Datquest Predicts: Semiconductor firms must adapt or die

The semiconductor industry may be coming out of the doldrums but the bad times are not over yet and for some players it's a case of adapt or die, experts agree.

Speaking at Dataquest's Predicts '99 conference in Paris this week, leading chip analyst Joe D'Elia predicted a growth in the worldwide semiconductor industry of 12.6 percent in 1999. This growth will reach a peak in 2002, but another down cycle could begin as early as 2003.

According to D'Elia the troubled DRAM market -- which shrank by 26 percent in 1998 -- will begin an upturn after a "volatile first half" this year and the market will remain positive for the next two to three years.

However D'Elia predicts a sea change in the way semiconductor businesses are run. "In the next three to four years it will be difficult for those companies in the bottom half of the top ten to build fabs by themselves," he said. The alternative will be to outsource to foundries or to search for partners, according to D'Elia.

Stuart McIntosh, CEO of Philips semiconductor business agrees that chip firms will have to be consolidated. "In the coming decade there will be less than a handful of giants," he predicts. "In the lower tiers some players will disappear," he adds.

Although experts are predicting European semiconductors will do well out of the emerging wireless communications market, vice president of new technologies at mobile phone giant Nokia sounded a note of caution. "We find we spend a lot of time asking Europeans to do it our way, while in the US they just say 'what do you want'."