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Semiconductor Industry Revenue to Endure Slow Growth in 2012

With global economic prospects remaining uncertain and semiconductor inventory not moving quickly enough to stimulate new production, the worldwide chip market is expected to suffer a slow year in 2012 marked by sluggish growth.

Semiconductor industry revenue in 2012 is expected to reach $323.2 billion, up a slight 3.3 percent from last year’s revenue of $312.8 billion, according to an IHS iSuppli Global Manufacturing Market Tracker report from information and analysis provider IHS,

While expansion this year is expected to be better than the paltry 1.25 percent increase of 2011, the overall picture could brighten considerably if the United States and the rest of the world recover in 2013. Under such a scenario, growth from 2013 to 2015 will average between a more encouraging 6.6 to 7.9 percent, as shown in the figure below, with total semiconductor revenue by 2015 rising to some $397.7 billion.

"Much of the weak performance in both 2011 and this year can be attributed to external circumstances over which the semiconductor industry has no control—the ambiguous state of the global economy, along with assorted troubles in the world’s major markets of the United States, Europe, Japan and China," said Len Jelinek, director and chief analyst of semiconductor manufacturing research at IHS. "And because the world economy is not in a strong-enough position to drive growth, the semiconductor business is coming under pressure."

Although consumer spending lowered the level of inventory of electronic devices and other items incorporating semiconductors during the 2011 holiday season, the reduction was insufficient to re-energize chip demand to replenish stockpiles. Worse, a deliberate decrease in manufacturing run rates by companies in the third quarter of 2011 proved unable to bring inventory down to levels that would have fired up additional orders and increased factory run rates. As a result, semiconductor demand for manufacturers will remain depressed until the second quarter of 2012.

Such developments will have a ripple effect throughout the industry. For instance, because factory utilization will not recover until the middle of 2012, the integrated device manufacturers (IDM) that both design and manufacture semiconductors in-house will experience even greater stress to simply maintain the viability of underperforming factories. And with current manufacturing capacity deemed acceptable for meeting demand, most capital expenditures to boost efficiency within the industry likely will be pushed out to 2013.

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