2004 Chip Revenues to Show Sharp Increase

iSuppli Research sees a 17 percent rise in revenue in 2004, citing increasing demand for electronic equipment.

The semiconductor market should continue to show gains in 2004, building on the recovery begun this year, according to a research report released Monday.

World semiconductor revenue will build on 2003s recovery, rising 17 percent to $208.8 billion in 2004, predicts iSuppli Research, of El Segundo, Calif. Worldwide chip revenue for 2003 is expected to grow 13.9 percent to $178.4 billion, according to the iSuppli.

The firms rosy predictions seem to mirror a general trend in the semiconductor industry, reflected by cautiously optimistic reports by chip companies. Intel Corp. reported in October its strongest sequential quarterly growth in 25 years. Others, like Motorola Inc. and Advanced Micro Devices Inc., have either scratched out small profits or predicted a short-term return to profitability.

Analysts at iSuppli cited increasing demand for electronic equipment as the reason for their predictions. "The reviving IT markets and greater consumer confidence have generated a very strong market upturn and have relegated the Severe Acute Respiratory Syndrome (SARS) epidemic, and other first half concerns, into our distant memories," Gary Grandbois, principal analyst with iSuppli, said in a statement.

Founded upon cycles of supply and demand, the chip industry has moved along regular boom-and-bust cycles. Although iSuppli predicts a compound annual growth rate (CAGR) of 10.8 percent between 2002 and 2007, the firm predicts the nascent upturn will flatten in 2006, when revenues will increase by a scant $2.7 billion over 2005, to $238.4 billion. In 2007, a new upturn will begin, iSuppli estimated.

Due to rising PC and mobile handset sales, flash memory and DRAM will be among the fastest-growing chip segments in 2004, iSuppi predicted.

The boost in chip revenues will be prompted by increased demand in the products that use them, which iSuppli calls "electronic equipment." Sales of electronic equipment will rise 8 percent to $1.08 trillion, approximately double the rate in which the electronics industry increased this year, iSuppli said. Sales of electronics totaled approximately $1.0 trillion in 2003. The increase should include wired communications, the only segment to contract this year, the firm said.