GREENWICH, Conn.--Here's the most bullish forecast for the semiconductor industry thus far: The chip business is expected to jump 35-to-40 percent in 2004 over 2003, with similar growth possibly projected in 2005, according to a new report from American Technology Research Inc. here today (December 29, 2003).
Rick Whittington, an analyst with the research firm, also believes the upturn should extend into 2006. "We continue to forecast materially faster chip revenue growth than industry and outside market researchers, as the chip cycle gathers classic momentum in the weeks and months ahead," Whittington said in the report.
"In our view, instead of the generally established 20 percent 2004 growth, 35-40 percent is increasingly in the cards and is liable to be repeated in 2005," he said.
The upturn will last longer than most expect. "Semiconductor price points got so low in 2002 that OEMs elevated content in new tech systems, ranging from consumer to wireless to storage to classic computing. Price elasticity of demand ushered in a boom of unit demand for chips even in a sluggish economy in H103 that has now morphed into a booming H203 for a global economic upturn that looks to run for several years," he said in the report.
So what are the drivers? "As we recently argued, the adoption of 64-bit mainstream computing and the move to modern, enhanced communications networks is also likely to extend this chip cycle into 2006," he said.
The fundamentals are strong as well. "A grab-bag of favorable "killer app", tech product cycles have elevated chip and equipment demand faster than the supply side can accommodate. Hence, lead times at yearend 2003 are extending, pricing is firming and earnings are significantly exceeding models of three or six months ago. Further upsides to consensus are highly likely as January 2004 reporting period begins, bringing 2005 earnings into play for 2004," he said.
"Low inflation, high productivity from established IT, new technology product cycles, rising corporate profits, rising personal disposable incomes, historic opening of new geographies/peoples to the capitalist ecosystem and re-establishment of U.S. political leadership over an always turbulent world," he said. "These are only a handful of macro-micro fundamentals driving higher semiconductor demand in 2003 that are gaining momentum entering 2004."