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SCMP Reporter

After finishing 2000 with a flourish, the semiconductor industry went bust last year as a sweeping economic slowdown took tens of billions of dollars out of its global market.

Analysts and industry officials, however, remain confident of a moderate turnaround this year and a full-scale recovery next year.

Preliminary estimates by research firm Gartner's Dataquest unit show that worldwide semiconductor sales last year fell about 33 per cent to US$152 billion from US$222 billion in 2000.

'This is the worst-ever decline for the industry,' said Dorothy Lai, Gartner Dataquest's Asia-Pacific semiconductor analyst.

'The semiconductor industry, historically, goes through up and down cycles, but it got so bad in 2001 that we adjusted our estimates several times even for a recognised growth market like China.'

Although domestic demand for electronic goods remains buoyant, the mainland's semiconductor market revenue for last year is projected to decrease from 21 per cent to 26 per cent.

Ms Lai noted that all of the world's top 10 semiconductor vendors, including market leader Intel, experienced revenue declines from 19 per cent to 49 per cent last year.

Gartner Dataquest's preliminary estimates for 2001 Asia-Pacific semiconductor sales show Intel posting revenues of US$5.43 billion, down 23.7 per cent from US$7.11 billion the previous year.

Asia-Pacific revenues for ST Microelectronics, ranked No 2 in the region and No 3 worldwide, decreased 8.5 per cent to US$2.46 billion from US$2.69 billion.

Samsung Electronics, ranked No 3 in the region and No 4 worldwide, saw revenues fall 37.5 per cent to US$1.92 billion from US$3.07 billion.

The downturn of the global semiconductor market last year was mainly attributed to the dotcom implosion, which saw previously aggressive demand for computer and communications networking infrastructure by service providers and start-up enterprises disappear. This created a huge product inventory for semiconductor components that nobody needed.

The events of September 11 also compounded already weak demand as consumers and businesses re-evaluated their spending on electronic equipment.

'A downturn of this magnitude will be difficult for many companies to recover from in 2002,' said Mary Olsson, chief analyst for Gartner Dataquest's worldwide semiconductor group. 'As is evident in the sizeable declines by most of the top vendors, the industry has undergone tremendous destabilisation. We expect further consolidation of the industry during 2002.'

As they struggled through a depressed global market last year, silicon-chip manufacturers also cut down on their semiconductor equipment spending by 30 per cent to US$27.9 billion from US$39.9 billion the previous year.

Gartner Dataquest said all regions had reacted with cuts in capital spending. It projected that the Asia-Pacific suffered the steepest capital-spending cuts at 33 per cent, followed by Japan with a 24 per cent cut and North America with a 22 per cent reduction. Europe was the least affected, with a 17 per cent decline in spending.

Despite the difficult economic situation, semiconductor production for digital consumer products, such as DVDs, digital cameras and game consoles, went well last year compared with other applications.

'These markets will become the growth drivers during the next five years and beyond,' Ms Olsson said.

'Thus, in spite of the serious nature of the downturn, the industry has kept an eye on the future.'

Gartner Dataquest predicted worldwide semiconductor revenue growth of about 3 per cent this year and a return to normal next year, with average annual growth of about 30 per cent.

Ms Lai said improvements in the macroeconomic environment would fuel a personal-computer replacement cycle and a recovery in the wired communications sector.

The launch of 2.5-generation and 3G cellular networks also is expected to be under way in 2003, boosting demand for silicon-rich handsets.

Fairchild Semiconductor, a global supplier of multi-market silicon chips, said there was renewed confidence because of continued seasonal strength in sales of PCs and consumer electronics products in the fourth quarter of last year.

Fairchild chief executive Kirk Pond said: 'The demand in the consumer area was also high for products such as DVD players, MP3 players, set-top boxes and digital cameras. The notebook-computer market picked up in late October into November, while cellular-phone handset orders showed steady increases.'

However, wireline communications, networking and power supplies remain weak areas.

Semiconductor giant Intel has even adjusted its fourth-quarter business outlook, expecting global revenue during this period to be between US$6.7 billion and US$6.9 billion, compared with the previous range of US$6.2 billion to US$6.8 billion.

Michael Splinter, Intel's executive vice-president and director for its worldwide sales and marketing group, said that while economic conditions worldwide remained weak, the company continued to strengthen its competitive position and expected to see moderate unit growth in microprocessors and flash memory in the fourth quarter.

Gartner Dataquest said the vehicle-semiconductor market segment was another bright spot last year, with estimated 7 per cent growth. Motorola is the leading vendor in this market segment.

Much of the growth during the next few years is expected to come from developments that enhance driving - such as telematics and real-time driver information systems - as well as in-car multimedia terminals for game consoles, Internet access, and real-time travel guides and directions.



Turnaround this year forecast and recovery in 2003 as industry counts cost of steepest slump