Semiconductor revenue growth slows

By Jim Carbone -- Purchasing, 4/24/2007 1:32:00 PM

Slower than expected mobile phone growth, lingering excess inventory and sluggish memory demand means the semiconductor industry will grow at a slower rate than originally expected, according to researcher iSuppli.

Global semiconductor revenue will rise to $281.4 billion in 2007, up 8.1% from $260.2 billion in 2006. ISuppli previously predicted 10.6% growth for the year.

“Some weakening of end-markets seen late in the fourth quarter of 2006, an excess inventory problem that carried over into 2007 and an anticipated drop in the mobile-phone market have contributed to a less-optimistic outlook for the semiconductor market in 2007,” says Gary Grandbois, principal analyst for iSuppli. However, decline in the outlook is relatively small and a big part of the forecast downgrade is due to less demand and lower prices for memory chips, he says.

Excess semiconductor inventories in the global electronics supply chain remained at $2.8 billion at the end of the first quarter, which is high enough to negatively impact global semiconductor production and pricing.

Meanwhile, growth in the mobile-phone segment will slow dramatically in 2007 compared to 2006, which will also impact chip sales. Revenue in the wireless communications equipment sector, which is dominated by mobile phones, will rise to $202.3 billion in 2007, up 4.3% from $193.9 billion in 2006. This compares to 8.2% growth in 2006.

The biggest factor behind iSuppli’s forecast revision is a reduction in expected DRAM revenue. The DRAM market hit a peak in 2006, with revenue rising by 35.2% to $33.9 billion. This strong increase will be followed a major slowdown in growth, with revenue rising only 8.6% to reach $36.9 billion in 2007. iSuppli previously predicted 13% growth in DRAM revenue in 2007

The primary cause of the reduction is a plunge in DRAM average selling prices as available supplies increase. Memory suppliers are shifting capacity to DRAM and away from less-profitable NAND-type flash in 2007.