Slower growth for semis: industry expects a modest recovery during 2003 - News

Electronic News, Nov 11, 2002 by Ed Sperling

SAN JOSE -- The good news is that the semiconductor industry will rebound again next year. The bad news is that for the foreseeable future, it may only grow half as fast as in years past.

That's the message from the Semiconductor Industry Association (SIA), which predicts the rate of growth will slow to about 8 percent to 10 percent versus the 16 percent average compound annual growth rate between 1975 and 2000. Because the base is far larger than it was in 1975, that means there's room for making money. However, it does not mean everyone will be successful.

"The most successful producers can grow faster than the industry as a whole," said Jerry Sanders, chairman of Advanced Micro Devices Inc. (AMD), who delivered the SIA forecast.

Sanders added that the future keys to success are focusing on target markets, true innovation and more effective use of capital, not to mention a near-flawless execution in all areas of business.

That said, a modest recovery has already begun, according to the SIA. The group predicts that through 2005, by far the largest growth in consumption--30 percent--will come from Asia, while Europe, Japan and the United States will actually see lower consumption. In addition, it predicts that IT spending will increase by about 6 percent in 2004 and 11 percent in 2005.

Among the other predictions is that sales of cellular handsets will grow 9.6 percent but that the majority of them will be 2.5G and 3G, with the percentage growing continually through 2005.

In product segments, analog will grow fastest--12 percent per year--through 2005, while optoelectronics will grow about 9 percent and discrete components will grow about 7 percent. One of the hottest markets will be MOS logic, which will grow nearly 10 percent per year to about $48 billion.

But forecasts are simply that, said top industry executives. "The big question is when are enterprises going to buy," said Fred Shlapak, president of the Semiconductor Products Sector at Motorola Inc. "Consumer confidence is important. So is worldwide stability, which includes whatever happens in Iraq. Quarter by quarter the market is turning around, but maybe from here on it will be more gradual and we will have to think differently about it."

Shlapak noted that from a technology standpoint, the key inhibitor to growth is bringing bandwidth to the individual, whether it's wireless or the last mile connection for land lines. "Beyond that, confidence has to come back into the market," he said.

Numerous executives also said that supply may be a constraint to growth in coming months because inventory has dropped dramatically--the SIA says semiconductor device excess inventory has dropped from 27 days of inventory in Q4 2000 to 6 days this quarter. Numerous distribution executives say that if demand picks back up quickly, there's no way supply will keep pace.