Ten years after the chip business's whopping 36.7% expansion of 2000, the industry is expected to finally break the 30% barrier once again in 2010 with revenues set to rise to US$300.3 billion, according to iSuppli. However, unlike the Internet-crazed spike in 2000, growth in chip sales this year will be driven by real fundamental supply/factors that slowly have been gaining momentum during the past 12 months, the research firm said.
"Building on the continuing expansion in sales that followed the downturn in late 2008 and early 2009, the semiconductor industry is set to achieve remarkable revenue growth and record size in 2010," said Dale Ford, senior VP, market intelligence services, for iSuppli. "Chip sales growth this year will be fueled by a number of key factors, including continued strong consumer demand for hot electronic products, diligent inventory and capacity management efforts among chip makers and the arrival of innovative technologies at both the component and end-system levels."
Ford noted that 2010 is bringing a return to normal semiconductor market conditions after the aberrant industry performance in 2009, when chip sales plunged due to external economic conditions. The year will mark an all-time annual high for global semiconductor revenues, eclipsing the previous record of US$274 billion set in 2007 by about 9%.
"While the growth in 2010 is impressive, it still needs to be viewed in context of the dismal results in 2009," Ford noted. "Compared to 2008, the semiconductor industry in 2010 will achieve more moderate revenue growth of 15.4%."

Blowout 1Q10
The stage for strong annual growth in 2010 was set by unusually robust conditions in the first quarter. "Semiconductor sales most commonly decline in the seasonally slow first quarter compared to the peak holiday period in the fourth quarter," Ford observed. "However, in 2010, first-quarter chip sales expanded by 1.1% compared to the fourth quarter of 2009. This is the first time the industry has achieved sequential growth in the first quarter since 2004, and it represents the strongest growth during the period since 2002, when revenues grew by 5.4%."
A major factor driving demand in the first quarter and beyond is consumer demand for electronic products, which continues to surpass expectations, iSuppli noted. Strong sales growth is predicted for 2010 in PCs, mobile handsets, LCD TVs and other semiconductor-rich electronic systems. This will propel global factory revenues for electronic systems to a record high of US$1.55 trillion in 2010, up 10.4% from US$1.4 trillion in 2008.
"The economy represents the biggest wild card in iSuppli's 2010 forecast," Ford warned. "While many indicators have shown sustained improvement, there are, however, a number of financial and economic trouble spots that could endanger the continued growth in the market before the end of 2010."
Beyond strong demand, semiconductor suppliers also are benefitting from careful management of chip inventories and tight controls on manufacturing capacity. "By keeping a tight reign on stockpiles and production, semiconductor companies have been able to hold supplies at levels less than demand," Ford said. "As a result, many semiconductor product segments are experiencing strong upward price pressure."

Semiconductor winners
Dramatic growth in DRAM revenues will be a major driver of growth in the overall semiconductor market, according to iSuppli. DRAM revenue growth in 2010 is projected to reach nearly 77%.
Other major growth drivers in 2010 will be NAND flash memory, analog ICs, discretes, LEDs and programmable logic devices. All of these major market segments are forecast to attain growth of more than 30% during the year, iSuppli said. Meanwhile, most of the significant product segments are expected to expand by more than 20%, the firm added.