The semiconductor industry has become inflated with hundreds of vendors competing in a crowded marketplace, however, within 10 years, 40 percent of today's semiconductor vendors are likely to leave the industry, according to a study released Monday by Gartner.

Gartner, a high-tech market research firm, identified five mega-trends that will lead to significant changes in the industry over the next 10 years, at Gartner Dataquest Semiconductor Industry Summit in San Francisco.

The five mega-trends include increasing device integration, the increasing scale and size of manufacturing, the shift from business to consumer markets, the increasing role of service providers and disruptive technologies.

Increasing device integration is the first and most fundamental of the mega-trends, Gartner said, adding that this gives tremendous benefits in terms of increased chip speed, lower power dissipation, greater functionality per chip, lower system cost and physically smaller-end equipment.

"Increasing costs and complexity of design, increased system content and greater flexibility means fewer vendors will have the capability to supply chips in the future," said Jim Tully, vice president and chief of research for Gartner's emerging technologies and semiconductor group.

The number of semiconductor vendors has risen steadily from about 120 vendors in the mid-1980s, to roughly 550 in 2003. Within 10 years, the industry will experience significant consolidation, Tully said.

The second mega-trend concerns the increasing costs and increasing scale of semiconductor manufacturing. Fabrication plants are becoming extremely expensive, and next generation "fabs" will inevitably become too expensive for most existing companies.

"This will result in fewer chip manufacturers in the future, but it won't result in higher chip prices because the industry is capital-intensive and is highly competitive," Tully said.

The third mega-trend relates to the growing importance of consumer markets. By 2013, more than 50 percent of chip sales will be for equipment markets targeted at consumers, according to Gartner.

"Consumer markets are normally high volume and the overall market size is large," Tully said. "However, margins on consumer products are very low and the value of individual product categories can be surprisingly small."

The fourth mega-trend is the increasing role of service providers. Increasingly, large numbers of equipment are being interconnected, both over the Internet and in LANs. This makes them accessible to companies offering upgrades, content and other services, according to Gartner.

"These services can generate far more revenue than equipment sales revenue and will dominate many sectors," Tully said.

The fifth mega-trend relates to new and disruptive technologies. Most new technologies driving the chip industry have been incremental technology developments. However, disruptive technologies will have a significant and unpredictable effect on the industry.

Gartner cited inkjet processes, light emitting polymers, carbon nanotubes, molecular transistors and protein-DNA logic as examples of disruptive technologies.