Housing Price Burst Will Hit Chips Too

Penn went on to say that such rapid growth dwarfed the global stock market bubble of the late 1990s which demonstrated an increase over five years at 80 percent of GDP, and the Wall Street crash (55 percent of GDP). Penn also observed that the stock market crash of 2000 triggered a 32 percent decline in the semiconductor market in 2001.

Penn said that if the global economy grows at 4.4 percent in 2006, the semiconductor market would go through the roof with already tight capacity triggering shortages and price rises.

"If the economy slows, however, it WILL take the semiconductor market with it," Penn wrote. "It will cause demand for boxes to drop, and with it chips, which means automatic overcapacity, a collapse in ASPs, and a global market slowdown, the extent of which will be governed by how much the economy slows."

Penn added that current restraint in fab building by the chip makers should allow the industry to accommodate a moderate slowing in demand without a major crash, provided this triggers further conservatism in capital expenditure.

"Under such a scenario, a soft rein-back scenario is entirely plausible, hence our 6.0 percent 2006 market forecast number, the same as we were postulating in January 2005," Penn concluded.