IDC Forecast 2005: Semiconductors weak, handhelds strong

Chicago (IL) - Semiconductor manufacturers face declining revenue in 2005, after experiencing 26 percent of revenue growth in 2004, according to a new report released by market research firm IDC. Among the predictions for the coming year are also moderate IT growth through 2008, a strong growth for handhelds and a heating blade server market.

The semiconductor industry already prepares itself for a difficult next year. While manufacturers however believe they will have to deal with flat revenues in 2005, market research firm IDC doubts the substantial revenues of 2004 can be repeated in the coming twelve months.

A new report states that manufacturers will be hit with a tow percent decline of revenues in the range of $206 billion, down from $210 billion this year. A return to positive growth is expected for 2006 with a five-year compound annual growth rate of 11.3 percent from 2003 to 2008.

"The correction was brought on by production plans that outstripped real demand," said Mario Morales, vice president of semiconductor research at IDC. "A series of order cancellations and OEM push-outs in the middle of the year resulted in an inventory overhang for suppliers. These inventories will linger into the first half of 2005 as suppliers adjust to meet market conditions. Meanwhile, cutbacks in capital spending and new wafer starts should enable prices to stabilize in the second half of 2005."

IDC expects the first half of 2005 will be marked by increased price pressures, lower utilization rates, and greatly reduced capital spending as suppliers seek to help the market stabilize. A continuation of the corporate PC and mobile phone replacement cycles and growing demand for consumer electronics should help suppliers clear their lingering inventory and return to growth by the second half of 2005.

The research firm also said in its traditional predictions for the next year that overall worldwide IT spending will return to a rather moderate growth of 6.1 percent, assuming a modest rise in US growth rate and mild rebound in Western Europe. Strongest It sectors in 2005 are expected to be handheld devices, networking equipment as well as infrastructure software and outsourcing services.

According to IDC, the blade server market will heat up with decreasing prices, due to Dell’s increased involvement in this segment. In turn, Dell will face a response from Hewlett-Packard in imaging and printing areas, analysts said.