SAN JOSE, Calif. Semiconductor sales were robust in 2004, but concerns about inventory levels continue to shape the industry in 2005 and 2006, according to a report from Standard & Poor's Equity Research on Friday (Feb. 25).
Standard & Poor's (New York) believes that excess inventory, coupled by slower growth for the economy and the major end-markets, will lead to more moderate single-digit growth for the chip industry in 2005, following robust sales growth of 18 percent in 2003 and 28 percent in 2004.
For 2006, industry sales are expected to be flat or slightly down, as the semiconductor boom-and-bust cycle progresses, according to the firm. In contrast, many forecasters see a recovery in 2006.
"Early in 2004, when the semiconductor industry was in the midst of expanding, chip companies had built up large inventories based on expectations of strong demand in the second half of the year expectations that turned out to be too optimistic," said Amrit Tewary, semiconductor analyst with Standard & Poor's, in a statement.
Although these companies and their distribution customers have subsequently made progress in reducing excess inventory levels, how much the remaining inventory will affect future orders and growth in the industry remains unclear, according to the analyst.
On the other hand, not all chip companies plan to cut spending in 2005. Chip bellwether Intel Corp. plans to increase capital expenditures by between 29-to-39 percent in 2005.
"Chinese companies will also likely continue spending on new factories and equipment in order to meet growing domestic demand for semiconductors," according to the firm. "Japanese chipmakers also are expected to maintain spending budgets as they try to regain some of the dominance they lost to rivals from Taiwan, China, and South Korea."
The current cycle is not surprising. Historically, the chip business has moved in four- or five-year cycles, with a bust year being followed by a stabilization year and then by two or three growth years, according to Standard & Poor's.
The current boom period began in mid-2003, following a 32 percent decline in chip sales in 2001 and stabilization in 2002, when sales grew 1.3 percent, it pointed out.