Slow Growth Ahead In Semiconductors

A recent report from Standard & Poor's Equity Research says the semiconductor industry will likely face slower growth in 2011, after a record 2010.

According to the report, the industry's sales in 2010 were up twofold from the previous year and were as high as they have been in a decade.

The year 2010 is expected to close strong for the semiconductor and semiconductor equipment industries, as sales growth for both are forecasted to reach decade highs, said Clyde Montevirgen, semiconductor analyst, in a statement. Consequently, we anticipate that most chip and equipment companies will experience multi-year high margins and exceptional earnings increases.

However, this strong year is unlikely to be repeated in 2011. While there is room to grow, modest advances are likely ahead according to S&P semiconductor analyst Angelo Zino.

S&P says semiconductor sales will rise 7 percent in 2011 to $320 billion from $299 billion in 2010. The industry will see increasing unit shipments for end-markets such as computers, smartphones and communications. The S&P report is especially high on smartphones as a catalyst for semiconductor sales growth in the upcoming year.

We anticipate robust unit shipments for smartphones and tablets to be a major catalyst for these manufacturers, which should keep customer profitability at high levels, the report says. S&P expects this to come through flash memory, rather than solid-state drive or dynamic random access memory, technology.

The report says Intel will gain some traction in the smartphone and tablet markets. They say the company's proposed acquisition of Infineon's wireless business unit could make it an instantly credible competitor in the handset market.

DRAM sales will likely decline in 2011. This is because they do not see any major advance in the technology appearing in 2011 that would be a catalyst for new growth.