Gartner revises its forecast for semiconductor industry in 2009 with record slump

The impact of the financial crisis will result in the semiconductor industry experiencing near record revenue declines in 2009 with global semiconductor revenue is forecast to reach $194.5 billion in 2009, a 24.1 per cent decline from 2008 revenue according to information technology research and advisory firm Gartner, Inc.

The Stamford, Connecticut-based researcher said that market conditions have worsened since its previous semiconductor outlook in mid-December of 2008. At that time, it had forecast 2009 revenue to decline 16 per cent.

The industry is expected to return to positive growth in 2010, growing 7.5 per cent, followed by additional growth through 2012. Even with three years of increased revenue, the semiconductor industry will fail to return to 2008 revenue totals.

In 2012, the worldwide semiconductor revenue is projected to reach $253.4 billion, still below 2008 revenue of $256.4 billion.

''We believe that the financial crisis has reset the semiconductor market,'' said Bryan Lewis, research vice president at Gartner. ''After the 2001 recession, in which semiconductor sales plummeted by a record 32.5 per cent, semiconductor sales took about four years to get back to 2000 levels.

''The rebound after this recession will be similar to that in 2001 because there will be three years of modest growth after the worst year. However, we see a difference in year four, where we expect another overcapacity situation for the industry, especially in DRAM, because of significant manufacturing investments made in the second and third years of the recovery,'' Lewis added.

Memory, specifically DRAM, is still a wild card in the semiconductor forecasts for 2009. DRAM suppliers lost more than $13 billion in 2007 and 2008. Some DRAM companies are starting to go bankrupt and other leading suppliers are substantially reducing supply. This reduced supply should lead to significant price increases in the second half of 2009.

Worldwide semiconductor revenue is expected to fall by at least 17 per cent sequentially in the first quarter of 2009 and goes on to say that there is a strong possibility that the first quarter of 2009 could be worse, and if the market continues with moderate declines in the second and third quarters of 2009, the industry could face a record annual decline.
It also warned that Gartner's negative scenario could reach a 33 per cent decline in 2009.

''Semiconductor suppliers should prepare for Gartner's negative scenario of a 33 per cent decline in 2009 revenue,'' Lewis said. ''Tight control of expenses is essential, but suppliers should reconsider dropping their overall research and development (R&D) budgets because focused R&D investments in the recession will help determine the winners in the upturn. Outsourcing and partnerships can help companies get the most from their R&D budgets.''

Gartner has removed solar revenue from its semiconductor forecast because solar cells are not traditional semiconductor devices (solar cells focus on energy generation and are not components in an electronic system), and their high growth rates were distorting the true growth of the semiconductor industry.

Gartner said that it is expanding its coverage in solar and will provide detailed technology forecast breakouts in a separate report.