag on chip growth next year since the market is already oversupplied and Taiwanese chip makers have been adding production lines at a faster than anticipated pace, IDC predicted. The DRAM market could drop 5 percent next year, after a revenue decline of around 1 percent this year, it said.

(IDC is owned by International Data Group, the parent company of IDG News Service.)

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Dan Nystedt

IDG News Service
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