Chip downturn is unlikely - Gartner

Fears about an impending downturn in the computer chip industry are overblown, a US technology consultancy said yesterday as it raised its 2004 forecast for the key industry sector.

The research group Gartner said it saw the global semiconductor market growing by 27 per cent to $226 billion (€187.1 billion) this year, up from the "more than 25 per cent" which it had predicted.

Gartner said it saw worries about an impending downturn in the notoriously cyclical industry - fuelled by rising inventories among computer chip makers and distributors - as overblown.

"Had the increased inventory been accompanied by a flat or even falling semiconductor market, it would have been of grave concern. In a rising market, increasing inventory levels are normal," the group said.

The upbeat assessment for the chip industry could be significant for the Irish Exchequer, which gets substantial revenue from big semiconductor firms such as Intel and Analog Devices.

Intel Ireland also recently announced a multi-billion euro expansion at its Leixlip manufacturing facility that will depend on demand for chips.

Over the past month investors have become unnerved by a series of announcements from semiconductor firms about rising inventories. Intel, the world's biggest chip firm, cut its profit margin forecasts after saying inventories recently rose 15 per cent.

A rise in inventories was one of the first signs of trouble before the telecoms bubble burst in 2001.

"The hangover from the severe market downturn endured in 2001 still lingers, just as concerns about the next downturn have begun to worry semiconductor industry executives," said Gartner's research vice president, Mr Richard Gordon.

"Despite the improving market conditions that semiconductor vendors have enjoyed over the past several quarters and the expectation that revenue growth this year will be close to 30 per cent, this industry upcycle is notable in that few in the industry have felt able to acknowledge it as a boom."

The World Semiconductor Trade Statistics group also sees strong growth in chip sales of 28.4 per cent this year.

Gartner will present its detailed outlook for the semiconductor sector during its industry summit on September 13th-14th.