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26
September
2007

iSuppli reduces 2007 Semiconductor forecast

iSuppli has reduced its forecast of global semiconductor revenue growth in 2007 to 3.5 percent, down from its previous prediction of a 6 percent rise.
Ironically, the downward revision comes at a time when chip revenue is up, the memory industry is improving and the outlook for electronic equipment markets is on the rise. However, these stronger conditions in the second half of 2007 will be insufficient to completely offset the impact of the first half's weakness, spurring iSuppli?s forecast downgrade.

Global semiconductor revenue now is expected to rise to $269.9 billion in 2007, up 3.5 percent from $260.6 billion in 2006. iSuppli issued its previous 6 percent annual growth forecast in June.

Global semiconductor revenue declined by 6 percent in the first half of 2007 compared to the second half of 2006, limiting the full-year market growth potential.

"The major cause of the first-half semiconductor industry weakness was a 13 percent sequential decline in revenue during the period for memory Integrated Circuits (ICs), led by DRAM and NAND-type flash", said Gary Grandbois, principal analyst with iSuppli. "The memory revenue decline was spurred by a drop in Average Selling Prices (ASPs), which in turn was caused by a glut of parts on the market".

However, the second half is bringing a revival of growth, one that springs not only from the normal year-end seasonal strength, but also from a surge in memory IC prices and revenue and a stronger end-equipment market. Global semiconductor revenue will rise by 10 percent in the second half compared to the first marking a major turnaround in market conditions. Semiconductor revenue will rise by 9.8 percent sequentially in the third quarter and by 4 percent in the fourth.

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Memory IC revenue will rise by an impressive 15 percent in the second half compared to the first as ASP erosion is blunted and the holiday season commences, bringing stronger sales of PCs. With memory accounting for 23 percent of total semiconductor revenue in 2007, this will have a major impact on the overall chip market.

DRAM suppliers in the first half had increased manufacturing at a rapid rate, which will cause their bit shipments to rise by a stunning 94 percent in 2007, compared to the industry average of 55 to 60 percent annual growth. This oversupply caused a decline in memory prices that severely impacted the entire semiconductor market.

However, DRAM suppliers in the third quarter began slowing production growth, causing pricing to stabilize?and even rise in July.

While DRAM pricing has since softened, the market is still much stronger than it was in the first half. After declining by 10 percent and 23.8 percent sequentially in the first and second quarters of 2007 respectively, DRAM revenue will rise at a hefty 20.8 percent rate in the third quarter and will remain flat with a marginal 0.2 percent decline in the fourth quarter.

The NAND flash market recovery has been more dramatic in the third quarter. Prices for NAND are expected to increase in the third quarter, contrasting starkly to the 40 percent decline in per-megabyte prices in the first quarter. Following a 20.6 percent plunge in sequential revenue in the first quarter, the NAND market recovered partially with a 14.7 percent rise in the second quarter. Conditions have improved markedly in the third quarter, with an expected 37.5 percent rise, which will be followed by a modest 6.5 percent increase in the fourth quarter.

Due to stable pricing conditions in the second half, the DRAM and NAND markets are expected to grow by 2.5 percent and 15 percent this year, respectively. The resurgence will have legs; with memory revenue growth continuing into 2008, the total semiconductor market is expected to achieve a 9.3 percent revenue expansion next year.

While the 2007 semiconductor forecast has declined, the outlook for shipments of electronic equipment using those semiconductors has improved.

iSuppli has raised its forecast of 2007 electronic equipment revenue growth to 6.8 percent, up from 6 percent before. Of the six major electronic equipment segments, five of them?i.e. data processing, wireless communications, wired communications, consumer electronics and automotive?have been upgraded by iSuppli.

Industrial equipment is the only segment that has not been upgraded.

These positive developments are likely to ripple into 2008, with electronic equipment revenue expected to rise by 7 percent for the year, up from the previous forecast of 6.4 percent.
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