International research firms Gartner and International Data Corporation (IDC) expect semiconductor demand to stabilise next year due to slowing in the pace of expansion and uncertainty about future demand.
They say the semiconductor market is an important indicator of how well the computer market is likely to perform.
Several top US semiconductor manufacturers have cut their outlooks twice in the past few weeks. Companies such as Insil and Cypress Semiconductor cut their third quarter outlooks as demand failed to pick up in September.
Intel, the world`s largest chip manufacturer last month, acknowledged its sales were being hurt by softer-than-expected demand for both its flagship microprocessor line and flash memory chips.
Adding to the semiconductor woes, global foundry Taiwan Semiconductor said last week that demand for its chip-manufacturing services had softened over the past two months.
However, according to foreign media reports, key US PC manufacturers Dell and Hewlett-Packard are still optimistic about their sales forecasts for 2005.
Downward cycle looming
Gartner says worldwide capital equipment spending is on pace to grow 66% in 2004. Despite this strong growth, the industry will begin to experience a downward cycle in 2005. Capital equipment spending in 2005 is projected to decline 0.6%.
"We expect a down cycle in 2005 driven by supply and demand issues," says Klaus Rinnen, VP for Gartner`s semiconductor manufacturing and design research group. "We do not expect a semiconductor device unit contraction, but rather a slowing in the pace of expansion, which, combined with new capacity additions, would lead to a supply-demand imbalance."
In its latest study, IDC predicts the dynamic random-access memory (DRAM) market will make 2005 another normal year after its high growth rate in 2004, the highest in the past 10 years.
"IDC still believes the market will directly respond to demand change under stable supply conditions for these two years," says Soo-Kyoum Kim, programme director for semiconductors at IDC.
Good year for spending
Gartner says while there are concerns for 2005, 2004 is turning out to be one of the best years for the semiconductor capital equipment market. Wafer fab equipment revenue is on pace to rise 72%, while packaging and assembly equipment revenue will grow 49%. Automated test equipment revenue will increase by 52% in 2004.
Worldwide semiconductor wafer fab utilisation reached 94.8% at the end of the second quarter of 2004, up from 93.2% at the end of the first quarter. An excess inventory burn that began in the third quarter broke the advance of utilisation rates, leading to a first but small decline to 94.7%.
"As manufacturers trim production levels to reduce further excess inventories in 2004 and as added capacity comes online, these high rates will not continue," says Gartner`s Rinnen.
He says utilisation rates should drop below the 90% level in the seasonally weak first quarter of 2005. While seasonal demand growth in the second and third quarters will buffer the impact of capacity in motion, rates will decline in late 2005 and bottom out in the first quarter of 2006 in the low 80% range for all production before beginning to climb again.
Hotspots for growth in 2004 include the foundry market, with 96% capital spending growth, focusing on the logic segment. Memory-related investments, especially in DRAM, remain above market expectations.
Share