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Electronic Industries Set for Recovery

06 January 2003

After two years of downturn and depression, the worldwide electronic equipment and semiconductor markets are expected to return to robust growth in 2003, iSuppli Corp. predicts. Propelled by a recovery in sales of electronic equipment, component and semiconductor revenues are expected to post double-digit increases in 2003. With 2001 having seen the worst downturn in the history of the electronics business, and 2002 bringing only marginal growth in most areas, 2003 will come as a relief to battered component suppliers and equipment makers.

However, the growth in 2003 will not be completely linear, with first quarter equipment and semiconductor sales expected to dip on a sequential basis, due to seasonal factors.

Electronic Equipment Returns to Growth
Ending two years of declines, sales of electronic equipment will increase in 2003, iSuppli predicts.

Demand for electronic systems fell significantly in 2001 as global spending on information technology and manufacturing equipment slowed. Declining demand for electronic equipment continued into 2002, with the wired communications market suffering a 19 percent decline, the worst performance of all electronic equipment segments for the year. Consumer spending on entertainment electronics, appliances and automobiles countered the wired communications sales slide and held the overall equipment revenue decline to just 3.4 percent in 2002.

However, in 2003, all electronic equipment markets are expected to grow. Leading the way in 2003 will be PCs and mobile handsets, both of which will generate 17 percent revenue growth. In a major turnaround, the wired communications market in 2003 finally will emerge from its disastrous decline to rise by 4.1 percent, propelling the total equipment market into strong, positive growth. After hitting a high in the fourth quarter of 2002, a slight seasonal downturn in the first quarter of 2003 will signal the start of three quarters of somewhat low growth, until a 4.7 percent seasonal uptick occurs in the fourth quarter. Despite flat quarterly growth, the revenue increase for all of 2003 will amount to 6.8 percent.

Electronic Components Set for Double-Digit Growth Year
Electronic components, a category consisting of semiconductors, passives, electromechanical devices, batteries and displays, experienced modest growth of 3 percent in 2002. Sales were driven mainly by the displays segment.

However, with growth returning to equipment markets in 2003, electronic component sales will accelerate considerably. iSuppli predicts sales will rise by 10.5 percent for the year.

Displays will lead the way again in 2003, with 15 percent growth predicted. The strong rise in display sales is due to the rapid adoption of flat-panel monitors in the desktop PC monitor market, which are more expensive than the CRT monitors they are replacing, thus driving up revenues. Another factor helping component revenues to rise is the lessening of the severe price erosion that impacted the market in 2001 and 2002. Price declines on commodity devices slowed in the second half of 2002. Price erosion will not be a factor in 2003, except in memory ICs, iSuppli predicts.

Semiconductors Roar Back to Life
Worldwide semiconductor sales grew by a negligible 1.5 percent in 2002, as contraction in the electronic equipment markets and price erosion prevented revenue from rising more. In terms of products, DRAM was the sole driver of the sales increase, with a run-up in memory prices in early 2002 causing overall semiconductor revenues to rise. If DRAM were excluded from the sales figures, total semiconductor revenue in 2002 would have declined by 1.6 percent.

However, iSuppli predicts semiconductor revenue will rise by a robust 11.8 percent in 2003, once again driven by a rise in end-equipment sales.

While encouraging, the road to growth in 2003 will be bumpy, with sales expected to drop on a sequential basis in the first quarter. But despite the sequential decline, the first quarter still will enjoy 12 percent higher revenue than the first quarter of 2002. This 11 percent to 12 percent increase compared to the same period a year earlier will remain consistent through all four quarters of 2003. Leading the semiconductor growth in 2003 will be optical devices, which will post growth of nearly 18 percent. Optical semiconductor sales will be driven by the return to health of the wired communications market.

The second-best performing semiconductor segment in 2003 will be microcomponents, led by microprocessors and digital signal processors. These semiconductors will experience the second strongest growth rate in 2003 with a 13.4 percent increase.

Semiconductor revenues also will be boosted by the resolution of excess inventory issues, which depressed semiconductor revenues in 2001, and even some in 2002. After more than two years of downturn and bumping along the bottom, 2003 will be a refreshing return to growth in the worldwide electronics industry, iSuppli believes.

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