Thanks to this year's interest in multi-function devices in Asia, research consultancy IDC is estimating double-digit chip sales next year.

The Framingham, Mass.-based concern's analysts said mobile phones and PCs will be the main drivers of a healthy growth cycle for over half of the semiconductor industry, which IDC expects will grow 18 percent this year and next year.

China, which is the largest consumer of mobile phones and the second largest consumer of PCs, will continue to drive mobile phone semiconductor and PC semiconductor growth most of all, according to IDC's report. The pressure on OEMs and chip suppliers by investors to increase profits and revenue has also been a driving force in a general industry trend toward outsourcing.

"As a result of this ongoing trend, China has become a fertile ground for disruptive innovation as its low-cost suppliers naturally aspire to move up market. IDC expects these emerging Chinese semiconductor companies will play a key role in shaking up the competitive ranks among original equipment manufacturers (OEMs), original design manufacturers (ODMs), and semiconductor suppliers over the next five years," IDC vice president of semiconductor research Mario Morales said in a statement. "Mainland Chinese semiconductor demand currently represents over one quarter of the US$60 billion total for Asia-Pacific and will account for almost half of the entire region by the end of our forecast period."

The gravy train is not expected to stop anytime soon. From 2003 to 2008, IDC predicts that the chip market should expand at a compound annual growth rate of 12.5 percent, rising from $160 billion in revenue this year to $282 billion in 2008.

IDC said mobile phone shipments -- including ubiquitous radio all-in-one package (PHS) phones ("XiaoLingTong" in Chinese, or "little smart", commonly known in English as "PAS") -- will surpass 530 million units this year. Likewise, PC shipments are anticipated to grow by 11 percent this year, surpassing 152 million units. IDC expects double-digit growth in units for both markets in 2004.

The other reason for growth in China comes from Taiwan as the chipmaking powerhouse begins to aggressively aggregate Internet protocols (IP). (define) Taiwan and China are expected to drive fabless start-up activity, while the U.S. and Europe slow down, IDC said.

Suppliers are also expected to focus on 2.5G, WLAN, and broadband and cellular infrastructure as the country begins to grow. And then there is the shift in wireless and analog IP from niche plays to essential building blocks.

IDC also said the rest of the Pacific rim has huge momentum as Japan has surpassed the Americas as the second largest consuming region in the world. Japan's growth is led by export growth, while domestic demand remains muted.

So, why the big push in China to buy chips now?

"Low inflation, high productivity from established IT, new technology product cycles, rising corporate profits, rising personal disposable incomes, historic opening of new geographies/peoples to the capitalist ecosystem and re-establishment of US political leadership over an always turbulent world. These are only a handful of macro-micro fundamentals driving higher semiconductor demand in 2003 that are gaining momentum entering 2004," AmTech Research analyst Rick Whittington told internetnews.com.

IDC also said IP houses and fabless wired communication chip suppliers will experience the most visible shakeout, while flash memory, analog, and wireless semiconductor vendors also consolidate.

Traditional business models are also expected to evolve to benefit those that are focusing on IP, brand, usage models and customer service. Analysts said the successful suppliers will continue to emphasize more on market segmentation, brand, and utility as technology becomes more transparent to consumers.

IDC's numbers are right in line with those of the Semiconductor Industry Association (SIA), which released its annual forecast for 2003-2006 earlier this month. The San Jose, Calif.-based firm is projecting 2004 revenues to increase by 19.4 per cent to US$194.6 billion. Beyond that, the SIA forecasts a slight market correction of only 5.8 per cent growth to US$206 billion in sales in 2005, but an upswing back to 6.6 per cent to US$219.6 billion in 2006.

Regionally, the Americas are expected to grow 1.9 percent to US$31.9 billion in 2003, and then grow 17.7 per cent to US$37.5 billion in 2004. In 2005, SIA expects the market to remain nearly flat with growth of 1.7 per cent to US$38.2 billion, and then resume growth of 6.4 per cent in 2006 to US$40.6 billion. Europe is expected to pad on 17.3 per cent in 2003 to US$32.6 billion, 14.7 per cent to US$37.4 billion in 2004, 5.9 per cent to US$39.6 billion in 2005, and 6.3 per cent to US$42.0 billion in 2006.

The SIA said the Japanese market should grow 24.3 per cent to US$37.9 billion in 2003, increase 17.9 per cent to US$44.7 billion in 2004, 4.6 per cent to US$46.8 billion in 2005, and 4.4 per cent in 2006 to US$48.9 billion.

But of all the semiconductor regions, Asia continues to experience the strongest growth. It is forecast to grow 18.6 per cent to US$60.6 billion in 2003, 23.4 per cent to US$75 billion in 2004, and 8.2 per cent to US$81.5 billion in 2005. In 2006, Asia Pacific will report growth of 8.2 per cent to US$88.2 billion.

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