Several factors are causing a slowdown in demand for semiconductors in China, according to market research firm iSuppli, which has slightly lowered its forecast for 2006. Last year, iSuppli projected that China's semiconductor market would grow 18 percent in 2006 over the $37 billion figure reached in 2005. The forecast is now being put in a range between 11 and 15 percent growth.

"The reduction in iSuppli's semiconductor forecast reflects a general slowdown for Chinese electronics system production," said Byron Wu, director, China research for iSuppli. "Although China's electronics market continues to grow, several key issues such as over-heated investment, increased operational costs and reduced corporate earnings threaten to stall the expansion. For the country's semiconductor sector, what started as a breakout year is closing on a note of caution, following disappointing sales in the third quarter. Much is riding on the upcoming holiday season, which will drive semiconductor purchasing activity in the fourth quarter," Wu added.
 
One of the major areas of weakness for China's semiconductor industry is in the telecom market with revenue declines of 20 percent in the third quarter compared to the second quarter, according to iSuppli. Consumer electronics peaked in the third quarter and uncertainty remains over the demand levels for the end of year holidays.