Cellphones fuel growth of semiconductor industry, again

San Jose (CA) - Just like last, the semiconductor industry has been cautious about predicting substantial sales growth for the ongoing year. But despite higher energy costs, chip manufacturer will be able to post respectable revenue increases in 2006, thanks to a cellphone industry that is running at full steam.

In an updated mid-year forecast, the Semiconductor Industry Association (SIA) today said that it expects worldwide semiconductor sales to climb 9.8% this year and up in a range slightly below $250 billion. Earlier this year, the organization estimated the possible growth opportunity at about 7.9% for a total market volume of about $245 billion.

According to a report released by the SIA, the cyclical downturn of the semiconductor industry apparently can get delayed until the end of this decade, as growth is expected to come in at 11.0% in 2007, 12.0% in 2008 and a modest 4.0% in 2009. If the prediction of the SIA proves to be in line with actual market numbers, then the global chip industry will look at revenues of more than $320 billion in 2009, more than twice the market volume that was generated in the early 2000s.

"Despite sharply higher energy prices, consumer demand for a wide variety of electronic products continues to fuel growth of the semiconductor industry," said SIA president George Scalise. "Stronger than anticipated end-market demand, mainly in consumer product sectors, caused us to raise our forecast for semiconductor industry growth for 2006."

Once again, the cellphone industry is spearheading the growth of the industry, with the expectation that more than 1 billion cellphones will be sold in 2006. Given the fact that chip manufacturer achieve $41 of revenue from each cellphone sold, the cellphone industry already accounts for more than 16% of all chips sold worldwide. According to the SIA, the segment is only to personal computers in terms of total chip consumption.

At least if we believe the SIA, the micro processor manufacturer may be seeing tough times for the remainder of the decade. Processor sales are expected to increase only 4.3% this year and end up at $36.4 billion. The average growth annual rate of 7.1% through 2009 trails the average of the chip industry and is expected to reach about $46 billion by 2009.

Other categories that are expected to experience slower than average growth are discrete products (5.5%) such as power transistors and radio frequency (RF) transistor, microcontrollers (6.3%), DRAMs (6.4%) and MOS logic devices (7.6%). Segments that may grow with or outpace the market are optoelectronics (10.1%), digital signal processors (16.7%) and flash memory (13.7%).