Bright year forecast for chip sales

Market researcher Gartner predicts an upswing for the semiconductor market, with revenue likely to reach $217 billion this year, compared with $177 billion in 2003.

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The market for semiconductor chips is showing signs of an upswing this year, but much still depends on the mood of consumers.

Global revenue from semiconductor chips in 2004 is poised to grow to $217 billion from last year's $177 billion, a rise of nearly 23 percent, market research firm Gartner said in a preliminary quarterly estimate this week.

Chip demand in the past two years was fueled by consumer appetite for digital gizmos like cellular handsets and by businesses upgrading their PCs. With the economic upturn, the demand is likely to surge, especially in the wired sector. However, Gartner analysts said its forecast is conservative because companies are still cautious on information technology spending and consumer demand of electronic goods remains unpredictable.

Dynamic RAM makers' revenue has been predicted to rise in the next two years because of higher demand from PC and handheld makers, according to IDC. Another indictor of better times in the chip market was last year's higher shipments of semiconductor equipment.

"A tighter supply environment in 2004 will bring increased revenue and profitability to the industry, and as semiconductor vendor financials improve, capital spending should increase," said a statement from Richard Gordon, research vice president at Gartner. "Overall fab utilization is currently running in excess of 95 percent, which is about 10 points higher than the traditional trigger point for additional capital spending in the industry."

Higher capital spending through 2004 would mean an expansion of manufacturing capacities next year, Gartner said, which in turn would ease supply constraints, cut lead times and lower prices. Sales are expected to reach a peak next year, rising to $245 billion.