Semiconductor market to slow this year, iSuppli predicts

Semiconductor industry revenue will grow at a slow pace this year due to struggling economies worldwide, lower spending and sluggish demand for products, research firm IHS iSuppli said in a study released yesterday.

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Semiconductor industry revenue will grow at a slow pace this year due to struggling economies worldwide, lower spending and sluggish demand for products, research firm IHS iSuppli said in a study released yesterday.

Revenue for the semiconductor industry this year is expected to be $323 billion (£205 billion), growing by 3.3% compared to last year's revenue, IHS iSuppli said.

"Because the world economy is not in a strong-enough position to drive growth, the semiconductor business is coming under pressure," said Len Jelinek, director and chief analyst of semiconductor manufacturing research at IHS iSuppli.

The weak performance of the semiconductor market has continued from last year, and there are economic troubles in the US, Europe, Japan and China, Jelinek said.

Semiconductors are used in a range of products including PCs, smartphones, tablets, cars and medical devices. With consumers spending less, semiconductor demand will decrease and hurt revenue, Jelinek said.

DRAM demand falling

Manufacturers will try to clear out semiconductor inventory and keep existing factories viable, iSuppli said. Any capital expenditure to boost production or upgrade factories will likely be pushed into 2013.

The weak demand for some products also will hurt demand for DRAM, iSuppli said. Revenue for the memory is expected to decline by 16.1% this year, which is slightly better than the 26.8% fall last year.

A shortfall in the PC market has hurt memory demand, which has softened DDR3 RAM pricing this year. As PC prices remain under pressure, PC makers have been resistant to adding more RAM, which has led memory makers to move excess memory inventory to market rapidly. Some top DRAM makers like Samsung have also been suffering from yield and supply issues.

The pricing environment for DRAM is the primary driver for the expected year-over-year revenue drop in DRAM, said Mike Howard, senior principal analyst at iSuppli. Shipments of DRAM will be up around 40% this year on a gigabit basis, but in a very soft pricing environment.

"There is one huge wild card in DRAM right now and that is industry consolidation," Howard said. Mergers of DRAM makers are likely, which could improve the 2012 pricing environment.

NAND flash prices tumbling

The market for NAND flash is "less rosy" despite the surging demand for devices like smartphones and tablets, iSuppli said. There is growing demand for NAND flash as storage requirements grow on mobile devices, but additional factory capacity to meet excess demand could lead to oversupply and likely pressure NAND flash revenue.

NAND flash prices have also been tumbling since 2010, and stand at $12.90 for a 64GB unit, according to memory-price-tracking site DRAMexchange.

"Despite robust demand coming from the mobile segment, we are forecasting NAND revenue growth of only 5% in 2012 to reflect the risk of oversupply currently plaguing the industry," said Dee Nguyen, analyst at iSuppli.

Three new fabs came online last year and are expected to be fully operational this year. That could drive up industry supply growth up to 69% year over year, outstripping demand growth, Nguyen said. That in turn could weaken the pricing environment, with average selling prices declining 39% year over year, compared to 30% in 2011.

Semiconductor revenue growth will likely be negative in the first half and recover starting in the second half, iSuppli said.