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Semiconductor Revenue Will Be Below Peak

The good news for the semiconductor sector is that 2007 will represent the peak year of its present growth cycle, with double-digit growth expected. The bad news for the semiconductor industry in 2007 is that due to the changing dynamics of the business, growth will amount to only 10.6 percent for the year -- far below historical market peaks.

Worldwide semiconductor revenue will expand to $285.8 billion in 2007, a 10.6 percent rise from $258.5 billion in 2006. This compares with the iSuppli newly revised forecast of 9 percent semiconductor growth in 2006. After 2007, growth will decelerate to 8.7 percent in 2008 and then bottom out at 3.7 percent in 2009, before bouncing back to a 7.4 percent rise in 2010.

While some industries would be satisfied to achieve 10.6 percent growth, it represents a moderate rise for a semiconductor business that has seen expansions as high as the 30 to 40 percent range during its best years. However, the mild peak comes with a benefit: global semiconductor revenue is not expected to suffer a contraction during the present cycle. This should come as welcome news to semiconductor companies that still have the 28.9 percent revenue plunge of 2001 fresh in their minds.

The milder cyclical swing reflects changed dynamics in the semiconductor industry, iSuppli believes. The average annual growth rate of the semiconductor market has been slowing for a decade. The industry's Compound Annual Growth Rate (CAGR) has settled in to a range between 7 and 9 percent, compared to an average in the mid-teens in the past.

The cyclical behavior also is moderating in terms of peaks and valleys, with the variance between the high and low years of the present cycle amounting to only 6.9 percentage points, compared to 52.7 percentage points between the previous low point in 2001 and the peak in 2004.

Factors contributing to the semiconductor market's more moderate cycles include improved inventory practices, better management of manufacturing capacity and greater flexibility in memory production. Clearly, all these advances are good for the industry.

The semiconductor industry will post an improved performance in 2007 due to a healthier market for electronic equipment and a stabilization in the chip Average Selling Prices (ASP). Global revenue for electronic equipment will rise to $1.47 trillion in 2007, up 6.7 percent from $1.37 trillion in 2006. This compares to growth of 6.6 percent in 2006.

Semiconductor demand from all major applications will rise in 2007 compared to 2006. Areas seeing the strongest growth will be data processing, wired communications and consumer electronics.

Semiconductor revenue derived from the market for wired communications gear will grow by 18.2 percent in 2007, compared to 9.9 percent in 2006. Revenue for consumer electronics oriented chips will grow by 14.4 percent in 2007, compared to 10.3 percent in 2006. The data processing segment will increase its semiconductor demand by 9 percent in 2007, compared to only 5.8 percent in 2006.

Microprocessors suffered a tough 2006 due to major competitive pressure that eroded pricing, combined with slowing PC demand. However, conditions are set to improve as the dust settles from the competitive battle between Intel Corp. and Advanced Micro Devices (AMD).

iSuppli estimates microprocessor revenue declined by 6.6 percent in 2006, a significant drop for a product that has consistently grown by an average of about 8 percent annually. Microprocessor revenue growth will bounce back to double digits in 2007, at 10.8 percent, rising to $35.4 billion, up from $31.9 billion in 2006.

Revenue growth for logic ICs also will accelerate in 2007. Global logic IC revenue will amount to $72.7 billion in 2007, up 10.8 percent from $65.6 billion in 2006. This compares to 7.8 percent growth in 2006.

Analog ICs is another area that will see accelerated growth in 2007. Revenue for analog ICs will amount to $46.99 billion in 2007, up 11.2 percent from $42.3 billion in 2006. In comparison, analog IC revenue grew by only 8.8 percent in 2006.

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