The Semiconductor Industry Association today forecast a 14% decline in chip revenue this year, to $175.5 billion, brought on by a massive inventory correction in all sectors of the market.
But while the outlook may be grim for the rest of the year, insatiable demand for network bandwidth -- expected to increase 35 times by 2004 -- remains the driver of the group's semiconductor forecast. Semiconductors are projected to bea $283 billion market by 2004, the SIA said.
The three-year outlook is based on growth expectations for 2002 and 2003 of 20.5% and 25.2%, respectively -- numbers that a year ago might have seemed conservative.
Evidence of recovery is already visible, with a slight drop in inventory levels from $15 billion in the fourth quarter of 2000 to $13 billion in the first quarter of 2001, according to Kirk Pond, president and chief executive of Fairchild Semiconductor International, South Portland, Maine.
"Ship rates should begin to pick up in late third quarter with PC-related components, followed by general recovery in the fourth quarter," Pond said.
Optoelectronics are expected to be one of the bright spots in the forecast; after a 1.1% decline in 2001, the high-speed networking components should experience 22.3% compounded annual growth through 2004, according to the San Jose-based SIA.
Indeed, the critical need for integrated fiber optic and semiconductor functions on a single IC to increase network capacity and speed will drive merger and acquistion activity for the next five years, said John Hodge, an analyst at Credit Suisse First Boston.
Seperately, Semico Research Corp., Phoenix, predicted semiconductor sales will bounce back to 25% growth in 2002, following a 12% decline in 2001.
Semico said it also sees signs of inventory reductions in the second quarter of 2001 and believes that this trend will continue for the rest of this year. New product designs are moving ahead, making accumulated inventory outmoded and difficult to sell.
As a result, excess inventory will be written off if not sold during the second half of 2001. Semico believes that PC inventories, in particular, will be worked down, clearing the way for PC makers to lead the turnaround. Wireless handset and wired infrastructure inventories will also be greatly reduced, it said.
As chip makers add more system features to their semiconductor products, gross margins should rise, fueling further consolidation and continuing the growth cycle, he said.