EL SEGUNDO, CA -- The rapid rise in global energy prices, combined with a growing excess of manufacturing capacity, has prompted iSuppli to trim its forecast for 2005 semiconductor sales and to modify its longer-term outlook.

iSuppli cut its forecast for global semiconductor sales growth to 2.4% in 2005, reaching $232.7 billion.

Previously, iSuppli had forecasted 5.9% worldwide growth in 2005, followed by 3.9% in 2006.

iSuppli now believes that 2005 will mark the low point of the present semiconductor cycle, and that growth will accelerate during the following years. After a marginal rise in 2006, chip sales are expected to rise by double-digit percentages in 2007, 2008 and 2009.

The rise in oil prices has had a significant impact on end demand, prompting iSuppli to revise its outlook.

Gary Grandbois, principal analyst, analog ICs/semiconductor forecast for iSuppli, said, “A weaker-than-expected first half, coupled with the likely impact of high oil prices in the second half, have been instrumental in bringing down iSuppli's 2005 semiconductor forecast.”

“Although a strong third quarter is expected, this will be followed by a flat fourth quarter, which will result in 4% growth in the second half of the year.”

While the impact of Hurricane Katrina on the semiconductor industry remains unclear, iSuppli believes that at the very least the catastrophe will exacerbate the market's energy problems in the short term.

In a troubling sign for the semiconductor industry, chip suppliers are continuing to increase production-despite slowing growth and weakening prices, according to iSuppli. Global semiconductor capacity is expected to rise by 3.1% in the third quarter compared to the second. Meanwhile, worldwide semiconductor manufacturing capacity utilization will increase to 86% in the third quarter, up from 83% in the second.

“With the significant amount of capacity that is available, if end demand does not significantly increase, the fourth quarter will experience a slowdown in manufacturing run rates,” warned Len Jelinek, director and principal analyst, semiconductor manufacturing, for iSuppli. “The severity and length of this slowdown will be determined by the amount of semiconductor inventory built up in the third quarter.”

iSuppli in the third quarter plans to issue an updated estimate and forecast of semiconductor inventory in the electronics supply chain.

While the near-term outlook for the semiconductor industry is dimming, the long view appears somewhat brighter, iSuppli believes. However, the industry is unlikely to achieve the kind of robust recovery that it has seen in the past.

“The flattening in the fourth quarter will lead into a very slow first half for 2006,” Grandbois predicted. “Although 2006 will be an improvement over 2005, it still will be a very slow year for semiconductor sales growth. iSuppli expects that the slowing trend will be less of a problem in late 2006 and the market will move forward in 2007, but at a somewhat slower recovery pace than seen in the past.”