The deck appears to be 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, according to iSuppli Corp.

Worldwide semiconductor industry revenue is set to decrease by 9.4 percent in 2009 to $241.5 billion, down from $266.6 billion in 2008. iSuppli previously predicted 6.8 percent 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 for the semiconductor industry in 2009, but the global economic crisis is obviously the most significant factor pushing chip revenue growth into sharply negative territory. Given our assessment of the current status of the key forces that shape the semiconductor cycle, iSuppli is projecting semiconductor revenues will decline by 9.4 percent in 2009. However, there is strong downward pressure on this forecast and there is a possibility that the market decline could be even worse than expected.”

Figures 1 and 2 in the attached file present iSuppli’s newly revised worldwide semiconductor revenue and growth forecast.
 
Recessionary economies
Steep recessions in all major global economies have resulted in a pull-back of consumer spending on all types of electronic products, leading iSuppli to forecast a decline in OEM factory revenue for electronics equipment of 1..3 percent in 2009. The previous forecast predicted 6.7 percent growth.

“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 that in the fourth quarter of 2008, excess semiconductor inventories could balloon up to $10.2 billion in value, up 268 percent from $3.8 billion at the end of the third quarter.”
 
iSuppli cuts 2008 forecast
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.

“Based on preliminary market share data presented in October, iSuppli projected that global semiconductor revenue would decline by 2 percent 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 that revenue could decline by between 3 and 4 percent in 2008.”
 
A broad downturn
The 2009 decline in electronics sales will be broad based and will impact every end market.

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 percent in 2009 compared to 2008.
 
Wait for 2010
While there is a wide range of predictions, it appears that 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 by 6.4 percent in 2010. iSuppli predicts that this will be followed by growth of 10.8 percent in 2011, the first year to show a double-digit gain since 2004.