Global chip sales headed for tough times in 2005

Next year will be a tough year for semiconductor makers, as global chip sales are expected to be flat compared with 2004, according to a prominent industry group and industry analysts.

Global semiconductor sales in 2005 will total $215.3 billion, up 1.2 percent from 2004 sales of $212.8 billion, according to a forecast released this week by World Semiconductor Trade Statistics (WSTS), an industry group that tracks global chip sales. That would be a fraction of the 27.8 percent increase in chip sales WSTS predicted for this year, and sharply lower than the group's previous estimate for 2005 of 8.5 percent growth, made in May.

Looking further ahead, WSTS sees little on the horizon to signal a strong rebound in semiconductor sales, predicting an uptick of just 3 percent in 2006.

The outlook is gloomiest in the Americas, where WSTS predicted that chip sales will fall by 1.5 percent in 2005 and by a further 0.9 percent in 2006. The group did not indicate when a slide in chip sales in the region might be reversed.

Asia will continue to remain the region with the strongest sales, but growth will be much slower than the 41.1 percent sales increase expected for this year, WSTS said. Asian chip sales will grow by 2.8 percent in 2005 and by 4.9 percent in 2006, it said, noting that growth in China will outperform that of other parts of Asia.

Market analyst IDC also this week revised downwards its 2005 forecast for global chip sales, now predicting the worldwide chip market will shrink by 2 percent, compared to a previous forecast of growth of 7.6 percent. IDC said the expected slowdown in demand for chips will take place because the production plans of OEMs (original equipment makers) are outstripping end user demand.

The WSTS and IDC announcements follow closely on the heels of recent comments made by Morris Chang, the chairman and chief executive officer of Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), the world's largest contract chip maker.

At a conference in Taipei on Oct. 26, Chang warned investors that the chip industry is headed for rough times in 2005, reversing an earlier, more bullish position. TSMC had previously expected the global industry to post growth in the high single digits during 2005.

"We still expect positive growth for TSMC (in 2005) but for the semiconductor world markets we are expecting almost zero growth," Chang said last week.