Chip Industry Ready for Record Year, iSuppli Says

Consumer demand for electronics products such as desktops and notebooks, good inventory control by manufacturers and an improving economy could mean record revenues in the semiconductor market, according to iSuppli. That could change, however, should the economy hit another roadblock.

The semiconductor is poised for a record year, as long as the economy continues to improve, according to analysts at iSuppli.

In a report issued May 6, iSuppli analysts said the semiconductor industry is poised to generate $300.3 billion in revenue, a 30.6 percent jump from the $229.9 billion during recession-plagued 2009.

The $300.3 billion will be a record for the worldwide chip industry, besting the previous record of $274 billion set in 2007 by about 9 percent.

This would be the second time in 10 years that the industry saw a more than 30 percent increase in revenue. In 2000, the chip business saw a 36.7 percent increase, according to the market research company.

There's a difference, though, said iSuppli analyst Dale Ford. While the growth in 2000 was spurred by the Internet rush, the expected 2010 spike is based on more concrete factors that have been coming together for the past year.

"Building on the continuing expansion in sales that followed the downturn in late 2008 and early 2009, the semiconductor industry is set to achieve remarkable revenue growth and record size in 2010," Ford said in a statement.

"Chip sales growth this year will be fueled by a number of key factors, including continued strong consumer demand for hot electronic products, diligent inventory and capacity management efforts among chip makers, and the arrival of innovative technologies at both the component and end-system levels."

However, he did say the growth in 2010 needs to be viewed in relation to the poor economic conditions of 2009, when the semiconductor industry-like most sectors of the global economy-saw business plummet. Compared with 2008, revenue in 2010 is expected to grow by 15.4 percent.

The first quarter kicked off the year in strong fashion, according to Ford. Normally first-quarter sales decline from the fourth quarter, when sales peak thanks to the holidays.

"However, in 2010, first-quarter chip sales expanded by 1.1 percent compared to the fourth quarter of 2009," he said. "This is the first time the industry has achieved sequential growth in the first quarter since 2004, and it represents the strongest growth during the period since 2002, when revenue grew by 5.4 percent."

iSuppli outlined several factors fueling the growth, including the increasing demand among consumers for electronics, from PCs to mobile handheld devices to LCD televisions. iSuppli is predicting the demand will result in record worldwide factory revenue for electronic systems growing 10.4 percent to $1.55 trillion in 2010. The previous high was $1.53 trillion in 2008.

Chip makers also did a good job of managing their inventory and manufacturing, which has led to strong pricing of products.

All that said, much of what happens in 2010 will depend on the economy, Ford said.

"The economy represents the biggest wild card in iSuppli's 2010 forecast," he said. "While many indicators have shown sustained improvement, there are, however, a number of financial and economic trouble spots that could endanger the continued growth in the market before the end of 2010."

At the same time iSuppli was giving a hopeful view of 2010, analysts at IDC were illustrating just how difficult a year 2009 was.

In a report issued May 4, IDC said worldwide revenues for the semiconductor industry fell 9 percent in 2009, to $225.1 billion, thanks to the recession.

The first half of the year was particularly difficult, according to the market research company. However, a spike in demand in the second half of the year helped some chip makers' revenue grow during the year.

Some of those vendors included Atheros, Cavium Networks, MediaTek, NetLogic Microsystems, Synaptics and Richtek Technology. Another sector that saw some bounce-back was the DRAM (dynamic RAM) market, which helped Samsung, Hynix Semiconductor, Elpida Memory, Micron Technology and Nanya Technology increase revenue.

Toshiba, Samsung and Micron also saw NAND demand grow in the second half.

"This is not a surprise, as demand for wireless products, intelligent networks, embedded processors and touch-based user interfaces increased tremendously in the second half of 2009," IDC analyst Mali Venkatesan said in a statement.