Still, others believe the industry is in the midst of a slowdown — if not a downturn. Following a strong and much-needed upturn in the first half, the industry discovered another meaning of the abbreviation IC: inventory correction.

Demand for flash memory, DRAMs and microprocessors eased in the marketplace by the summer. And one-by-one, chip makers begun to lower their quarterly forecasts despite what appeared to be a robust IC recovery.

Many thought these announcements were "company-specific issues." One analyst dismissed those notions and recognized the problem back in June. "Taken together, these announcements may imply that an inventory correction may be underway," said Cristina Osmena, an analyst with Jefferies & Co. (New York), an investment banking firm (see July 2 story).

Lingering excess chip inventories are forcing semiconductor suppliers to cut their wafer starts and reassess their capital spending plans, according to the latest research from iSuppli Corp.'s Semiconductor Inventory Tracker service in December.

iSuppli (El Segundo, Calif.) expects the current trends to continue into 2005. Utilization at the major silicon foundries also will plunge over the next two quarters.

Surplus chip inventories in the electronics supply chain swelled to $1.6 billion in the third quarter, up 103 percent from $800 million in the second quarter, according to iSuppli. The excess inventory numbers are even higher than those released by the firm in October, when excess inventories were estimated at $1.1 billion.

iSuppli expects excess inventories to decline only marginally to $1.5 billion by the end of the fourth quarter. iSuppli's latest figures show semiconductor suppliers accounting for 89 percent of the $1.6 billion in surplus stockpiles, compared with 86 percent estimated two months ago. Days of inventory (DOI) held by semiconductor suppliers in the third quarter increased by six percent compared to the year-ago period (see Dec. 14 story).

Amid the ongoing IC inventory problem, many wonder if the industry is in the midst of a slowdown or the beginning of a down cycle. Perhaps they are one in the same.

"I don't think the inventory correction is a euphemism for a slowdown," said Intel Chief Executive Craig Barrett, at a recent event hosted by the Semiconductor Industry Association (SIA).

At the same event, another executive took a shot at the media and analyst community, saying that they are attempting to exaggerate the current slowdown.

The media wants to equate the current slowdown with the horrific downturn in 2001, said Wilfred Corrigan, chairman and CEO of LSI Logic Corp. The media looks at the current market and says, "My God, it looks like 2001," Corrigan said. "It's a rush to judgment by the media."

Corrigan indicated that the IC inventory issues are somewhat exaggerated, although he did acknowledge that the chip market is in the midst of a lull. "It's a slowdown," he said. "I don't think it's a crisis" (see Nov. 4 story).

"The downturn the industry is currently experiencing is an inventory correction that is likely to run its course over the next six months," noted Paul Leming, chief financial analyst with Princeton Tech Research.

"Our belief that this downturn is an inventory correction and not something more serious is mainly driven by the fact that the industry saw shipments grow at more than three times the historic growth rate of 8.5 percent to 9 percent per year through much of late 2003 and early 2004," he said. "That level of strength is not sustainable, and, when it has occurred in the past, has consistently led to inventory cycles."

The pundits speak

Heading into 2005, the dreaded inventory correction problem is expected to play a big role in the market. So what's in store for 2005?

Here are the latest forecasts from several market researchers for 2005:

*Future Horizons (Sevenoaks, England) projects that the IC industry will end up with 32 percent growth in 2004 over 2003. Future Horizons dropped hints it will shortly make a new forecast for 2005. Back in the summer, the research firm projected that the global semiconductor market will grow a further 28.0 percent in 2005 to $282 billion (see Dec. 10 story).

*Bill McClean, president of market research firm IC Insights Inc. (Scottsdale, Ariz.), predicts that the worldwide semiconductor business would peak and grow 27 percent in 2004 over 2003. In 2005, McClean projects that the IC industry would move into a downturn mode and show a 5 percent decline (see Sept. 23 story).

*Market research company iSuppli Corp. recently reduced its forecast for worldwide semiconductor revenue growth in 2005. Worldwide semiconductor sales are expected to hit $237.1 billion in 2005, up 4.7 percent from $226.6 billion in 2004, according to iSuppli. iSuppli previously had predicted 9.6 percent growth in semiconductor revenue in 2005 (see Dec. 16 story).

*Jim Feldhan, president of the Phoenix-based Semico Research Corp., said that the semiconductor industry would grow by a healthy 31.5 percent in 2004, but the market is projected to decline 5.5 percent in 2005 (see Sept. 9 story).

*G. Dan Hutcheson, president of VLSI Research (Santa Clara, Calif.), is sticking to its earlier forecast of positive 8 percent growth for the semiconductor industry in 2005 over 2004. In 2004, the IC industry is projected to grow by 30 percent, according to the research firm (see Oct. 22 story).

*The Semiconductor Industry Association (SIA) recently released its annual forecast for 2004 to 2007, predicting sales to rise 28.5 percent to a record $213.8 billion in 2004 but remain essentially flat in 2005, as the excess inventory problems many chip companies are now reporting make their impact felt (see Nov. 3 story).

*The World Semiconductor Trade Statistics (WSTS) data collection group has cut its forecast for global chip market growth in 2005 to 1.2 percent. Lackluster growth of 1.2 percent replaces a previous prediction of 8.5 percent and is to be followed by 3.0 percent annual growth in 2006 and 11.4 percent annual growth in 2007. For 2004 WSTS maintained its forecast at 28.5 percent annual growth to $213.78 billion (see Nov. 2 story).

More forecasts

What are the hottest -- and coldest -- chip markets projected for 2005? Optoelectronics and digital signal processors (DSPs) are projected to show the strongest growth in 2005, while analog, microprocessors, and microcontrollers are expected to be flat, according to the SIA. DRAMs, flash memories and discretes are projected to go into negative numbers in 2005, according to the SIA.

Asia is expected to be one of the few bright spots for the semiconductor industry in 2005, according to the SIA. The Asia-Pacific chip market is projected to grow the fastest in a down year in 2005, followed by Japan, Europe and then North America, according to the SIA (San Jose).

(Return to the 2004 Top 10 story list or go to No. 2).