iSuppli Tweaks 2006 Semiconductor Forecast

After a better-than-expected first quarter, iSuppli Corp. has upgraded its semiconductor forecast slightly for 2006. In the newly issued forecast, iSuppli's expected growth for 2006 has inched upward by a half-percentage point, going to 7.9 percent, up from 7.4 percent previously. "The rise in the 2006 semiconductor revenue outlook comes despite a slowdown in the markets for electronic equipment," said Gary Grandbois, principal analyst with iSuppli Corp. "Worldwide electronic equipment revenue growth will decline to 6.8 percent in 2006, down from 8.2 percent in 2005. "However, electronic equipment demand remains very strong, and continues to be driven by the healthy PC, mobile- phone and consumer-electronics markets. Furthermore, improving conditions in the semiconductor industry, bolstered by rising Average Selling Prices (ASPs) and lengthening lead times, are propelling chip growth to a higher level than that experienced by the end-equipment markets." The figure below and attached presents iSuppli's forecast of worldwide semiconductor and electronic equipment revenue growth. As highlighted in the figure, semiconductor market growth will peak in 2007 and then bottom out in 2009. Memory outpaces the market Two major product families are behind the semiconductor market's growth in 2006: analog and memory ICs. Standard linear analog ICs are experiencing a very strong resurgence because prices are being pushed up by suppliers in order to pass on increases in material costs. A healthy mobile-phone market, which is expected to post nearly 14 percent unit growth in 2006, also is important to the growth of analog ICs. Memory IC growth is being led by the continuing strength of flash, an area that is expected to expand by 27 percent in 2006. Flash memory growth, combined with the 8 percent rise in DRAM revenue expected in 2006, will generate total memory IC growth of nearly 15 percent for the year. Every silver lining has a cloud However, the semiconductor market outlook for 2006 isn't all rosy. The higher-than-expected growth seen in the first quarter will be followed by some sluggishness in the market in the second half. Second-half growth of 5 percent is less than normal seasonal expectations. Orders appear to be weakening and inventories are rising. The iSuppli forecast update is only a modest revision because the market outlook, while positive, remains somewhat tentative for the rest of 2006. More information about this topic will be available in iSuppli's upcoming report, Electronic Component Forecast Update Market Tracker-Q3 2006.