Chip market growth slows dramatically

LOWER memory prices and continued price competition in the microprocessor market has led research group Gartner to dramatically lower worldwide growth forecasts to 2.5 per cent for 2007.

Gartner says the global semiconductor market will be worth US$269.2 billion (A$324.6 billion) in 2007, an increase of 2.5 per cent over 2006. The company had previously forecast growth for the year of 6.4 per cent.

Sales of semiconductors in the first quarter were more than five per cent lower than in fourth quarter 2006, a worse than expected decline that would normally be associated with the seasonal build-up in inventories at the end of the year.

“Since the beginning of this year, soft semiconductor market conditions have been exacerbated by sharply declining ASPs in key device markets such as DRAM, MPU and application-specific standard products (ASSPs),” said Gartner research vice-president Richard Gordon.

“It is likely that, despite continued unit growth in influential electronic systems markets, downward device ASP pressure will remain in place for much of 2007 as oversupplied semiconductor market conditions persist.”

The memory market is forecast to decline 4.7 percent in 2007 primarily due to a continued weakening of DRAM ASPs. Gartner’s latest forecast has DRAM revenue declining by 11.1 percent in 2007 to $30.5 billion, despite strengthening bit growth for the year.

The DRAM outlook for 2008 is for a mild revenue decline, again attributed to excess capacity and continued price declines. However, the 2008 outlook could improve if DRAM vendors adjust their current capacity plans, or if the NAND flash memory industry begins to see notably strong growth.

Gartner expects the worldwide semiconductor industry to return to modest annual growth of 8.7 percent and 7.2 percent in 2008 and 2009, respectively.

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Microsoft declares Zune success

MICROSOFT has claimed early success for its Zune hand-held music player and entertainment device (a hard drive-based killer in the iPod category).

Microsoft’s Entertainment and Devices Division president Robbie Bach told the San Fransisco Chronicle that the company had sold 1 million Zune devices, exceeding expectations.

Mr Bach claimed sales since its launch had earned Zune a 10 per cent share of the market.

“We're still about nine months into having Zune in the marketplace. We're very pleased with the progress,” Mr Bach told the Chronicle.

“When we finish our fiscal year in June we'll have sold a little over a million Zunes. In the category we're in, the hard-disk-based category, we've got about 10 per cent market share. It's a good start. It's not an overwhelming start,” Mr Bach said.

The Zune was only at its early stages of market development and penetration, he said, with Microsoft planning investments in the product for the long term.

Though not specifically talking about the creation of a Zune phone, Mr Bach did not discount the possibility. He said the company had plans to add great social networking features to the device, particularly around the music files could be stored and used.

“As we look to the future, you're certainly going to see us continue to invest in that category. We don't enter things like that lightly,” Mr Bach said.

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Capex spend points to rosy chip outlook

WORLDWIDE capital spending on semiconductor manufacturing equipment jumped nearly 23 per cent last year to US$42 billion (A$51.5 billion) pointing to strong expected demand for memory product.

New Gartner research found that continued memory investment expansion again dominated the global spending picture.

Partially fuelled by the need for new capacity, and partially fuelled by competitive positioning, memory spending rose 36 per cent, Gartner said, significantly outpacing the overall semiconductor market.

“The 2006 market was marked by a reacceleration of capacity buys and strong memory spending, combined with new equipment for the ramp up of 65-nanometer (nm) processing and first 45 nm purchases,” said Gartner semiconductor manufacturing research group managing vice-president Klaus Rinnen.

“The wafer fab equipment (WFE) segment grew 25.7 per cent in 2006, while back-end equipment (BEE) showed a 14.1 per cent increase, having entered into a slowing trend during the year,” the report said.

“As fab utilisation rates rose, new fab activity increased and so did the capacity buying component. Memory-capacity-related equipment sales continued to dominate the mix. The packaging and assembly equipment (PAE) segment grew 18.2 percent, and the automated test equipment (ATE) segment expanded 9.3 percent.”

Meanwhile, in a separate report Gartner said Intel remained at the top of the rankings for largest semiconductor company in the world despite a difficult year in which its revenues slipped 12 per cent.

Gartner found global semiconductor revenues grew US$262.7 billion in 2006, a healthy 10.2 per cent increase over 2005.
The report found that until the fourth quarter of 2006, Intel lost share with its processors (CPUs) in the server and consumer segments to arch-rivals AMD.

AMD executed with impressive gains in market share, including the mobile, desktop, and server product families in Dell. Revenues were further eroded by an across-the-board price war which impacted Intel the most.

However, late 2006 marked a turnaround for Intel, with the release of its Core 2 Duo and Xeon 5100 series products. Gartner analysts expect Intel to re-capture losses in market share in 2007 with their new product offerings.

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