June 1, 2007 – After making a big splash in 2004, China’s chip industry is seen smoothing out to mid-teens growth through the rest of this decade. But an iSuppli analyst thinks that this good news hides growing concerns that China is building into the classic macroeconomic market bubble.

China’s semiconductor industry surged to 40% growth in 2004, followed by ~13% and 15% the next two years and a new cyclical peak in 2007 of $51.7 billion (20% growth), according to Byron Wu, iSuppli director and principal analyst for China Research, speaking at the recent WSTS meeting in Shanghai. He sees China’s chip growth decelerating to 18% in 2008 and 10% in 2009, with 14% growth in 2010.

Such moderation distracts from some areas of concern in China’s technology industry and overall economy, Wu asserts, which are “entering a stage of unsustainable hyper-expansion that could generate a market bubble.” He says the major theme in China this year is “overheating,” fueled by concerns that a number of factors — OEMs sales, consumers’ buying power, and exports — will continue to increase. At the macro level, Wu pointed to concerns that an overheating economy could derail China’s stock and real estate markets.

Still, he thinks these macroeconomic factors don’t represent a major risk for the nation’s semiconductor industry, which has showed signs of moderating. He sees growth driven by “hot markets” including flat-panel TVs, the output of which will surpass CRT sets by 2010; plus digital set-top boxes, 3G mobile phones, and “digital media platforms” that combine functionality from a range of multimedia products including personal media players, mobile TVs, GPS systems, and digital cameras.

China’s semiconductor revenue growth forecast

2004…………2005…………2006…………2007…………2008…………2009…………2010

39.8%……….12.8%……….15.0%……….20.0%……….18.0%……….10.0%……….14.0%

Source: iSuppli Corp.