Rebound Forecast for Chip Sales

Revenue from worldwide semiconductor sales is expected to set a new record this year, according to research released Friday by Gartner. The market research firm predicts revenue will reach $235 billion in 2005, a 6.9 percent increase from 2004. That would beat the previous revenue record, set in 2000, of $223 billion.

The sales jump has also been noted by another industry group, the Semiconductor Industry Association, which reported the boost for the first half of the year in August.

Gadgets Boost

Demand for flash cards and USB flash drives plus the success of Apple's iPod Shuffle drove growth for the year, Gartner said.

Intel still holds the number one spot for revenue in the segment. While its growth rate is typically below average, in 2005 Intel's revenue grew twice the market average, or 14.3 percent. Increased shipments of mobile PCs boosted Intel's component sales, driving its overall revenue growth. Samsung Electronics came second place with almost $18 billion in revenue for the year.

For only the fifth time in 25 years, Koninklijke Philips Electronics was not in the top ten. The boom this year in the memory market, where Philips doesn't compete, pushed the company out of the top runners, Gartner said.

Hynix Semiconductor is a new entrant to the top-ten list. In the NAND flash market, Hynix's revenue is expected to hit $1.5 billion in 2005, up from $212 million in 2004, Gartner said.

Equipment Sales Jump

Related to the upsurge in chip sales is a jump in global sales of chip production equipment, wich is expected to rise 9.1 percent next year after falling this year, according to the industry group Semiconductor Equipment and Materials International (SEMI).

Global chip equipment sales in 2005 are projected to reach $32.95 billion, down from a banner 2004 when the market leaped 67 percent to $37.11 billion, according to SEMI.

But next year, sales of chip-making machinery is expected to rise to $35.97 billion, the group says.

The industry trade group characterized this year's decline as cyclical, since it came after a robust 2004. The chip equipment industry follows a boom and bust pattern similar to the chip industry. In boom years, companies tend to over-invest in new production lines, leading to over production and declines in chip prices. This year, the industry had forecast a down year for chips, causing many companies to approach factory investments with more caution.

Asia Leads Action

China posted the largest percentage decline in chip equipment purchases this year, a 54.1 percent drop in purchases to $1.24 billion, according to SEMI. Taiwanese chip makers also ordered less machinery this year, down 24.3 percent to $5.88 billion.

Japan remained the top buyer of semiconductor making equipment. After growing more than 49 percent last year, the Japanese market declined only 2.8 percent to $8.04 billion this year, SEMI said.

South Korea was the only major chip producing country to increase equipment purchases this year, up 27.8 percent to $5.89 billion and good enough to overtake Taiwan as the second largest chip equipment buying economy this year.

North America came in fourth, with $5.79 billion in spending this year, down less than 1 percent compared to last year, while Europe trailed at $3.19 billion, down 7.4 percent from last year.

Dan Nystedt of the IDG News Service contributed to this report.