Semiconductor income may decline by 22%

Worldwide semiconductor revenue is forecast to reach $252 billion in 2009, a 22.4% decline from 2008 revenue of $286.5 billion, according to the latest projections by Gartner.

This outlook is slightly better than the first quarter projections, when Gartner forecast semiconductor revenue to decline 24.1% in 2009.

"First quarter PC shipments came in better than expected, which led to an improved outlook for microprocessors, but we believe most of this improvement was due to the fact that inventories had been run down too far, rather than true demand returning," said Bryan Lewis, research vice-president at Gartner.

"We are expecting 4.9% growth in second quarter semiconductor sales based on recent semiconductor company guidance and this positive movement has caused us to move away from our first quarter of '09 worst-case scenario of a record down year in 2009.

While this is positive news, the semiconductor industry is clearly not out of the woods, as there is minimal evidence that demand is returning, except in China," Lewis said.

Inventory burn in the PC market in the fourth quarter of 2008 and in January and February 2009 pushed component demand significantly below PC demand, driving down prices across the board.

Gartner analysts said PC vendors who started cutting inventory early were able to achieve significant savings on bill of materials. As the inventory correction swings in the opposite direction, Gartner expects component prices to stabilise through the year.

Application-specific standard product (ASSP) will continue to lead semiconductor revenue, as it is forecast to total $60 billion in 2009, a 24.2% decline from 2008. The memory market will be the no. 2 segment for the semiconductor industry, as it totals $50 billion, a 16.8% decline from 2008.

The microcomponents segment (microprocessors, microcontroller units, digital signal processors) will drop from the no. 2 spot in 2008 to the no. 3 spot in 2009.

Microcomponents are projected to reach $47.5 billion, a 23.6% decline from 2008.

"Consumer spending will remain somewhat depressed due to high unemployment, low housing pricing, and relatively low consumer confidence," Lewis said. "IT budgets are modestly down in 2009, but companies are not spending at the rate of their 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 is expanding its coverage in solar and will provide detailed technology forecast breakouts in separate reports.