Chip gear sales head downhill

Worldwide spending on semiconductor capital equipment is on a feverish pace this year, but the market is expected to head south in 2005, a US market research firm said.

Spending on equipment used to make chips for PCs, mobile phones, consumer electronics and more is expected to increase a whopping 61.3 percent this year over 2003, before declining by 15.3 percent next year, Gartner said.

That's US$27.8 billion and US$23 billion, respectively. In 2003, spending reached US$16.7 billion.

The dip is caused by bloated semiconductor inventories, uncertainty over the world economy and slower demand expected for PCs and mobile phones, both major destinations for chips.

PC shipments this year is expected to reach 182.7 million units, an 11.4 percent increase over 2003, according to Gartner. Handsets shipments could reach as much as 600 million units this year, compared with 520 million last year.

Both PC and mobile phone sales are expected to slow next year, as the number of people looking for replacement and new products dips, Gartner analyst Klaus Rinnen said.

"The bread and butter of the (chip) market is cellular phones and PCs," Rinnen said. "There will be slower growth next year, as pent-up demand is satisfied, but that doesn't mean the markets will contract. It's slowing demand growth."

As a result, the slowdown in the chip market, which translates into a drop in equipment spending, is forecast to be short lived, since demand for end products is expected to pick up.

In 2006, chip-equipment spending is expected to remain nearly flat, then increase by 21.4 percent and 37.1 percent in 2007 and 2008, respectively. In terms of dollars, that's US$23.7 billion in 2006, US$28.2 billion in 2007, and US$39.5 billion in 2008.

Unlike 2001 and 2002, the slowdown in chip-equipment spending in 2005 and 2006 is expected to be far less severe, Rinnen said. Chip manufacturers have done a better job at forecasting demand, which has led to better inventory management.

"We didn't have over-exuberance in the market, but lots of realism," Rinnen said.