World chip sales to fall next year - analyst

Inventory correction to continue through H1 2005

The inventory correction affecting the chip industry will continue well into 2005, ensuring next year's chip sales will be down two per cent on 2004's figure, market watcher IDC has said.

"A series of order cancellations and OEM push-outs in the middle of the year resulted in an inventory overhang for suppliers," said Mario Morales, IDC's VP of semiconductor research. "These inventories will linger into the first half of 2005 as suppliers adjust to meet market conditions.

"Meanwhile, cutbacks in capital spending and new wafer starts should enable prices to stabilise in the second half of 2005, as suppliers shift priorities from focusing on market share and market expansion toward operational execution," he predicted.

IDC said 2004's chip sales will grow 26 per cent over 2003's figure, putting this year's semiconductor revenue at around $209.7m. That figure contrasts with the Semiconductor Industry Association's expectation of $213.8bn in annual sales, up 28.5 per cent on 2003. The SIA is anticipating zero growth next year - not so far from IDC's forecast.

Both are far more bearish that iSuppli, which is looking for growth in the region of 9.6 per cent next year. Intel CEO Craig Barrett likewise expects 2005 to fare rather better than others have suggested.

IDC said it expects the first half of 2005 will be marked by increased price pressures, lower utilisation rates, and greatly reduced capital spending as suppliers seek to help the market stabilise. A continuation of the corporate PC and mobile phone replacement cycles and growing demand for consumer electronics should help suppliers clear their lingering inventory and return to growth by the second half of 2005.

Growth will return in 2006, IDC believes, though it didn't predict to what extent sales will expand. The SIA is expecting sales to rise 6.3 per cent in that year. ®

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