Mar. 10, 2008 – The current sluggish growth and mounting economic worries are calling into question whether the semiconductor industry can regain momentum and manage any growth this year, and the second quarter — traditionally a period of accelerating growth — will be the key, according to a recent report by iSuppli.

The firm sees a slow 1Q08 with a 7.5% sequential decline, following flat growth in 4Q07, and the firm currently predicts a 4.6% increase in 2Q. But given signs of weakening pricing and reduced demand for NAND flash (noting Intel’s recent warning and Apple’s reduced order levels), the firm says it will likely “trim” its 2008 chip industry forecast later this month.

“This is where the fate of the year lies,” noted Dale Ford, SVP, market intelligence at iSuppli, in a statement that reviewed his talk at a recent briefing. “Whether the year turns out well or not, the second quarter is the best indication of what will happen this year.”

Still, he points to some signs supporting a growth outlook, including tightening inventory controls and possibly a limited economic downturn. Inventory levels are currently in healthy balance at this point in the semiconductor growth cycle. Ford pointed to a “perfect storm” in the last major downturn (2001) of capacity overbuild, collapsed demand, and “out-of-control inventory levels,” but said the industry has learned how to manage capacity more tightly, and excess inventory warning signals are received and acted upon earlier. Chipmakers are planning to manage overall factory utilization rates roughly even with 2007, efforts hoped to restrain supplies and keep prices from plunging in various sectors.

iSuppli notes that most economists are predicting (or say we have already entered) a mild US recession, but will avoid a major one. And a modest drop in global electronics manufacturing this year should limit the negative economic impact to the semiconductor industry.

Ford also noted the longer-term trend in the chip industry of slowing growth in general over the long term. “Years ago, the global semiconductor market maintained a 27% compound annual growth rate (CAGR), then it slowed to 17%, and now we are in a period of approximately 7% long-term CAGR,” he wrote. “These are maturing dynamics. This is a larger and more mature industry