Recovering chips

Middle East investment in microchip manufacturing is looking likely to yield returns as, worldwide, the sector moves out of the doldrums and is forecast for a period of steady growth.

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By  Stuart Wilson Published  January 10, 2004

Middle East investment in microchip manufacturing is looking increasingly likely to yield returns as, worldwide, the sector moves out of the doldrums and is forecast for a period of steady growth.

Until recently, projects such as the US$1.7 billion Dubai Silicon Oasis (DSO) project, designed as an incubation centre for chip fab companies, looked to have a bumpy future as manufacturers entered a series of price wars off the back of oversupply from conglomerates in the Far East.

But a surge in demand — driven from the growth in sales of consumer products rather than PCs — means the chip fab sector now has a more healthy future than many had anticipated. DSO’s partnerships with firms such as SiNova Semiconductor, an integrated circuit developer, and Communicant Technologies AG, a start up silicon-germanium foundry, now look shrewd.

Gartner predicts that worldwide semiconductor capital spending will grow 28% in 2004 to US$37 billion, up from US$28.9 billion in 2003. Worldwide capital equipment spending is expected to total US$29.5 billion, a 36% increase from 2003 revenues of US$21.7 billion. Additionally, high utilisation levels will drive the growth of 34.1% in the wafer fabrication equipment (WFE) market during 2004 to create a US$22 billion market.

Furthermore, DSO predicts the market will continue to grow at least until the end of 2005, when it predicts semiconductor market revenue and worldwide electronic equipment production will reach US$260 billion and US$1,900 billion respectively.
Gartner analysts share this optimism and believe the return of a corporate investment cycle, a PC upgrade cycle that is gaining steam, a broad-based recovery in end user apps, low inventories and tight manufacturing capacity will converge to provide for strong growth through 2004 and well into 2005.

The impact of this worldwide growth on the local channel will, most likely, be more of the same as price changes and supply chain fluctuations within the Middle East mirror international availability and cost. However, while the global impact remains the same, the emergence of DSO is another matter. Although plans for the park are still at their early stages, a dependable local supply of chips from a source within the Middle East can only be a boon for the channel as it will undoubtedly give it greater control over pricing and, hopefully, facilitate higher margins.

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