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Quake Will Contribute to Greater Annual Chip Revenue Growth

Disruptions to the electronics supply chain, caused by the earthquake and tsunami in Japan, will contribute to greater-than-expected semiconductor revenue growth for the year because of higher memory IC prices, according to researcher IHS iSuppli.

The researcher has revised its annual growth forecast for the semiconductor industry to 7 percent from 5.8 percent. Global semiconductor revenue in 2011 will total $325.2 billion, compared to the previous forecast of $320.1 billion.

One reason for the revised forecast is that the earthquake resulted in a decline of DRAM shipments, causing prices to stabilize in March and increase in April.

"The earthquake will result in a 1.1 percent reduction in global DRAM shipments in March and April," said Mike Howard, principal analyst for DRAM and memory at IHS. The reduction, along with other factors, contributed to a stabilization of contract prices for DRAM in March. Prices were expected to fall three percent, but held steady, Howard said.

Average contract DRAM prices in April are forecasted to range from unchanged to a two percent increase, compared to a previously expected three to four percent decline.

Higher prices for some chips means the semiconductor industry will contribute to revenue growth through the year.
Stable to higher prices means that annual DRAM revenue will not decline 10.6 percent, which had been earlier forecast. Instead, prices will drop only four percent, which will impact total semiconductor revenue for the year, according to IHS iSuppli.

Neither of Japan's DRAM fabs was damaged in the quake. However, a chip assembly plant in Akita, owned by Elpida Memory Inc., suffered a disruption in production.

Upward price pressure is expected to ease for DRAM in the second half of the year, reported IHS. However, DRAM pricing could increase later this year if wafer shortages worsen. Japan is the world's leading producer of silicon wafers. Major wafer producers have shut down operations in Japan, and it is unclear when production will resume.