ARN

Gartner revises down forecast for contract chip makers

Gartner says contract chip makers will have a worse time than expected this year

Contract chip makers will have a worse time than expected this year, according to market researcher Gartner, which has revised down its revenue growth target for 2007 to 5.1 per cent.

A weak first quarter hit the industry harder than expected, as growth declined 12.5 per cent compared to the previous quarter. Although a recovery for the industry is underway, revenue growth will be far worse than the 16.7 per cent growth the industry achieved last year, Gartner said in a report. Next year will be a boom year for contract chip makers, but the market researcher did not provide a firm prediction.

Part of the first quarter drop was normal for the time of year. Holiday shoppers tend to take a breather in the first three months of the year, so sales of a number of electronics typically fall. But contract chipmakers have also faced a chip glut, which caused some companies to reduce orders.

Chip shipments by contract makers fell by around 3.8 per cent sequentially in the first quarter, Gartner said, while average selling prices slumped about 9 per cent. Fewer high-end chips, which command higher prices, were ordered during the quarter.

The market researcher said the weak quarter marked a bottom for the industry. Chipmakers have largely agreed.

The world's largest contract chip maker, Taiwan Semiconductor Manufacturing Co (TSMC), posted its worst quarter in nearly two years in the first quarter. But it said the industry bottomed out during the quarter and would improve as the year goes on because demand was improving and the chip glut had eased. The company's top rival, United Microelectronics Corp (UMC) also called the first quarter the low point for the year.

"Following two consecutive quarters of decline, we estimate that the foundry market will grow 11.9 per cent sequentially in the second quarter of 2007, mainly because of inventory replenishment and a better pricing environment," Gartner said. The communications segment was leading the recovery, while demand for consumer electronics was also reviving, the market researcher said.

Last year, TSMC, which founded the contract chip-manufacturing or foundry industry in 1987, took a 45.2 per cent share of the contract chip market with revenue of $US9.7 billion, according to Gartner. Chip industry revenue totalled almost $US260 billion last year, while the contract manufacturing segment accounted for $US21.5 billion of that figure.