Chip market still suffering from credit crunch, says analyst

IDC analysts said the global chip industry will grow this year but offered one of the least optimistic industry revenue forecasts so far this year, saying the global recession remains a problem.

IDC expects chip industry revenue to rise 16 percent this year as a recovery in the sector continues, but warned that end demand may be disappointing later this year due to unemployment in key markets around the world and an end to some government stimulus projects.

"When you look at the semiconductor market, we are definitely in a full recovery mode," said Mario Morales, head of chip research for the market researcher, at a conference in Taipei. However, IDC does not expect the strong recovery in consumer demand that other analysts are forecasting.

The chip market is on the rise this year mainly because the global recession caused orders to slow so much early last year that companies have had to catch up with replenishing their inventories. Inventory rebuilding may account for around half of all chip orders today, Morales said, but those orders will slow as companies fill their needs. End demand has rebounded since the depths of the recession, but it's not rebounding fast enough to take up the slack from slower inventory orders.

The 16 percent figure puts IDC at the low end of global chip revenue forecasts for this year. IDC's main rival, Gartner, predicts 20 percent year-on-year growth to $276 billion this year, up from $231 billion last year, when worldwide chip revenue declined 9.6 percent. Gartner noted strong demand for memory chips and PCs as a basis for its forecast, but also warned that inventories may be building too fast.

Many market researchers, including Gartner, expect strong global PC sales to boost the chip industry. Investment banking firm Credit Suisse said in a report published Tuesday that corporations will be heavy buyers of new PCs, a main reason the firm is bullish on chip industry growth this year.

IC Insights, a smaller researcher focused on chips, forecast 27 percent revenue growth for chips in 2010, in a report earlier this month. The market research firm predicts DRAM revenue will surge 74 percent this year to lead the chip industry rebound.

IDC also sees DRAM as a major contributor to the global chip rebound this year, but puts its growth at a more modest 44 percent this year to US$32 billion. The memory chip industry is recovering from a decade low hit last year amid the global recession as companies such as Qimonda declared bankruptcy.

DRAM makers have started to increase output at a pace that will trigger a correction, or a short-term drop in sales, later this year, predicted Soo Kyoum Kim, memory analyst at IDC.

"I see some oversupply [in the second half]," he said. DRAM output will increase 25 percent in the fourth quarter from the third, he said.

But DRAM chip prices will remain at profitable levels for companies, he noted.

The main difference between IDC and other research groups is its focus on the potential impact of the global recession. Some government stimulus packages put in place early in the recession will end soon, which could lead to a slackening of demand. Job losses have also remained a problem in many parts of the world, which could mute end demand. Still, the research firm predicts the chip industry will post a strong rebound this year.

"I think the recovery will continue to be very gradual," said Morales.

IDC is part of IDG, the company that operates IDG News Service.