San Jose, Calif. -- After starting off 2006 with what one market watcher called a "roar" and ending it with a "whimper," the semiconductor industry looks to be opening 2007 with crossed fingers.

The industry managed modest growth last year and should again post moderate gains this year of 5 to 12 percent, according to chip forecasters polled by EE Times.

But analysts see some ominous signs on the horizon: a slowdown in GDP growth among various countries worldwide, little or no growth in worldwide capital spending, persistent chip inventory overhang and lackluster demand in the PC and wireless markets.

At least one research firm believes the chip market will reach the peak of its current cycle this year, meaning the sector's growth rate could be headed for a fall in 2008. That would suggest the industry will see more consolidation, divestitures and private-equity buy- outs in 2007 and beyond.

Perhaps most unnerving, however, is the lack of disruptive technologies and killer applications to fuel IC demand.

Market watchers expected Microsoft Corp.'s Vista operating system to have jump-started PC market activity by now, but thus far the new OS has not been the hoped-for "genie in the bottle," according to a report from Gartner Inc. (Stamford, Conn.).

A dearth of disruptive end-user product rollouts will keep NAND flash memory in oversupply mode at least until the third quarter, said Nam Hyung Kim, an analyst with iSuppli Corp. (El Segundo, Calif.). Kim foresees NAND demand outstripping supply in the fourth quarter as inventories are worked off.

NAND device supplies were stuck in oversupply throughout 2006, Kim said, despite a flurry of introductions of flash-based products such as MP3 players, music-based cellular phones and solid-state drives. "These are exciting products," Kim said, "but not killer applications." Thus, he thinks they will have little impact on overall chip demand in 2007.

Back in the doldrums?
Last year, the chip market "started off with a roar in the first quarter and looks like it [ended the year] with a whimper," according to the Gartner report. An inventory glut raised its ugly head in mid-2006, causing a slowdown in IC demand and a decline in fab utilization rates by year's end, the firm reported.

Heading into 2007, the fundamentals look shaky. The inventory overhang lingers, and IC capital spending will take a "breather" this year, said Gartner analyst Klaus Rinnen.

But IC growth projections are all over the map. Future Horizons and Databeans Inc. each foresee 12 percent growth in 2007. Forecasts from other sources--Gartner, IC Insights, iSuppli, Semico Research, the Semiconductor Industry Association, Wedbush and the World Semiconductor Trade Statistics--range from 6 percent growth to 10.6 percent. At the low end of the spectrum, VLSI Research Inc. reportedly projects about 5 percent growth for ICs this year.

Last week, iSuppli updated its forecast to predict that 2007 will represent the peak year of the current IC cycle. Worldwide semiconductor revenue will hit $285.8 billion, a 10.6 percent rise from $258.5 billion in 2006, according to the firm's new forecast. That compares with iSuppli's newly revised estimate of 9 percent semiconductor growth in 2006.

After 2007, iSuppli now predicts, chip growth will decelerate to 8.7 percent in 2008 and then bottom out at 3.7 percent in 2009 before bouncing back with a 7.4 percent rise in 2010.

Semiconductor revenue derived from the market for wired communications gear will grow 18.2 percent in 2007, compared with 9.9 percent in 2006, according to iSuppli. Revenue for consumer- oriented chips will grow 14.4 percent in 2007, up from 10.3 percent in 2006.

The data-processing segment will increase its semiconductor demand by 9 percent in 2007, compared with only 5.8 percent in 2006, iSuppli said.