iSuppli Trims 2007 Semiconductor Forecast, but Remains Optimistic
While many researchers are cutting their forecasts for 2007 semiconductor revenue growth to the 2 percent range, iSuppli Corp. is remaining optimistic, with a prediction of a healthy 6 percent increase this year.
Global semiconductor revenue will rise to $276.6 billion in 2007, up from $260.9 billion in 2006. iSuppli's previous forecast, issued in April, predicted an 8.1 percent increase for the year.
Figure 1 presents iSuppli's annual semiconductor revenue and growth forecast.
iSuppli trimmed its forecast following weaker-than-expected conditions in the first quarter. Plunging prices for memory chips combined with a significant inventory correction resulted in a 6.2 percent sequential revenue decline during the first three months of the year.
"The memory downturn and inventory reduction had been anticipated by iSuppli," noted Gary Grandbois, principal analyst for iSuppli. "However, we expected these factors to drive only a 5.4 percent decline in revenue for the quarter. With our dreary expectations having been exceeded, iSuppli has reduced its 2007 forecast by 2.1 percentage points."
Nonetheless, Grandbois said semiconductor market conditions remain strong.
"Despite the strong price erosion, the market is fundamentally sound," Grandbois said. "The end-equipment market is still vital, with PC and handset unit growth expected to exceed 10 percent. Some modest slowing is being seen in some segments of the consumer and industrial electronics markets. But on the whole, iSuppli expects that the electronic equipment market will grow by 6 percent in 2007. This will generate continuing demand that will keep semiconductor unit growth up and will generate decent single-digit revenue growth in most segments besides memory and microprocessors."
Further boosting the semiconductor market, the rate of price erosion is expected to slow in the second half of 2007. This will allow the semiconductor market to grow at a relatively robust rate of 8 percent in the second half of the year compared to the first half. In contrast, global semiconductor revenues are expected to decline by 3 percent in the first half of 2007 compared to the second half of 2006.
"Many of the recent pessimistic semiconductor forecasts arise from analysts extrapolating that weak pricing conditions in the first quarter will persist throughout the entire year," Grandbois said. "iSuppli's more optimistic outlook reflects our view that pricing conditions will improve in the second half."
Figure 2 illustrates how semiconductor revenue growth will gain momentum throughout 2007 following the first-quarter trough.
Sequential quarterly growth will be stronger in 2008, resulting in 8.8 percent annual growth. However, a combination of weakening markets, overcapacity and price erosion will limit growth to 2.7 percent in 2009.
