Gartner: Sales of chip gear to drop

Worldwide chip-gear sales will slide during the next two years, according to a new report, following spectacular growth of 64 percent in 2004.

Sales will be down by 11.6 percent in 2005 and by 6.5 percent in 2006, market researcher Gartner said this week.

The drop is much more than what Gartner had earlier predicted. In October, the researcher projected a meager 0.6 percent fall in gear spending this year. Makers of chip gear earned total revenue of $37.6 billion through sales in 2004.

Unlike in the past, however, the impending decline in demand will not be extreme. "Rather than having the sharp annual contractions of the past, this cycle will be milder," Klaus Rinnen, research vice president for Gartner's semiconductor manufacturing and design research group, said in a statement. "The equipment industry overshot slightly in its capacity ramp-up during 2004's strong growth, and it is now pausing until higher levels of semiconductor growth return in 2007."

The projected growth in semiconductor capital equipment sales in 2007 is 16.6 percent.

Among the three equipment segments, the worst hit manufacturers in 2005 will be makers of wafer fabrication gear. According to the researcher, the global spending in this segment will come down to $24.8 billion, approximately 12 percent less than the $28 billion spent a year ago.

Sales of automated test equipment will inch closer to the $5 billion mark, thanks to marginal growth of 3.1 percent in 2005. Last year, the segment grew by 58.5 percent, largely because of strong demand for radio frequency and microwave, system-on-a-chip, and memory tester tools.

The third segment, packaging and assembly equipment, has been witnessing soft business conditions since mid-2004, and that's expected to result in a 23 percent drop in revenues in 2005.