After a fabulous upturn in 1999 and 2000, the semiconductor industry crashed downward last year, continuing the boom/bust cycle that has characterized the industry from its beginning. This latest boom/bust cycle was, in large part, created by the "dot com to dot compost" saga. However, the electronics industry deserves a share of the blame, because the layers added to the supply chain over the last decade contributed heavily to an out-of-control inventory situation. The Future So where does the industry go from here? We are optimistic that growth will return this year. Based on the expected worldwide economic growth in 2002 of just over three percent, IC units should grow a bit over 10 percent in 2002. Unit growth should continue to propel the industry, as IC volume grows from 68.5 billion units in 2001 to 123.0 billion units in 2006-a compound annual growth rate (CAGR) of 12.4 percent. The table details our expectations for the split of IC packages by package family. While the prospects for unit growth seem solid, we believe that the astonishing level of competition in the semiconductor industry will tend to keep the industry in a general state of oversupply. We expect IC revenue growth to trail IC unit growth throughout the coming years, as a result of price pressure created by this oversupply. IC Packaging Revenue If all IC packages had been assembled by independent IC packaging foundries, the total assembly "revenue" would have been $13.7 billion in 2001, representing a 34 percent decrease from 2000.
This figure is predicted to expand to $21.6 billion by 2006, at a 9.5 percent CAGR. As with overall industry revenue, packaging revenue growth will trail unit growth over the next five years as competition leads to considerable pricing pressure. Packaging Providers The forces at work in 2001 caused a considerable disruption in the efforts of the packaging foundries to assume a larger share of the industry's IC packaging work. In 2001, packaging foundries assembled a total of 14.3 billion ICs. This was an astonishing 27 percent drop from 2000. This number will grow, however, to 29.5 billion packages in 2006-a CAGR of 15.5 percent, which is far below the high-growth days of the previous decade. Packaging providers today are more focused on profitability than on growth. The revenue generated by the packaging foundries was $5.2 billion in 2001-a huge 41 percent drop from 2000. Revenue should grow to $9.7 billion in 2006. Sounding a Cautionary Note ETP believes that the semiconductor industry will grow in 2002 and the immediate years beyond. However, a cautionary note should be sounded: The industry rode PCs, cell phones and Internet infrastructure equipment through the last boom. After two decades of growth, however, these products are nearing saturation levels in the developed countries. To continue high growth levels over the next two decades, significant new products-in the class of "killer" applications-must be added to the mix. Such products have yet to appear.
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