Mumbai: Gartner predicts that a sluggish start in the first half of 2005 for the semiconductor market will hold back annual revenue growth. According to the latest forecast by the US-based Gartner Inc., "While revenue in 2004 grew 23.9 per cent to $220 billion, revenue in 2005 will grow 3.4 per cent to $227.6 billion." The report, 1Q'05 Semiconductor Forecast Update Predicts Two Years of Sluggish Growth provides a global forecast for semiconductors by device category through 2010.

Gartner says 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, tight fab capacity, strong consumer and business spending on electronics, and lean inventories, have dissipated," said Philip Koh, principal analyst for Gartner's Asia / Pacific semiconductor group. "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 explains.

Gartner analysts say challenging market conditions in the first half of 2006, such as increased and under utilised manufacturing capacity on the supply side, along with the absence of a significant demand driver, will keep growth muted.

Koh adds, "The memory sector that 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, which will lead to depressed commodity memory market conditions in 2006."

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.