The semiconductor market will grow at 18 percent in 2004, according to International Data Corp. The growth will be driven by stronger than expected mobile phone and PC shipments.

The technology analyst company predicted that unit shipments of both mobile phones and PCs will grow in double digits this year and next year, which will drive a healthy growth cycle for over half the semiconductor industry. Over the next five year to 2008, IDC has predicted the worldwide semiconductor market will grow at a compound annual growth rate of 12.5 percent, rising from US$160 billion in revenue in 2003 to US$282 billion in 2008.

China -- which currently accounts for over a quarter of the US$60 billion demand for semiconductors in the Asia-Pacific region and which is expected to grow to over half the demand by 2008 -- will benefit from the pressure on original equipment manufacturers and chip suppliers to increase profit and revenue, which has led to a trend in 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," said Mario Morales, vice president of IDC's Semiconductor research at IDC. "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 said the key trends to watch in the market were:

• Mobile phone shipments (including PHS/PAS) surpassing 530 million units this year, while PC shipments would grow by 11 percent surpassing 152 million units. IDC expects double digit growth in units for both markets in 2004.
• In 2003, Japan surpasses The Americas as the second largest consuming region in the world. Japan's growth is led by export growth, while domestic demand remains muted.
• Asia/Pacific region becomes the dominant region for PC and mobile phone demand and production, with China accounting for the bulk of this region's growth.
• Taiwan begins to aggressively aggregate IP. Taiwan and China drive fabless start-up activity, while the United States and Europe slow down.
• Capital spending for suppliers grows strongly in 2004 after a few years of decline.
• Suppliers focus on 2.5G, WLAN, and broadband and mobile infrastructure. Wireless and analog IP become essential building blocks.
• IP houses and fabless wired communication chip suppliers experience the most visible shakeout, while flash memory, analog, and wireless semiconductor vendors also consolidate.
• Traditional business models evolve to benefit those that are focusing on IP, brand, usage models and customer service. Successful suppliers continue to emphasise more on market segmentation, brand, and utility as technology becomes more transparent to consumers.