ICs to grow 29% in '04; downturn seen in '06, says In-Stat

SCOTTSDALE, Ariz.--The semiconductor industry is vying for record growth in 2004, as the business is expected to hit $214.7 billion this year, up 29 percent over 2003, according to a report from In-Stat/MDR on Wednesday (April 21). While 2005 will also see some growth, 2006 will experience a downturn, according to In-Stat/MDR. Growth is expected to resume in 2007 and 2008 as unit growth continues and average selling prices (ASPs) remains relatively flat, at a level lower than any recent year except 2002, according to the research firm.

After its disastrous 32 percent decline in 2001 and a lackluster 2002, the worldwide semiconductor market turned up and grew by 18.3 percent in 2003, according to In-Stat/MDR of Scottsdale.

"Although we do not expect a replay of 2001 anytime soon, the strength of the current recovery should not be interpreted as a return to the good old days," said Mark Kirstein, In-Stat/MDR's general manager, in a statement. "Fundamental changes are taking place in both the demand and supply aspects of the semiconductor market that will cause the next decade to be significantly different from the last."

Specifically, In-Stat/MDR notes that there lacks the existence of a single new "killer app" on the horizon to drive future market growth as PCs and mobile phones did in the 1990s. And, the wide variety of lower volume products that have emerged are subject to standardization, which suppress average selling prices.

The growth of the foundry industry, particularly in China, is expected to keep competition high, and therefore wafer prices low, in the long term. Although semiconductor prices are expected to rise moderately in the short term as capacity tightens, over the long term, In-Stat/MDR expects that price erosion will cause revenue to grow somewhat slower than unit shipments.