We've dusted off our crystal ball again to provide some insight into where the industry's headed for the remainder of what is shaping up as a turbulent year. Chip industry forecasts are retooled on a seemingly weekly basis as the list of unknowns grow. Rising interest rates, still-high energy costs, materials shortages and unrelenting globalization continue to baffle industry watchers. Here's our take on where things stand and where we see the industry heading in the second half of 2006.
Semiconductor roller coaster
This is the time of the year when chip industry watchers agree to disagree.
Some forecasters have recently raised their chip predictions for 2006, while others have lowered their numbers amid lackluster growth in the PC and consumer sectors. "There are also inventory concerns in the market," warned Mark Bachman, an analyst with Pacific Crest Securities Inc. (Portland, Ore.).
Current IC growth forecasts among analysts range from 6-11 percent for 2006 over 2005. Two mavericks Future Horizons (Sevenoaks, England) and Semico Research Corp. (Phoenix)remain at the high end of the scale with bullish predictions of around 20 percent and 17 percent growth, respectively.
As usual, there is plenty of uncertainty in the market. The problem is that the industry analysts rarely get their forecasts right and are always changing their predictions based on current market conditions.
One of the more sobering and realistic predictions, is from iSuppli Corp.. It has increased its IC forecast by a half-percentage point, going to 7.9 percent, up from 7.4 percent. Worldwide IC revenue is expected to rise to $255.7 billion in 2006, up from $237 billion in 2005, according to iSuppli (El Segundo, Calif.).
Despite decent demand for equipment, the semiconductor market outlook isn't all rosy, iSuppli warned. The higher-than-expected growth seen in the first quarter will be followed by some sluggishness in the second half. Second-half growth of 5 percent is less than the normal seasonal expectations for the industry. Orders appear to be weakening as inventories rise, it warned.
Another concern is reported delays with Apple's next-generation iPod productsa key driver for NAND flash, MP3 processors and other devices.
But even before the reported iPod delays, analysts were already jumping on the bear bandwagon following at least one red flag in the market: sluggish chip sales in April.
April's dismal numbers prompted Wedbush Morgan Securities Inc. (Los Angeles) to lower its 2006 semiconductor growth forecast one point to 10 percent. For 2007, Wedbush projects the IC market will slow, growing by only 6 percent over 2006.
In a new report, Handelsbanken Capital Markets projects that the semiconductor market will now grow 5 percent in 2006 over 2005, down from 6 percent in its previous forecast. The investment banker blamed the lowered forecast on the worldwide PC slowdown.
Handelsbanken also expects lackluster sales in May. The three-month average of May chip sales is projected to hit $19.37 billion, compared to $19.6 billion in April, according to the firm.
Not all are in the bear camp. Industry cheerleader, the Semiconductor Industry Association (SIA), recently boosted its projected worldwide chip sales forecast for 2006, and now projects growth of 9.8 percent to $249 billion, up from its previous estimate of 7.9 percent growth to $245 billion. SIA (San Jose, Calif.) said the correction is mainly due to better than anticipated demand for chips by the mobile phone sector.
The revised forecast also includes more optimistic projections for industry sales from 2006 through 2009. SIA said the industry will grow by 11 percent in 2007, 12 percent in 2008 and 4 percent in 2009.
The World Semiconductor Trade Statistics (WSTS) organization also raised its semiconductor forecast. The global IC market is expected to grow 10.1 percent on an annualized basis to $250 billion in 2006, according to WSTS's spring forecast. Projected growth worldwide will accelerate to 11 percent in 2007 and 12.8 percent in 2008, according to the organization.