Chipmakers on the chopping block?

Study predicts that industry demands will crush 40 percent of today's semiconductor manufacturers.

The semiconductor industry will consolidate, with nearly 40 percent of today's chip vendors disappearing over the next few years, market researcher Gartner said in a forecast released this week.

The chip industry has seen steady growth in number of vendors, from about 120 in the mid-1980s to nearly 550 in 2003. Now, increasing costs and scale of chipmaking will drive the industry toward consolidation, Gartner said. Next-generation fabrication plants will be too expensive for most existing companies.

"To survive, large and costly fabs will need to achieve significant economies of scale, and they will require high volumes of chip production, preferably standard chips that can be produced in a standardized environment with large batch sizes. These standard chips will then be customized after manufacture for specific applications," Jim Tully, chief of semiconductor research at Gartner, said in a statement. "This will result in fewer chip manufacturers in the future, but it won't result in higher chip prices, because the industry is capital-intensive and is highly competitive."

Besides increasing costs and complexity of design, increased system content and greater flexibility will drive manufacturers out of the business, the market researcher said. Device integration will boost chip speed and functionality per chip while lowering power consumption and system cost. This mix will result in smaller end equipment.

Another trend that Gartner forecasts is the shift toward consumer markets from the current focus on business markets. More than half of chip sales will be for equipment markets targeted at consumers by 2013.