Electronics Production | September 12, 2006

IC unit's slowdown will fix inventories<br>and return industry to trend line

The semiconductor industry appears to be moving toward a mild slowdown period later this year and into 2007 after seeing abnormally high growth rates in IC unit-volume shipments since the third quarter of 2005.
IC Insights believes an inventory adjustment period is needed to bring unit-volume shipments back down to the industry's long-term trend line, which historically grows at a 9.5% annual rate.
While most concerns about excess semiconductor shipments have been focused on the personal computer segment, the inventory build is occurring in other areas as well.

IC unit-volume shipments increased 25% in the first half of 2006 compared to the same period in 2005. For the entire year, integrated circuit shipments are expected to be up by 15% in 2006, according to IC Insights' mid-year outlook, which raises the forecast for unit volume growth from the 10% level projected in January. Lower average selling prices (ASPs) are offsetting the higher unit volumes, and as a result, the 2006 forecast for IC revenue growth remains unchanged since the start of the year at 8%.

Telltale signs of overheating in IC markets can be seen in the strong growth of unit shipments, which have placed integrated circuit volumes above the long-term trend line for four quarters, starting in 3Q05. IC unit-volume shipments were 10% above the long-term trend line in the first half of the year, heading into 3Q06. In the boom year of 2004, IC unit-volume shipments were 8% above the trend line before an inventory adjustment period occurred in late 2004 and early 2005.

IC Insights' analysis of standard analog and general-purpose logic shipments in the first half of 2006 shows unit-volume growth rates above those in the last cyclical peak year (2004).

IC Insights' mid-year forecast for IC revenues remains unchanged from the start of the year with worldwide sales growing 8% to $206 billion. The forecast for total semiconductor revenues---including optoelectronics, sensor/actuator devices, and discretes (OSD)---also remains at 8% growth and about $246 billion worldwide in 2006.


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