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SMT & Inspection | June 09, 2005

iSuppli Vice President Predicts Moderation in Chip Boom/Bust Cycles

Improved inventory practices, better management of manufacturing capacity and greater flexibility in memory production are combining to moderate boom-bust cycles in the semiconductor industry, according to Dale Ford, vice president, market intelligence for iSuppli Corp.
Speaking at iSuppli's European Briefing Series event in Prague, Czech Republic, Ford predicted that the global semiconductor industry will experience a slowdown in 2005 and 2006 that will be relatively moderate compared to past industry declines.

Ford predicted that global semiconductor industry revenue growth would bottom out this year and next, rising by 6.1 percent in 2005 and by 2.5 percent in 2006, before rebounding to 10.4 percent rise in 2007 and a 11.6 percent expansion in 2008.

iSuppli presently does not predict a decline in annual semiconductor revenues throughout its
forecast period. iSuppli's forecast of a relatively mild slowdown contrasts sharply with the previous downturn in 2001, when sales fell by more than 34 percent.

Ford noted that the previous downturn was exacerbated by the Y2K effect, which artificially inflated global semiconductor revenue in 2000, and then collapsed it the following year. The exaggerated boom/bust combined with other factors led to a $13 build-up of excess semiconductor inventory in the electronics supply chain, with much of the overage pooling at the Electronics Manufacturing Services (EMS) providers.

With capacity expansions held in check, semiconductor manufacturing utilization is expected to remain relatively high. After peaking at about 90 percent in the second quarter of 2004, it has fallen to 85 percent in second quarter of 2005.

Higher capacity utilization will allow semiconductor suppliers to maintain better pricing power than during the previous downturn. Ford observed that the memory segment has the capability to influence the growth of the entire semiconductor market industry upturns and downturns,
combined with slower industry growth, will be a long-lasting phenomenon.

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