ISuppli Lowers 2008 Chip Industry Growth Forecast

ISuppli slashed its global chip sales growth forecast for 2008 by nearly half on Wednesday over fears the U.S. economic downturn will crimp consumer demand for electronics goods.

The El Segundo, California market researcher lowered its chip industry sales growth forecast to just 4 percent this year, down from a previous estimate of 7.5 percent. Global chip sales will total US$279.6 billion this year, up from $268.9 billion last year, iSuppli said.

The reduction stems from expected declines in sales of electronics equipment, including computers, industrial equipment, automotive gear, and wired and wireless communications, iSuppli said. The company cut its 2008 sales growth estimate on electronic equipment sales to 5.9 percent, from 7 percent previously. Since chips are the building blocks of electronic equipment, any slowdown in electronics sales directly impacts the global chip industry.

Other industry analysts are also cautious on global growth forecasts for this year. At a conference in Taipei last month, Merrill Lynch analyst Srini Pajjuri said his company may have to pare its projection for 8 percent chip industry growth. "Odds are that's looking pretty optimistic right now," he said.

The culprit behind expectations for slower growth is the market slowdown caused by economic woes in the U.S., according to iSuppli. "The global electronic equipment market has posted five strong years of growth in a row. But weakness in some application markets coupled with a slowing trend in global economic conditions, led by a U.S. slump, dim the prospects for strong equipment growth in 2008," Gary Grandbois, principal analyst at iSuppli, said in a report.

Merrill Lynch's Pajjuri said global chip industry growth is impacted by U.S. economic conditions so much because the U.S. consumes 25 percent to 30 percent of all chips produced each year.

iSuppli noted that it is already seeing weakness in both wired and wireless telecommunications, including mobile phones.

Last month, Sony Ericsson warned it saw slowing market growth for mid-to-high end mobile phone sales in Europe. The company reduced its sales forecast for the first quarter, which ends March 31, to below that of the first quarter last year.

Texas Instruments, the world's second largest maker of mobile phone chips, also last month reduced its sales and net profit forecasts for the first quarter, which ended March 31, saying it saw slower orders for chips used in high-end mobile phones.

But the slowdown doesn't appear to be affecting every company in the same way. Research In Motion last week reported strong fourth quarter sales and net profit figures on record quarterly mobile handset shipments. The company reported handset shipments of 4.4 million and 2.18 million new subscribers. Its sales more than doubled to $1.88 billion, and its net profit soared 120 percent. The BlackBerry maker's fiscal fourth quarter ended March 1.