News Article
IC market to contract by two per cent next year
Overly optimistic estimations of demand for semiconductors combined with overproduction by manufacturers has triggered a major industry correction, warns market analyst IDC.
Overly optimistic estimations of demand for semiconductors combined with overproduction by manufacturers has triggered a major industry correction, warns market analyst IDC.
The company believes semiconductor sales will slump from an estimated 26 per cent expansion during 2004 to a two per cent contraction in 2005.
"A series of order cancellations and OEM push-outs in the middle of 2004 resulted in an inventory overhang for suppliers," said Mario Morales, vice president of semiconductor research at IDC.
"These inventories will linger into the first half of 2005 as suppliers adjust to meet market conditions."
Supplier expectations for a strong market led to a 48% surge in capital spending in 2004. However, significant variations in monthly demand forced manufacturers to slow production in the second half of the year. Despite these adjustments, 2004 will be a strong year overall for the semiconductor industry with total revenues reaching $210 billion.
IDC predicts that the first half of 2005 will be marked by increased price pressures, lower utilisation rates and greatly reduced capital spending as suppliers seek to stabilise the market.
A continuation of the corporate PC and mobile phone replacement cycles and growing demand for consumer electronics should help suppliers clear their lingering inventory and return to growth by the second half of 2005.
"Cutbacks in capital spending and new wafer starts are expected to stabilise prices in the second half of 2005, as suppliers shift from focusing on market share and market expansion towards operational execution," said Morales.
The companys forecast for the longer term is more encouraging. IDC believes the market will return to positive growth in 2006 and experience a five-year compound annual growth rate (CAGR) of 11.3% from 2003-2008.
But to take advantage of the market recovery in 2006 and beyond, the company says suppliers must adjust their business models to adapt to shorter opportunity windows and regional demand trends.
With many device markets maturing, usage models are overtaking pure technology as the basis for many design decisions and innovation. Semiconductor suppliers will continue to migrate from point products to systems solutions in order to capture the opportunity across most system areas. This will accelerate a healthy level of consolidation and restructuring among semiconductor suppliers, the company believes.
The company believes semiconductor sales will slump from an estimated 26 per cent expansion during 2004 to a two per cent contraction in 2005.
"A series of order cancellations and OEM push-outs in the middle of 2004 resulted in an inventory overhang for suppliers," said Mario Morales, vice president of semiconductor research at IDC.
"These inventories will linger into the first half of 2005 as suppliers adjust to meet market conditions."
Supplier expectations for a strong market led to a 48% surge in capital spending in 2004. However, significant variations in monthly demand forced manufacturers to slow production in the second half of the year. Despite these adjustments, 2004 will be a strong year overall for the semiconductor industry with total revenues reaching $210 billion.
IDC predicts that the first half of 2005 will be marked by increased price pressures, lower utilisation rates and greatly reduced capital spending as suppliers seek to stabilise the market.
A continuation of the corporate PC and mobile phone replacement cycles and growing demand for consumer electronics should help suppliers clear their lingering inventory and return to growth by the second half of 2005.
"Cutbacks in capital spending and new wafer starts are expected to stabilise prices in the second half of 2005, as suppliers shift from focusing on market share and market expansion towards operational execution," said Morales.
The companys forecast for the longer term is more encouraging. IDC believes the market will return to positive growth in 2006 and experience a five-year compound annual growth rate (CAGR) of 11.3% from 2003-2008.
But to take advantage of the market recovery in 2006 and beyond, the company says suppliers must adjust their business models to adapt to shorter opportunity windows and regional demand trends.
With many device markets maturing, usage models are overtaking pure technology as the basis for many design decisions and innovation. Semiconductor suppliers will continue to migrate from point products to systems solutions in order to capture the opportunity across most system areas. This will accelerate a healthy level of consolidation and restructuring among semiconductor suppliers, the company believes.
