Few agree on rate of semiconductor growth for 2003

NOVEMBER 14--How well will the semiconductor industry perform in 2003 following what is expected to be flat to low single-digit growth in 2002? As in the recent past, chipmakers can't seem to agree.

Nov 14th, 2002

NOVEMBER 14--How well will the semiconductor industry perform in 2003 following what is expected to be flat to low single-digit growth in 2002? As in the recent past, chipmakers can't seem to agree, with estimates provided by industry executives speaking at a conference held to mark the beginning of the biennial Electronica 2002 exhibition in Munich, Germany, ranging from between 5% and 9% to as high as 20%. Overall, participants from Fairchild Semiconductor, Infineon Technologies, Motorola, STMicroelectronics, Toshiba, and market-researcher iSuppli agreed that the chip market is likely to expand strongly in 2003 as pricing pressures abate somewhat and on a steady increase in unit shipments.

"Given the steady growth in the PC market, higher wireless and automotive sales, we have to be careful not to underestimate the performance of the semiconductor market in 2003," said Peter Bauer, chief marketing officer of Infineon Technologies A.G. "A 20% growth rate in 2003 is possible."

"If networking, enterprise, and computing don't improve we won't see the 20% increase," said Fred Shlapak, president and chief executive of Motorola Inc. Semiconductor Products Sector. "A 20% range for next year may be a bit optimistic; the lower double-digit type of number is more likely."

"The first quarter [of 2003] will be down, the second quarter flat, and the third quarter up," countered Joseph Martin, chief financial officer of Fairchild Semiconductor International, South Portland, Maine. "The only thing that I can see far ahead is 120 days."

It appears corporate projections for semiconductor sales in 2003 are being influenced by the wide disparity in the performance of the various industry segments, capacity utilization concerns, and the pricing pressures that have kept sales down despite rising unit shipments.

"Even for the first half of next year we'll still see overcapacity but the pricing erosion will subside," said Enrico Villa, corporate vice president, Europe, for STMicroelectronics, Geneva. "You can even expect shortage in some areas in the second half of 2003 if unit demand continues to rise."

While some semiconductor market sectors, including automotive ICs and wireless components, are expected to continue seeing strong and steady growth, chips that go into wireline telecommunication equipment are likely to remain under pressure despite some incremental improvements in shipments, according to participants.

Forecasts for 2003 are also being skewed by sentiments surrounding the specific industry segments in which chip makers participate, according to Derek Lidow, president and chief executive of iSuppli Corp. (El Segundo, CA).

"From each of their perspectives, the growth forecasts make sense," said Lidow, who also participated in the Electronica conference but projects the chip industry will over the next five years average a compounded annual growth rate "south of 10%."

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