Internet fuels chip market recovery

The chip industry is entering its first period of sustained recovery since 1995, the Semiconductor Industry Association says - in part because of surging demand for Internet appliances.

The chip industry is entering its first period of sustained recovery since 1995, the Semiconductor Industry Association (SIA) said in its annual forecast.

The industry has been helped by surging demand for Internet appliances like smart phones and handheld computers, and by strong sales of Internet infrastructure products, according to the SIA.

"This is the 'great year of recovery' for the semiconductor industry," Brian Halla, chairman, president and chief executive officer of National Semiconductor Corp., said in a statement. The world has entered an "information age" in which users want access to information any time, anywhere, Halla said, adding that the thirst for knowledge has been accompanied by a shift in product leadership from PCs to wireless devices and Internet infrastructure equipment.

Halla is due to formally present the results of the annual forecast at an SIA dinner tonight in San Jose, California.

The forecast clearly is good news for the chip industry, which has watched its historically high growth rates tempered by several factors including falling DRAM prices, the financial crisis in Asia, and demand for rock-bottom-priced PCs.

Worldwide chip sales will reach $US144 billion in 1999, up 15% from the previous year, according to the forecast. That growth rate will increase to 21% in 2000, when sales will reach $174 billion, and it will remain high at 20% in 2001, when sales will be $209 billion, the SIA said.

In line with the cyclical nature of the semiconductor industry, particularly in the DRAM market, growth will slow to 12% in 2002, when chip makers will enjoy record sales of $234 billion, the industry group said.

The SIA's forecast is fairly consistent with estimates by market research firm Dataquest Inc. in San Jose, California, which said recently that it expects chip sales to grow 14% this year to $155 billion, and sustain double-digit growth through 2002.

Other highlights in the SIA's 1999-2002 forecast include the following:

-- Growth in the microprocessor market will be slower than in the past because of a "maturing PC market." Sales should grow 11% to $28 billion in 1999, increasing 17% to $32 billion in 2000, and 14% to $40 billion in 2001. In 2002 microprocessor sales are expected to grow 13%, to $42 billion.

-- DRAM makers are enjoying their first good year since 1995. Sales are expected to increase 31% in 1999 to $18 billion, then by 39% to $25 billion in 2000. They will grow by 44% in 2001, to $37 billion, increasing by only 5% in 2002, to $38 billion.

-- Flash memory is the fastest growing memory product in 1999, driven mostly by its use in cellular phones and digital cameras. Flash memory sales should grow 63% in 1999, to $4.1 billion, then by 36% in 2000, to $5.5 billion. Sales will grow 19% in 2001, to $6.6 billion, and then slow to 1% growth, or $6.7 billion, in 2002.

-- DSPs (digital signal processors) will be the fastest growing product line in the microcontroller market, driven by their use in mobile phones and other telecommunications products. Between 2000 and 2002 DSP sales will grow at least 30% each year -- more than twice as fast as microprocessors.

In geographic terms, companies in the Americas will continue to take the biggest slice of global chip sales, with companies here accounting for about one third of revenue. Sales in the Americas will increase 13% in 1999 to $47 billion, and reach $76 billion in 2002.

The Asia-Pacific region (excluding Japan) is making a "very strong return" and will emerge as the second-largest chip market worldwide, recovering from the financial crisis that caused sales to slip by 4.4% last year. Semiconductor sales in that region will grow 21% to $35 billion in 1999, increasing to $61 billion by 2002.

Japan is still being affected by its domestic recession, but its market will grow 21% to $31 billion in 1999. Sales are expected to reach $48 billion in 2002.

Sales in Europe will grow 6% in 1999 to $31 billion, and reach $50 billion in 2002.

The SIA's members include most of the U.S.'s largest chip manufacturers, including National Semi, Intel Corp., Advanced Micro Devices Inc., Texas Instruments Inc. and Motorola Inc.

Based in San Jose, California, the SIA can be reached at +1-408-436-6600, and on the Web at http://www.semichips.org/.

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