We at Semico forecast that semiconductor revenue will increase by two percent in 2005 to $217.3 billion, a slightly more positive outlook than the previous forecast. An upward adjustment in the forecast was spurred by recent improvements in inventory levels, and Semico’s Inflection Point Indicator pointing to strength in the fourth quarter.

Semico’s IPI, which is designed to forecast market direction 8 to 9 months in advance, registered 15.1 points in April, down from 15.8 in March. The April IPI points to the December 2005 and January 2006.

Semiconductor revenue is expected to peak in November. Additional analysis indicates that December has been forecast to be weaker than November, revenue shipments will still be amongst the highest all year, producing fourth quarter growth.

We remain cautious about pricing and inventories in the second and third quarters. April data showed a significant softening in pricing, aggregate ASPs falling 9.5 percent, from $0.53 to $0.48. Thus, we continue to forecast the second quarter to be weaker than the first quarter, with revenues declining 1.9 percent.

Third quarter will mark the period in which OEMs and ODMs place orders to replenish inventory. The bulk of these shipments will occur in the fourth quarter.

Semico forecasts a revenue dip of 1.1 percent in 3Q05, followed by growth of 2.1percent in the fourth quarter.

Semiconductor revenue shipments released by SIA showed total shipments in April were $16.7 billion, a decline of 18.9 percent from March, but an increase of 1.4 percent in the average weekly run rate. Year-over-year, April revenues were up; in 2005 it increased to 4.7 percent from 2004.

Memory outlook
MOS memory is forecast to be flat this year, with 0.8 percent revenue growth to $47.5 billion. This follows last year’s revenue increase of 45 percent. After showing positive quarter-to-quarter growth for the first three quarters in 2004, 4Q04 posted a decline of 0.3 percent. This downturn continued into 1Q05, with a drop of 2.1percent.

Revenues will pick up in second quarter, with growth of 1.7percent

DRAM Market
As anticipated, first quarter 2005 results for the DRAM market experienced declining revenue. At Semico we remain cautious regarding revenues for 2005 and first quarter performance has done nothing to change our opinion. Total semiconductor revenue for first quarter was slightly higher than expected while DRAM revenue and shipments were less than anticipated.

Our outlook for 2005 remains cautious due to the potential for overcapacity resulting from new manufacturing facilities. Counterbalancing this potential for overcapacity is the fact that memory manufacturers hope to support three different memory architectures—SDRAM, DDR, and DDR2—2006/6.

Non-Volatile Memory Market
2005 NAND market is full of surprises. The year started with an undersupply, which we did not expect to last. The price fall that lasted for most of 2004 stopped in December, Semico expected the price declines to recommence in the first half of 2005.

Instead we see prices in second quarter at levels similar to those of late 2004. NAND is second only to DRAM in memory market size. Demand is stronger than usual due to the introduction of the iPod Shuffle.

The introduction of the iPod Shuffle in a flash-based version of their extremely successful iPod series of hard drive-based MP3 players. The iPod Shuffle has taken hold of the flash-based MP3 player market with incredible strength. In March, their second month of production shipments, Apple accounted for a whopping 58 percent of US MP3 player shipments. Apple did not reach this level by cannibalizing the market of existing MP3 makers.

Apple’s shipments were largely additive to overall shipments. Apple’s competitors are reaping the benefits of this market giant’s merchandising and credibility, and the ballooning market that results from Apple’s awarding their “seal of confidence” to MP3 technology.

One of the side effects of the iPod phenomenon is that the NAND market is in a shortage, resulting in very stable pricing. This change is causing megabytes to undergo faster growth than normal. With the impact of the iPod and subsequent high megabyte shipments, it is hard to estimate when the oversupply we once anticipated will materialize.

We forecast stable pricing and high megabyte growth for the remainder of 2005.

NOR
Semico expects NOR to see continuing significant price declines in 2005. There has already been significant erosion s far this year, Semico expects to see prices continue to decline before a recovery in late 2005. Since the beginning of 2004, the industry average price per megabyte for NOR has fallen 41 percent.

Semico expects NOR revenues to decline12 percent this year to $8.0 billion, followed by a growth of 10 percent in 2006 to $8.8 billion.

Logic update
The programmable logic market is forecast to post its third consecutive year of growth, increasing 3.2 percent this year, from $3.1 to $3.2 billion. In comparison, revenue growth was 42.2 percent and 11.7 percent for 2003 and 2004, respectively.

Looking at historical data back upto 1989;only 2001 and 2002 were the two years to register a decline.

Micro Logic
Micro Logic’s strong growth in 2004 (16.6 percent) was due in part to the momentum from second half 2003. Following 2001 and 2002, there was a good deal of pent up demand in many markets. Sales began slowing down at the end of 2004 as companies became concerned with growing inventory levels.

Micro Logic is projected to grow 5.2 percent to $53.4B and 7.4 percent to 9.2 billion in 2005. The 2Q05 sales are expected to drop as inventory issues are resolved and the PC market reaches the low point of its cycle. Semico expects sales to rebound in 2H05.

Micro Logic will still lead the overall semiconductor market. The growth of the communications, computing and automotive markets will be a key factor.

In summary the remainder of 2005 will show improving market conditions. The second half will see rising capacity utilization and lower inventories. This will result in a stabilization of ASPs.

Additional overall world macro economics are forecast higher GDPs. Improving end application markets will keep capacity utilization high with stable ASPs setting the stage for a stronger 2006.

Jim Feldhan is the founder and President of Semico Research Corp, a marketing and engineering research company located in Phoenix, Arizona.