Good News, Bad News For Semiconductor IndustryGood News, Bad News For Semiconductor Industry

The semiconductor industry this year is expected to hit the peak of its current growth cycle, but chipmakers won't hit the same revenue growth rates as in previous peak years, a market research firm says.

Worldwide semiconductor revenue is expected to reach $285.8 billion this year, a 10.6% rise from $258.5 billion last year, iSuppli predicted Tuesday. After this year, revenue growth is expected to slow to 8.7% in 2008, bottoming out at 3.7% in 2009. The industry is expected to bounce back to a 7.4% rise in 2010.

In previous peak years, the semiconductor industry has experienced expansions as high as 30% to 40%, iSuppli said. The good news with the current milder cycle is that chipmakers aren't expected to see a market contraction, such as in 2001 when revenue plunged by 28.9%.

"The milder cyclical swing reflects changed dynamics in the semiconductor industry," iSuppli analyst Gary Grandbois said in a statement.

The average annual growth rate has been slowing for a decade, settling in to a range between 7% and 9%, compared with an average in the mid-teens in the past. The cyclical behavior of the market also is moderating in terms of peaks and valleys, with the variance between high and low years of the current cycle amounting to 6.9 percentage points, compared with 52.7 points between the previous low in 2001 and the peak in 2004.

"Factors contributing to the semiconductor market's more moderate cycles include improved inventory practices, better management of manufacturing capacity, and greater flexibility in memory production," Grandbois said.

The better performance this year is due to a healthier market for electronic equipment, and stabilization in the average selling prices for chips, iSuppli said. The strongest growth is expected in data processing, wired communications and consumer electronics.