By: Christina Bruns

Associate Editor WaferNews

For the first time on record, worldwide electronic system sales are expected to drop 4% in 2001, according to a recent report from IC Insights, Scottsdale, AZ. Until now, the record low-growth year for worldwide electronic system sales was 1998, when the market only grew 1%, analyst Bill McClean said.

“Electronic systems sales have gone down for the first time ever. We’ve never really seen it go negative worldwide. It’s a major event,” remarked McClean, president of IC Insights.

In IC Insights’ Mid-Year Update, the firm said currency fluctuations were responsible for much of the decline. The report noted that if electronic systems sales were expressed in local currencies, the market would be forecast to increase 1% in 2001, which, while not a negative, would still make 2001 “one of the weakest years on record.”

“What’s really driven it down has been the communications market. Between networking and the communication infrastructure, the bubble burst. There was a build up between cell phones, infrastructure, and networking equipment. It really built up and then it burst. Everything came to play at one period of time,” McClean explained.

Noted SG Cowen’s Mark Grossman, “If you look at the big growth drivers such as PCs and the cell phone market, those two things alone are a pretty big part of the industry. If you think about it, it’s not surprising that you would have a down year.”

VLSI Research’s numbers also predict a 2001 drop in electronics sales, though not as large as IC Insights’ prediction, according to Andrea Lati, market research analyst. Lati said that the San Jose, CA-based firm forecasts electronic systems sales to fall 1% for 2001 to $1.13 trillion from the $1.14 trillion logged in 2000. That figure was up 13.2% year-over-year from the $1.01 trillion of 1999. For the future, VLSI predicts that sales will rise 6.1% in 2002 to $1.2 trillion and 9% in 2003 to $1.31 trillion.

The disparity between the drop in chip sales and the fall in electronic systems sales point to continuing inventory overhang, Grossman indicated.

“Given the huge decline in semiconductor sales this year, [the fact that] electronic systems are only down by a relatively small amount is actually interesting. There are huge amounts of inventory out there,” Grossman explained.

IC Insights predicts that electronic system sales will fall to $921 billion for 2001, down 4% from the $955 billion logged in 2000. Last year’s figure was up 13% over the $848 billion logged in 1999. The 2001 numbers clearly reflect a worldwide economy that’s suffering, said McClean.

“When you look at the worldwide GDP, we’re basically looking at a global recession and that works right down to the semiconductor industry for the demand part and for the supply part,” McClean said. “Every bad element and mix you can have is all coming together.”

“We’ve had flat and negative before,” noted Dataquest analyst Mary Olsson. “Typically, you didn’t have as many systems going negative all at once. But what’s interesting is it’s not just the PC area, it’s the storage area as well. [There’s been a ] slowdown in demand that was unexpected and [there’s also been] overbuilding.”