EL SEGUNDO, CA – The deck appears stacked against the global semiconductor industry, with six separate market forces conspiring to cause revenue to decline by nearly a double-digit margin in 2009, says iSuppli Corp.
 
The research group became the latest to lower its 2009 worldwide semiconductor industry revenue forecast, estimating a 9.4% drop year-over-year to $241.5 billion. iSuppli previously predicted 6.8% growth.
 
The firm also dropped its forecast for OEM factory revenue from electronics equipment to 1.3% in 2009. The previous forecast predicted 6.7% growth.
 
“The semiconductor industry’s growth cycle is shaped by six primary, interrelated forces: global economic health, electronic equipment production, chip supply/demand balance, capital investment, industry and individual company profitability and competition,” said Dale Ford, senior vice president for iSuppli.
 
“All six of these areas will present challenges in 2009, but the global economic crisis is obviously the most significant factor pushing chip revenue growth into sharply negative territory.”
 
He added, “There is strong downward pressure on this forecast, and there is a possibility the market decline could be even worse than expected.”
 
“As electronic equipment production target levels are lowered, the supply chain will struggle with excess inventory and strong downward price pressure due to a supply/demand imbalance for semiconductors,” Ford said. “iSuppli projects in the fourth quarter of 2008, excess semiconductor inventories could balloon to $10.2 billion, up 268% from $3.8 billion at the end of the third quarter.”
 
Compounding the challenges the semiconductor market will face in 2009 is the inability of companies to access credit. This has already had a dramatic impact on the electronics supply chain as companies work to reduce risk, eliminate costs and conserve cash. As a result, purchases of semiconductors are set to decline steeply starting in the third quarter of 2008, says the firm. 
 
“Based on preliminary market share data presented in October, iSuppli projected global semiconductor revenue would decline by 2% in 2008,” Ford said. “This outlook was based on initial revenue guidance for the fourth quarter from leading semiconductor suppliers. However, the past six weeks has seen an ongoing pattern of significant restatements and downward revisions in the fourth-quarter revenue outlook from semiconductor suppliers. As a result, iSuppli now estimates revenue could decline by between 3 and 4% in 2008.”
 
The 2009 decline in electronics sales will be broad-based and will impact every end market, according to iSuppli. 
 
Limp consumer spending will result in weak to declining electronics factory revenues across the industry. While some key segments such as mobile PCs and LCD TVs will show low single-digit growth, other segments such as mobile handsets and automotive electronics will suffer notable declines.
 
“Amid this broad-based decline, almost every semiconductor category is expected to contract in 2009,” Ford warned. “Optoelectronics are expected to show minor growth on the basis of strength in Light Emitting Diodes (LEDs) due to their ongoing penetration of important applications such as display backlighting. Among other major semiconductor categories, microprocessors and DRAM are forecast to fare relatively better than other markets due to the marginal growth still projected for PCs in 2009. However, these product segments also will decline by around 4% in 2009 compared to 2008.”
 
While there is a wide range of predictions, it appears most economists are projecting the economy will recover in one year. Based on this outlook for an improved economy in late 2009 or in early 2010, iSuppli is projecting the semiconductor industry will recover to grow 6.4% in 2010. iSuppli predicts this will be followed by growth of 10.8% in 2011, the first year to show a double-digit gain since 2004.

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