Chip Sales Will Jump, Gartner Says

An improving market for semiconductors should grow 11 percent by the end of 2003, with help from a strong first half of the year and increased activity by chip manufacturing companies, says the market research firm Gartner.

Worldwide revenue from semiconductor sales will reach $173 billion by the end of 2003, up from revenue of $156 billion in 2002, the company says.

The predictions are roughly in line with Gartner's forecast from November, when it said chip sales will reach $171.8 billion in 2003. It is also a more optimistic picture than the research company's expectations of $167 billion revealed in February.

Renewed Demand

Demand for silicon is rising at semiconductor manufacturing companies, which are also increasing their usage rates, Gartner says. Sales of cell phones and consumer electronics devices are responsible for part of the increased demand, and the beginning of a corporate PC replacement cycle has actually arrived, the market researchers say.

The last big PC-buying spree, driven by corporations preparing for Y2K software problems, was a concentrated burst of spending activity. The current replacement cycle is more drawn out, Gartner says. Instead of a measurable short-term surge in demand, the market researchers expect vendors will see an incremental increase in spending on new PCs over the remainder of the year.

The telecommunications sector is still saddled with excess capacity that will keep spending on telecom semiconductors depressed for the near term, Gartner adds.

Earnings Evidence

Second-quarter earnings results among semiconductor vendors and hardware companies appear to back up Gartner's predictions. Intel reported an 8 percent rise in revenue year-over-year, driven by sales of notebooks with its new Pentium M chip. Dell's revenue increased 16 percent on strong increases in PC and server shipments.

But IBM reported this summer a 1 percent decline in overall hardware revenue, and a 3 percent decline in PC revenue during its second quarter.

Hewlett-Packard is releasing its third-quarter earnings this week. Analysts polled by Thomson First Call expect HP to report revenue of $17.5 billion, up from last year's third quarter revenue of $16.5 billion.

Overall IT spending should also increase in the second half of the year, driven by higher-than-expected spending on software, Gartner says.