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Report: Chip market to grow, but slowly

The semiconductor market is picking up steam, but it won't see the heady growth of the dot-com era any time soon, an industry group says.

The semiconductor market is picking up steam, but it won't return to the heady growth of the dot-com era any time soon, an industry group said Thursday.

According to a report by the Semiconductor Industry Association, chip sales will grow 1.8 percent to $141 billion this year, and then increase 19.8 percent year-on-year to $169 billion in 2003. They'll increase again by 21.7 percent the year after that before flattening out, the trade association said. Over time, chipmakers will collectively experience a compound annual growth of 8 percent to 10 percent.

Although achieving these targets would be a welcome change compared with the decline reported in 2001, the growth rates for the industry will be slower than in the past. A bubble in 2000, when semiconductor revenue grew by 45 percent, artificially inflated the compound annual growth rate and projections for future sales.

"The rate of the recovery will not be as steep as the decline, and it will not be shared evenly among all the players," said W.J. "Jerry" Sanders, chairman of chipmaker Advanced Micro Devices and an SIA board member.

The SIA also predicted that the center of gravity for the industry will continue to shift toward mainland Asia, already the largest market for semiconductors. Asia is becoming the dominant hub for worldwide computer and electronics manufacturing. At the same time, indigenous consumption continues to grow.

Chip sales to the Asia-Pacific region (which does not include Japan) increased by 30 percent to $52 billion in 2002, while sales to the Americas, Europe and Japan declined. The Americas alone accounted for $31 billion worth of semiconductor sales.

By 2004, mainland Asia will account for $80 billion in sales, just $1 billion less than the Americas and Europe combined, the SIA said.

U.S. and European chipmakers could also be hurt competitively if China, one of the biggest beneficiaries of the shift toward Asia, does not reform its tax laws, which can favor indigenous manufacturers.

"The big challenge is ensuring that the Chinese market complies with the World Trade Organization rules," Sanders said. "The value-added tax seems to make a bias against imports."

Still, western nations will continue to play a commanding role in the chip industry. Most so-called high-value products, such as microprocessors, are designed by U.S. companies. In 1982, five of the top 10 chipmakers were from the United States, Sanders said. Now only three out of 10 are, but their influence has increased, he said.

In terms of products, the report said microprocessor sales will grow only 1.9 percent to $24 billion this year but increase by 12 percent to $27 billion in 2003. The market for DRAM memory chips will grow 35 percent to $15 billion this year, and 35 percent again in 2003 to $20 billion.

Digital signal processors, a primary component in cell phones, will grow 33 percent to $6.5 billion in 2003, while flash memory, another cell phone component, will increase by 39 percent to $11 billion in the same year.

SIA forecasts have at times been overly optimistic. In the 2001 forecast, the group predicted that 2002 sales would grow by 6 percent to $150 billion.