2005 chip sales get poor prognosis

Global chip revenue may shrink 6 percent next year as increased capital spending by Samsung Electronics Co, Intel Corp and other producers this year boosts supply and drives down prices, researcher IC Insights Inc said.

The chip market will shrink to US$166.9 billion next year from US$177.1 billion this year, the research company said. Chipmakers will boost spending by 53 percent this year to US$44.4 billion, Scottsdale, Arizona-based IC Insights said in a report.

Samsung Electronics and 16 other chipmakers have each budgeted more than US$1 billion for expansion this year, swelling members of the ``billion-dollar club'' to the most since 2000, the report said. The chip industry entered a sales slump after 2000 that lasted more than two years and nearly drove companies such as Hynix Semiconductor Inc into bankruptcy.

"Additional announcements by semiconductor producers regarding the boosting of their 2004 capital spending budgets should now be viewed as increasingly bad news for the 2005 semiconductor market," the report said.

Average prices will fall by 3 percent, the report said. The slump would follow two straight years of gains in chip sales. Chipmakers are lifting spending to catch up with a forecast 27-percent rise in revenue from last year, IC Insights said in its monthly report.

The world's largest chipmaker, Intel, said its first-quarter profit doubled, while its nearest rival, Samsung Electronics, said profit tripled as businesses replaced computers they bought three to four years ago. That is prompting the industry to boost capital spending to the highest level since 2000, IC Insights said.

Separately, Infineon Technologies AG, Europe's second-largest semiconductor maker, plans to invest US$1 billion to expand a US factory with technology that will boost production of memory chips used in personal computers and servers.

The Richmond, Virginia-based plant will be able to process 25,000 wafers a month using larger 300mm technology once the first expansion phase is completed early next year, Infineon said. The company said it will add 800 employees to the plant, boosting the workforce to 2,550.

"The US$1 billion expansion project will increase Infineon's flexibility and responsiveness to customer requirements for memory and logic products," Munich-based Infineon said in a statement to the Frankfurt exchange.