Semicoductor slump may hit IT sector sales: Gartner

Weakness in the semiconductor market in the first half of 2005 will hold back annual revenue growth in the information technology sector to three per cent compared with the 2004 sales, according to latest forecast by Gartner, a provider of research and analysis on the global IT industry.

Revenue in 2005 is expected to grow 3.4 per cent to $227.6 billion whereas revenue in 2004 grew 23.9 per cent to $220 billion.

According to a Gartner release, the semiconductor revenue growth peaked in the third quarter of 2004, and the industry will experience slower annual growth.

In line with this downward trend, sequential quarterly growth will be negative in the first quarter of 2005 and flat at best in the second quarter, as seasonal slowdowns in electronic equipment sales exacerbates the weakening effect of inflated channel inventory levels on semiconductor revenue.

"The factors that drove strong revenue growth in 2004 were strong consumer and business spending on electronics, and lean inventories, have dissipated," said Gartner's Asia/Pacific principal analyst for semiconductor group Philip Koh in a release.

"Strong capital spending in 2004 has already had an effect in bringing down semiconductor manufacturing capacity utilisation rates, and end markets are cooling down as global economic conditions weaken," he said.

The memory sector is likely to hold back more-positive overall semiconductor market growth in 2006. Significant capacity is building in the memory sector that will throw the major memory markets of dynamic random-access memory (DRAM) and NAND flash into oversupply, will lead to depressed commodity memory market conditions in 2006, the release added.

Although market conditions will begin to improve in the second half of 2006, the first half weakness will keep annual growth next year in the low single digits.