iSuppli more optimistic on 2007 semi forecast than others

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 6/21/2007

Although a number of industry watchers have cut forecasts on semiconductor revenue growth for the year, El Segundo, Calif.-based iSuppli Corp. has only lowered its prediction by 2.1 percent to 6 percent growth for the year.

As such, the firm expects that global semiconductor revenue will reach $276.6 billion this year, from $260.9 billion in 2006. iSuppli’s previous forecast issued in April predicted an 8.1 percent increase for the year.

iSuppli: Worldwide Semiconductor Revenue and % Growth Forecast
(Revenue in Millions of U.S. Dollars)
	2006	2007	2008	2009	2010	2011
Millions of U.S. Dollars	260,879	276,583	300,911	308,943	335,060	365,344
Percentage Annual Growth	9.6%	6%	8.8%	2.7%	8.5%	9%

Source: iSuppli Corp., June 2007

Similar to other market researchers, iSuppli trimmed its forecast following weaker-than-expected Q1 market conditions including plunging prices for memory chips combined with a significant inventory correction. These conditions resulted in a 6.2 percent sequential revenue decline during the first three months of the year, iSuppli noted.

iSuppli principal analyst Gary Grandbois explained that the memory downturn and inventory reduction had been anticipated by the firm, but “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 believes semiconductor market conditions remain strong. “Despite the strong price erosion, the market is fundamentally sound,” he said in a statement. “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.”

Pricing erosion is expected to slow in the second half of this year, which should also boost the industry and 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, iSuppli believes.

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. iSuppli’s more optimistic outlook reflects our view that pricing conditions will improve in the second half,” Grandbois said.

The table below shows how semiconductor revenue growth will gain momentum throughout the year following the Q1 trough.

iSuppli: Worldwide Semiconductor Revenue Growth Forecast by Quarter
	2007				2008
	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Percentage Change	-6.2%	2.8%	5.5%	2.9%	4.7%	3.5%	9%	3%

Source: iSuppli Corp., June 2007

Further, sequential quarterly growth will be stronger next year, resulting in 8.8 percent annual growth but in 2009, the firm predicts that a combination of weakening markets, overcapacity and price erosion will limit growth to 2.7 percent. Following 2009, global semiconductor revenue will begin to recover, iSuppli concluded.