Worldwide semiconductor revenue will grow at a fast pace this year but will slow down in 2016 when the DRAM market hits its next bust cycle, according to Gartner.
The research firm predicts semiconductor revenue will reach an all-time high of US$338 billion this year, up 7.2 percent from last year. The projection is higher than Gartner's previous growth forecast of 6.7 percent.
The growth this year will be driven by shipments of smartphones, tablets and other electronics, which use processors, memory, sensors and other semiconductors. The semiconductor market has stabilized after a rough 2012, when memory prices fluctuated and demand for components used in cars, planes, PCs and devices declined.
Revenue growth this year will be driven by DRAM, which will generate revenue of $44.1 billion, growing by 26.3 percent from 2013. That's also a big change from a rough 2012, when memory prices plunged to an all-time low and production dropped, resulting in a yearly revenue decline.
DRAM prices, which fluctuate widely, will put the brakes on semiconductor revenue growth in 2016, Gartner said, projecting growth of just 1 percent that year.
The DRAM market has unexpectedly been stable for the past two years, but DRAM prices will go into a steep decline through 2016, said Jon Erensen, research director at Gartner.
"Some of the motions are already in place," Erensen said. "It's been the spark for two years in a row. You've had consolidation that has gone on, you've had vendors leave the market."
Memory is critical to devices, but the market for it is volatile. When DRAM is in short supply, memory makers crank up production and supply to meet the growing demand. The oversupply sets the stage for a bust cycle, with memory prices dropping and overall revenue falling. Memory makers then adjust factory capacity by reducing production and limiting supply, which stabilizes DRAM prices and paves the way for another growth cycle. Factors such as economic slowdowns and reduced device shipments have also affected DRAM boom-and-bust cycles.
Outside of DRAM, revenue from all other semiconductors will grow by roughly 5 percent in 2016, Erensen said.
Revenue from non-optical sensors such as accelerometers and gyroscopes will record the fastest growth, at around 13.7 percent. The growth will be driven by the emerging "Internet of things" market, which is taking the baton as the next killer app from smartphones, Erensen said.
But like smartphones, IoT devices will use few semiconductors, and revenue will be driven by sheer volume, Erensen said.
"The challenge with IoT is it's really fragmented, and now you're getting into even smaller semiconductor content, but the volumes can be bigger," Erensen said.
Revenue from NAND flash used mainly as storage in mobile devices will also continue to grow, Erensen said.