Released on Wednesday, the SIA's annual forecast shows worldwide semiconductor revenues plunging 31.2% to $140.7 billion in 2001 after growing 36.8% in 2000 to a record high $204.4 billion. The boom/bust, two-year swing underscores just how precarious conditions have gotten in the worldwide chip markets.

During a press conference after the forecast was released, SIA officials dodged a final question about the difficulty in forecasting the business since a year ago the trade group had predicted 22% growth in 2001 vs. the 31.2% drop now expected. A false buildup of chip inventories by communications systems makers was mostly blamed for the forecasting failure.

The SIA's new U.S. industry consensus forecast now predicts that a slow-but-steady recovery will begin in the fourth quarter this year, followed by 6.3% growth to $149.5 billion in 2002 and a 21.1% increase in sales to $181.1 billion in 2003.

The SIA forecast also shows a major shift in global chip markets in the early half of this decade, with the Asia Pacific region becoming the world's largest semiconductor market as a direct result of the severe 2001 downturn (see regional forecast table in Nov. 7 story).

After releasing its annual fall forecast, SIA officials and chip executives told journalists that inventory corrections were still continuing in some product segments, but the global semiconductor industry was expected to exit the fourth quarter "in balance."

"The projection we have as an industry right now is to return to a growth pattern late this year, with fourth quarter revenues slowly rising in the low single percentage digits," said Rich Templeton, chief operating officer and executive vice president of Texas Instruments Inc. "The forecast is one that gains traction as we move into 2002," he added, during the SIA press conference (see table on product segments below).

Flash tops growth list

Looking at a five-year trend (from 1999 to 2004), Templeton noted that flash memories would end up the fastest growing chip segment, with sales increasing at a compound annual growth rate of 22% from $4.6 billion in 1999 to a projected $12.4 billion. Renewed growth in cellular phones--in particular 2.5G handsets--along with digital cameras and flash-based automotive applications will drive this nonvolatile memory segment, he said. However, much of the growth in flash occurred in 2000 when the segment surged 133% during last year's boom, which overbuilt inventories for cellular handsets.

A key mismatch between the new SIA forecast and other industry projections is in DRAMs, which have fallen on hard times since peaking at just over $40 billion in 1995. The SIA forecast shows DRAM revenues dropping 60% to $12 billion in 2001, but the U.S.-based industry consensus outlook predicts strong growth years in 2003 and 2004, with sales increasing 44% and 54%, respectively. Other forecasts by market research firms show flat to slightly lower DRAM sales in 2002, and no strong recovery likely in the next several years.

While DRAM revenues will continue hinge on personal computers, the SIA forecast predicts that new consumer applications, such as set-top boxes, will help drive a rebirth in the troubled memory sector. The forecast shows a compound annual growth rate of 7.3% from $20 billion in 1999 and nearly $30 billion in 2004.

One of the hottest growth drivers in the 1990s--microprocessors--will only be lukewarm in the first half of this decade, with a compound annual growth rate of just 2.9% between 1999 and 2004--$27 billion vs. $31.4 billion, according to the SIA forecast.

Analog semiconductor sales will register a 10.4% growth rate between 1999 and 2004, increasing from $22 billion to $36 billion, as a result of communications applications, according to the San Jose-based trade group. Optoelectronics, which had been strong last year, will end up as the second fastest growth segment in the SIA forecast, rising from about $6 billion in 1999 to $11 billion in 2004, or a 13.7% compound annual growth rate. Optical storage systems and optical networks will boost this segment in the early half of this decade, according to Templeton, who was summarizing SIA's forecast at the press conference.

Digital signal processors (DSPs) will end up with a compound annual growth rate of 13%--$4.4 billion in 1999 vs. $8.1 billion in 2004--driven by wireless, wired communications and a range of emerging consumer electronics applications, said the chief operating officer of TI, which is currently the leading supplier of programmable DSPs.

Breakout of sales by product groups

Category	2001	2002	2003	2004
Discretes	$12.3 billion (-27%)	$11.9 billion (-3%)	$14 billion (+16%)	$16 billion (+15%)
Optoelectronics	$7.6 billion (-22%)	$7.7 billion (+0.1%)	$9.0 billion (+15%)	$11 billion (+20%)
Sensors	$916 million (+27.1%)	$1.1 billion (+23.5%)	$1.5 billion (+32.9%)	$1.9 billion (+29.0%)
All ICs	$119.7 billion (-32.3%)	$128.7 billion (+7.5%)	$156.9 billion (+21.9%)	$189.8 billion (+21%)
Analog	$23 billion (-23%)	$26 billion (+9%)	$31 billion (+20%)	$36 billion (+18%)
DRAM	$12 billion (-60%)	$13 billion (+16%)	$19 billion (+44%)	$29 billion (+54%)
Flash memory	$7.8 billion (-27%)	$8.1 billion (+5%)	$10 billion (+23%)	$12 billion (+25%)
Microprocessor	$23 billion (-28%)	$25 billion (+7%)	$29 billion (+16%)	$31 billion (+10%)
DSP	$4 billion (-34%)	$5 billion (+16%)	$6 billion (+33%)	$8 billion (+29%)
Microcontroller	$10 billion (-17%)	$11 billion (+11%)	$14 billion (+28%)	$16 billion (+17%)
MOS logic	$25 billion (-28%)	$26 billion (+6%)	$32 billion (+21%)	$38 billion (+19%)
Total	$140.7 billion (-31.2%)	$149.5 billion (+6.3%)	$181.1 billion (+21.1%)	$218.3 billion (+20.5%)
Source: SIA 2001 fall forecast *(Percentage in parenthesis shows change from previous year)