Gartner: Chip industry in 'indefinite' slowdown

Computerworld - The global semiconductor industry is in a slowdown that one industry analyst doesn't see it coming out of anytime soon, if ever.

Worldwide semiconductor revenue totaled $273.9 billion last year, up just 3.8% from 2006, according to a report from Gartner Inc. For an industry that's accustomed to double-digit growth, last year's was noticeably slight. However, it's a result that the industry may have to get used to, according to Gartner analyst Richard Gordon.

"Obviously, it's better than negative growth, but from a historic semiconductor view, it's not strong growth," Gordon told Computerworld. "The market is in a low-single-digit growth phase. It's a concern. The high growth of the late '90s seems to be in the past now. I don't see anything on the horizon that will fuel growth in the near future. We're talking about long-term -- about forever."

He added that he simply doesn't see any major new growth drivers -- like the PC and cell phone were -- on the horizon. "It just seems to be more of the same," Gordon said. "From a demand point of view, there will definitely be volume growth, but pricing pressure will continue. We are concerned that we're in an indefinite low-revenue growth phase."

So, what does the slowdown mean for users? It could mean lower chip prices for consumers and businesses, as well as an atmosphere conducive to semiconductor industry consolidation, according to Gartner.

Gordon declined to speculate which companies might hang on and which might get gobbled up.

"I wouldn't like to name any names, but it's really the midtier," he noted. "The Intels and Samsungs are strong enough to survive on their own, but the midtiers are more questionable. AMD is a tricky one. They've done quite a bit already in terms of sorting out their cost base. They have partnerships with the likes of IBM. They have had to reinvent themselves quite a bit. They're in a unique position because they're really only competing with Intel. I can't see anything happening there."

With the semiconductor market slowing and the U.S. economy stumbling, 2007 was a mixed year for processor manufacturers. Gartner's numbers show that three vendors had double-digit growth, while four suffered through revenue declines.

Intel Corp.'s revenue increased by 10.7% from 2006 to 2007, and the company remained the largest on Gartner's top 10 list. Toshiba Corp., meanwhile, reported the highest revenue growth rate -- 20.8%. Toshiba's gains moved it up from its position as the sixth-largest semiconductor vendor in 2006 to the third-largest last year, right behind Intel and Samsung Electronics.

"That was quite a strong performance for Toshiba -- probably the best-performing of the Japanese companies over the last few years," said Gordon. "They do a lot of business with game console makers, like Sony … and they're strong in the flash market."