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Chip sales to dry up 2003-4

Growth will fall sharply then go negative

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Chip companies should expect their explosive growth to be sharply curtailed just two years down the line, market researcher Dataquest has warned.

Semiconductor sales are currently going through the roof, as demand for mobile phones, PDAs, DVD players - let alone PCs - is on the increase. Dataquest's numbers reckon the chip industry will make sales of $231.6 billion this year, up 36.9 per cent on 1999.

However, next year will see a slight dip. Dataquest is forecasting 27.5 per cent growth during 2001, which still values the industry at nearly $300 billion.

And then comes 2002, which will see growth plunge to 13.9 per cent, followed by a 5.3 per cent fall in sales in 2003.

Of course, such predictions should fool no one. The chip business is cyclical, as manufacturing technology evolves and older plant needs to be replaced, leading to supply and demand issues that keep the wheel turning. Today's massive demand will generate lower prices. Then, as vendors invest in new fabrication facilities, prices supply will fall and prices rise, reducing demand until the need to recoup the cost of plant forces prices down and demand back up.

For example, Dataquest reckons DRAM demand will "fall like a rock" come 2003. The last time this happened, back in the late 1990s, the DRAM market fell from $45 billion in 1996 to between $20 billion and $30 billion range the following year.

Dataquest's numbers are broadly backed by the Semiconductor Industry Association, which has already said it expects growth to fall to 14 per cent in 2002 and then to 12 per cent in 2003. ®

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