SAN FRANCISO -- Semiconductor vendors looking for growth in China are finding something that they didn't expect--a booming marketplace being pulled down by too much competition and price erosion, according a new forecast being issued today by Dataquest Inc. at its semiconductor conference here.

Chip revenues in China are now projected to decline by a surprising 18% this year compared to 2000, but the market will rebound in 2002 with 5-to-6% growth, said the new Dataquest forecast. The China's semiconductor sales climbed to $13.1 billion in 2000, which was 36% higher than 1999, said analyst Dorothy Lai, who tracks the business for Dataquest's Asia-Pacific semiconductor group, based in Hong Kong.

Growth in China was expected to continue, even in the middle of the severe 2001, semiconductor downturn. In May, Dataquest projected that China's chip market would grow by 6%, Lai said. But unexpectedly, the bottom quickly fell out of the burgeoning market. While chip unit shipments continue to soar in China, product prices have rapidly dropped in the country over the last several months, pushing overall revenues into negative territory, Lai told SBN.

So instead of 6% growth in China, the market will end up falling 18% in 2001, she said. "The market is always growing in terms of units. But chip prices have significantly fallen in all sectors," she said in an interview at the Gartner Dataquest Semiconductors 2001 conference. Just like the rest of the world, prices for DRAMs, microprocessors and other products are now taking a major beating in China, according to the Dataquest forecast.

In 2002, however, there is some positive news. "In 2002, we project single digit growth," Lai said. "We're looking at 5-to-6% growth." That low-rate of growth still beats the worldwide semiconductor recovery next year, which Dataquest says is expected to increase at just 3% to $152 billion in 2002 (see Oct. 31 story).