Bumpy ride seen for chips

GartnerGroup study says semiconductor sales are way up now, will ebb a little next year, then hit a downturn in 2002

Global sales of semiconductors are seen growing at a slower rate next year at 27 percent compared to 37 percent this year, research group Gartner said Tuesday.

Gartner also warned that the chip industry could hit a downturn in the second quarter of 2002 due to oversupply of computer memory chips.

But for this year, memory chips, called DRAMs (dynamic random access memory chips), which is the most volatile sector of the industry, will grow by 66 percent in dollar terms in 2001 from 56 percent this year.

The research group projected European growth in semiconductors at 26 percent in 2001 against 34 percent this year.

Gartner, which is hosting a semiconductor conference here, gave these projections at a time when major chip manufacturers themselves have warned of slower computer memory chips sales, mainly because of weak demand for personal computers in the US and Europe.

Last week Germany's Infineon, Europe's largest DRAM manufacturer warned that it expects lower demand and prices in the fourth quarter and a possible recovery only in the second quarter of 2001. Prices were already at low levels. The news sent Infineon shares down to 41.69 euros, down from a high of 93.60 euros in June.

The price for a benchmark DRAM chipset was down to a year's low of $3.85 Tuesday, according to American IC Exchange. The price was as high as $9 in July.

The market for semiconductors is expected to start to shrink in dollar terms in the second quarter of 2002, spelling a real downturn for the industry, due to oversupply in memory chips, Gartner said.

The memory chips market is expected to contract by 30 percent in 2003, leading the entire chips market to shrink by six percent. Memory chips generate 25 percent of total semiconductor sales in 2000.

Other types of semiconductors, such as logic chips which go in mobile telephones and cars, will not decline, because they are not a standard-architecture commodity like DRAMs. The downturn in memory chips could be postponed if investment plans for new chips plants are delayed, said Joe D'Elia, head of research at Gartner Europe.

"From the 30-odd announcements about new plants, not many are DRAM," he said. Instead chip makers focus on building new plants for logic chips and "Flash" memory chips which go in cell phones and digital camera's.

"It is therefore very possible that the downturn will be pushed back," he added.

D'Elia predicted that Flash memory, which grows at an amazing 102 percent to $3.1bn in Europe this year and which is currently seen as more stable than DRAMs, will prove to be just as volatile as other memory chips.

See Chips Central for daily hardware news, including interactive roadmaps for AMD, Intel and Transmeta.

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