Firms temper 2007 worldwide semiconductor outlooks

By Colleen Taylor, Contributing Editor -- Electronic News, 4/24/2007

Two market research firms have trimmed their forecasts, with one firm slimming its estimates down to a mere 2 percent growth for 2007.

Market research firm iSuppli Corp. has trimmed its 2007 worldwide semiconductor revenue forecast, citing a combination of factors, including a deceleration in mobile-phone shipment growth, a lingering excess inventory problem and a major slowdown in the memory market.

The firm now forecasts that global semiconductor revenue will rise to $281.4 billion in 2007, up 8.1 percent from $260.2 billion in 2006. iSuppli previously predicted 10.6 percent growth for the year.

Analysts at the firm maintain that the revision is a modest cut. "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," Gary Grandbois, a principal analyst for iSuppli, said in a statement. "However, this decline in the outlook is relatively modest—and a large portion of the 2007 forecast downgrade comes from a substantial reduction in the memory chip forecasts, specifically in the memory segment."

A similarly down-turned revision for the semiconductor market came last week from IC Insights, which lowered its expectations for full-year 2007 worldwide IC market growth a whopping 5 percentage points from 7 percent to 2 percent, citing ongoing inventory issues.

Meanwhile, the Semiconductor Industry Association (SIA) has so far stuck with its original forecast of 10 percent growth in the semiconductor industry, while market research firm In-Stat forecasted last week that worldwide semiconductor revenue will grow 7.9 percent in 2007.

Semiconductor manufacturing equipment industry association SEMI recently released revisions of its own North American-based manufacturers of semiconductor equipment book-to-bill reports that reveal a slightly different market than had originally been reported due to data input errors. SEMI revamped its January and February book-to-bill stats to show a January book-to-bill of 1.0, changed from SEMI's original statement of a book-to-bill ratio of 1.04. The new February numbers show a book-to-bill ratio of 0.98, changed from SEMI's original 1.05. Earlier this week, the firm reported a steady 1.00 book-to-bill ratio for March.

Lingering issues

Although last fall's excess semiconductor inventories in the global electronics supply chain declined significantly in Q1, they remained at $2.8 billion at the end of the period, iSuppli said, a level still high enough to negatively impact global semiconductor production and pricing.

Meanwhile, the firm predicted that growth in the mobile-phone segment will slow dramatically in 2007 compared to 2006, hurting semiconductor sales. Revenue in the wireless communications equipment sector, which is dominated by mobile phones, is expected to rise to $202.3 billion in 2007, up 4.3 percent from $193.9 billion in 2006. This compares to 8.2 percent growth in 2006.

The biggest factor behind the revision, iSuppli said, is a reduction in expected DRAM revenue. The DRAM market hit a peak in 2006, with revenue rising by 35.2 percent to reach $33.9 billion. This surprisingly strong rise will be followed a major slowdown in growth, with revenue rising only 8.6 percent to reach $36.9 billion in 2007. Further, iSuppli noted the reduction is a plunge in DRAM average selling prices (ASP) as available supplies increase.

iSuppli previously predicted 13 percent growth in DRAM revenue in 2007. With DRAM expected to account for 13.1 percent of overall semiconductor revenue in 2007, a 4.4 percentage-point reduction in the outlook has a significant impact on the overall chip market, the firm said.

iSuppli's analysts are not the only ones projecting that plummeting ASPs will affect the DRAM market greatly in the next year. Market research firm Semico project 2007 NAND revenues to be up just 2 percent over last year, while it says unit shipments will increase 82 percent.

In addition, the overall flash market is expected to decline by 3.3 percent in 2007, mainly due to weakness in the NAND sector, iSuppli predicted. Total flash revenue grew by 11.1 percent in 2006.

iSuppli also has marginally reduced its outlook for global electronic equipment revenue in 2007. Global electronic equipment shipment revenue is now expected to rise to $1.49 trillion in 2007, up 6.3 percent from $1.4 trillion in 2006. This compares to iSuppli's previous forecast of 6.8 percent growth. However, the firm said that this still represents a strong expansion, with the rise in 2007 exceeding the expected five-year compound annual growth rate of 5.5 percent for the global electronic equipment market.

Also this week, market research firm Gartner Inc. released a similarly slow outlook on the equipment front for 2007. However, the firm said that the "modest contraction" in spending should be over by 2008. Gartner forecasted last week worldwide semiconductor capital equipment spending to reach $40.6 billion this year, a 3.2 percent decline from 2006. The firm also said that industry will soon bounce back from the slowdown to rise 14.9 percent in 2008 to $46.7 billion.