Dataquest sees growing semi demand ahead

Electronic News, Oct 27, 1997 by Will Wade

San Diego--With one eye on the future, Dataquest is predicting modest growth in semiconductor sales this year, but healthy improvements through the end of the century. The research house expects strong chip demand from emerging technologies such as DVD players, automotive GPS navigation systems and digital modems for xDSL phone lines will help push the semiconductor market past the $300 billion mark by 2001.

In a two-day conference marked by a strong futurist view, Dataquest researchers and key industry players described a healthy and growing demand for electronic devices and computers, but warned of potential overcapacity problems and slower growth at the start of the next century. "The industry looks pretty good for the next four years," said Joseph Grenier, director of Dataquest's semiconductor device group.

He predicted a small increase in semiconductor sales for this year, just 5.6 percent to reach $150 billion as the industry rebounds from a 5.9 percent drop in 1996. However, sales will pick up sharply beginning in 1998, and Mr. Grenier said to expect double digit growth through 2000.

Dominating the chip market are PCs, which continue to consume more silicon than anything else and will see 17 percent upticks this year and next, followed by 16 percent gains each year through 2001. By the next century, computers will represent 40 percent of the total IC market, some $120 billion. "It's a pretty significant share," noted Mr. Grenier.

However, consumer electronics and computer peripherals, especially communications devices, are gaining sharply as well. Greg Sheppard, chief analyst for the semiconductor application programs, named nearly two dozen applications which should see more than 10 percent growth through the millennium, some of which had at lest 50 percent increases.

DVD players, a relatively new technology with small unit sales can only go up, and led the pack with 100 percent gains through 2001 as manufacturers attempt to position the device as a VCR replacement. GPS systems for cars are starting to become a standard option, especially in rental fleets, and with nearly $100 of chips in each box will see 50% gains over the same period.

And leapfrogging over the current contending 56K technologies, sales of xDSL digital modems which can move data over existing copper phone lines at up to one megabit-per-second, should grow by nearly 60 percent, to reach an annual part-volume of 50 million by 2001. "This is going to Roto-Rooter the clogged arteries blocking access to the Internet," said Mr. Sheppard.

Dataquest's predictions are both more conservative and more optimistic than figures from In-Stat (see chart). The Arizona-based research firm's most recent report expects semiconductor sales to grow 13.5 percent this year and again in 1997, but warns of overcapacity in 1998 and 1999 limiting pricing. This leads to higher short-term gains than seen by Dataquest, but less reason to celebrate the end of the 20th century.

However, Dataquest also has concerns about the market primarily resulting from memory products. DRAM revenues have been flat in the past few years with increasing chip sales offset by falling prices, and this will likely continue for a few more years. "There will be ups and downs, but still a lot of growth," said Mr. Grenier, "but we will not see DRAM (revenue) reach 1995 levels again until 1999."

In a truly optimistic forecast, Grenier predicted the DRAM market may reach a peak of nearly $70 billion in 2000, up from a current $26 billion, but again Dataquest warns of overcapacity leading to a decline in 2001. Without the volatile memory segment, the research firm predicts steady gains of 17 percent through 2001 in the rest of the semiconductor market.

Most speakers at the San Diego conference were bullish on the future and not just in terms of chip sales. Several talks described upcoming technology which would bring significant changes to the home and office. These included innovative uses for flash memory as the technology moves from storing code to storing data; cable modems bringing constant connectivity and higher data transfer speeds to the consumer; and next generation wireless communications bringing cellular video phone capabilities.

One of the most common subjects was the Internet, seen as both a prime market for chips in PCs and Internet appliances, and a major driving force behind new applications -- which in turn will eat up even more chips. Gordon Bell, a senior researcher for Microsoft, emphasized that the Internet will continue to grow, linking more and more people and networks, until all aspects of life will be accessible by computer.

But Mr. Bell also stressed that the continued growth of computing applications has not reached the outer limits of imagination, and one of his strongest predictions for the future was unpredictability. "I will bet that by 2001, there will be some device selling more than two-million units per year that nobody has predicted at any conference this year, nobody has even imagined yet," he said.