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Gartner has confirmed forecasted figures for 2009, which highlight semiconductor revenues declining two years sequentially, the first time this has happened in the industry. With revenues expected to decline 4.4% in 2008, compared to 2007, the market research firm is now projecting a further significant drop in 2009 of 16.3%, over 2008. Gartner also expects semiconductor sales in the fourth quarter of 2008 to decline Q-on-Q by 24.4%, beating the previous Q-on-Q record decline set in the second quarter of 2001, at 20%.

“This downturn is broad-based, not limited to only technology, has a much different growth profile before the downturn, and has far less inventory buildup,” commented Bryan Lewis, Research Vice President at Gartner. “Inventory levels this time have been monitored and more tightly controlled throughout the entire food chain, and this will help the market come back more quickly than in 2001.”

Understandably, after two sequential years of revenue declines and better inventory management, Gartner expects the industry to bounce back fairly strongly in 2010 (see figure 1). Revenue is expected to reach US$251.2 billion in 2010, a 14.6% increase over 2009, however, still approximately US$10 billion in revenues less than expected in 2008. 

In 2011, revenue growth is expected to slow slightly to 9.4% with revenues reaching US$274.9 billion. 2011 becomes significant in Gartner’s figures as it highlights total revenues higher than the most recent peak set in 2007.

Figure 2, clearly highlights the significant deterioration in the global economy and the impact it has had on the semiconductor industry in the second half of 2008. Gartner had projected back in March, growth of 3.4% in 2008 and a small 1% growth for 2009. 2010 and 2011 were always going to be stronger growth years after an economic/industry recovery. However the market research firm is now guiding a significant snap back in 2010, compared to the forecast in March, 2008.

This could prove to be the most difficult aspect of the new forecast to predict accurately. Gartner acknowledged this in some respects when it noted that the revenue decline of 16.3% expected in 2009 could actually be more severe – to the tune of a 24.7% decline.

The more pessimistic view must surely be attributed to the current long-standing crisis in the memory sector, which could continue to drag on total industry revenues through much of 2009, with further declines in unit demand and ASPs a possibility. That said, should the supply and demand balance actually be restored, as Gartner and IC Insights are suggesting, then the significant under investment in capital spending could generate rapidly increasing ASPs and boost growth by several percentage points in 2010 and 2011.

The opportunity for a greater revenue decline in 2009 than officially recorded by Gartner also carries with it a greater opportunity to rise further than forecasted in 2010.

Perhaps the biggest concern surrounding Gartner’s newly revised forecast for 2008 and beyond is the stark difference for total semiconductor revenues compared to the March, 2008 forecast as seen in figure 3. The December, 2008 revisions clearly show that total revenues are now expected to be significantly lower throughout the period covered, compared to the March, 2008 forecast.

The impact of a global economic slowdown would seem to be having a significant impact on near-term revenue recovery, a point not obvious when comparing revised growth projections given on several occasions since the first quarter of 2008.

It would seem that Gartner is projecting a recovery in revenues between 2010 and 2011 but these figures are significantly weaker compared to just nine months ago. Whether this fact will dampen the euphoria surrounding a period of strong growth or help keep capital spending at historically low levels is uncertain. With negative growth expected two years in a row, uncertainty clearly remains on how the industry with handle this more pressing issue.

The more pessimistic view must surely be attributed to current long-standing crisis in the memory sector, which could continue to drag on total industry revenues through much of 2009, with further declines in ASPs a possibility. That said, should supply and demand balance actually be restored as Gartner and IC Insights are suggesting, then the significant under investment in capital spending could generate rapidly increasing ASPs and boost growth by several percentage points in 2010 and 2011.

The opportunity for a greater revenue decline in 2009 than officially recorded by Gartner also carries with it a greater opportunity to rise further than forecasted in 2010.

Perhaps the biggest concern surrounding Gartner’s newly revised forecast for 2008 and beyond is the stark difference for total semiconductor revenues compared to the March, 2008 forecast as seen in figure 3. The December, 2008 revisions clearly show that total revenues are now expected to be significantly lower throughout the period covered, compared to the March, 2008 forecast.

The impact of a global economic slowdown would seem to be having a significant impact on near-term revenue recovery, a point not obvious when comparing revised growth projections given on several occasions since the first quarter of 2008.

It would seem that Gartner is projecting a recovery in revenues between 2010 and 2011 but these figures are significantly weaker compared to just nine months ago. Whether this fact will dampen the euphoria surrounding a period of strong growth or help keep capital spending at historically low levels is uncertain. With negative growth expected two years in a row, uncertainty clearly remains on how the industry with handle this more pressing issue.