Analyst hikes semi forecast, citing DRAM improvements

April 6, 2006 – Improving conditions in the DRAM segment have caused another analyst to upgrade their outlook for the semiconductor industry in 2006.

iSuppli Corp., El Segundo, CA, now says worldwide semiconductor revenue will increase 7.4% to $254.70 billion this year, slightly better than the 6.7% growth the firm projected earlier this year. The firm credits a rebound in the DRAM segment, which it says will grow 6.2% this year to $26.4 billion, reversing a 6% slide in 2005. The NAND flash segment is seen slowing down from last year’s 62% growth spurt, but will still see healthy 29% growth in 2006 to $13.8 billion, noted iSuppli.

Gary Grandbois, iSuppli principal analyst, explained that 2005 and 2006 are now seen as a “double bottom” for the market, with both years lagging the semiconductor industry’s overall compound annual growth rate (CAGR) of 8.2% through the rest of the decade. “It had been debated for some time whether 2005 or 2006 would be the bottom year in the downside of the silicon cycle…in fact, it appears that both 2005 and 2006 will represent an extended two-year period of moderate growth before the market returns to double-digit growth in 2007,” he stated.

iSuppli’s updated projections show a return to double-digit growth (~12%) in 2007, but now with slower growth in 2008 and 2009 than previously forecast — 7.9% growth in 2008 (to $307.79 billion), vs. earlier projections of 9.5% growth, and 7.2% in 2008 to $329.85 billion, vs. 8.1% in the firm’s January numbers.

Despite the increase in semiconductor revenues in 2006, end-use applications for the chips aren’t expected to fare as well — iSuppli projects worldwide electronic equipment revenue, which rose 7.8% in 2005, will slow to 5.9% growth in 2006. The consumer electronics market is seen growing 6.7% this year, barely half the 13.1% growth surge it achieved in 2005, thanks to a range of factors including econmic issues, high household penetration rates, lengthening consumer replacement cycles, and converence of different types of gadgets (e.g. multifunction handheld devices, and cell phones with video and MP3 playing capabilities). Another key market seen slowing down is wireless communications, projected to inch up <1% this year after 6.4% growth in 2005, due to slower unit shipments of mobile phones, iSuppli stated.

In 2007, electronic equipmnet growth will accelerate again to 7.1%, led by year-on-year revenue growth across several segments, including wired communications, wireless communications, consumer electronics, automotive, and industrial gear, according to the analyst firm.

Worldwide semiconductor forecast (Revenues in US $B)

2005 2006 2007 2008 2009 2010
$237.14 $254.70 $285.17 $307.79 $329.85 $351.16

Percent growth (%)
2005 2006 2007 2008 2009 2010
— 7.4 12.0 7.9 7.2 6.5

Source: iSuppli Corp.


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