San Diego -- The booming semiconductor market will gradually cool down over the next two years before sliding into recession in 2003, according to Dataquest Inc.
The San Jose-based market research firm projects that after growing 37% this year to reach $232 billion in revenue, the semiconductor market will see slower expansion of 21% in 2001 and 10% in 2002, turning to negative growth in 2003, largely due to manufacturing capacity expansions initiated during the boom years.
In announcing its forecast today at its Semiconductors 2000 conference here, Dataquest said the fastest growing component areas include programmable logic, which will see 70% market growth this year. Fiber-optic components are also growing rapidly. While standard fiber-optic module revenue will increase 27% this year, 10-Gbit/s modules are expected to turn in 98% growth.
Memory components are projected to return to the levels of 1995 by 2001 and 2002, before supply outstrips demand in 2003, Dataquest believes.
"Cycles are inevitable," said Dataquest analyst Jim Handy at the company's semiconductor conference here. "Profitability drives capital spending, and capital spending drives profits. The only problem is, it takes two years from the point of investment to bring a new fab into production."
To avoid getting caught in between, Handy said, buyers and vendors need to pick who they will partner with, and support them through the ups and downs through long-term contracts and tighter integration of the supply chain.
One example of an OEM taking a long term approach to managing its supply chain is Dell Computer Corp. The Austin, Texas-based OEM recently put in place an online forecasting system to keep track of inventories at its top 25 suppliers, which account for 85% of its purchases.
Because Dell operates on a zero-inventory, build-to-order business model, the company treats its suppliers' inventory as its own. To do this requires real-time visibility into the supply chain, said Anna Belle Williams, senior manager of worldwide procurement strategy at Dell.
When the inventory forecasting system is fully implemented by the end of January 2001, Dell anticipates a savings of 10% to 25% of time spent just on communications with supply chain partners, Williams said.