Gartner halves 2008 semiconductor market growth estimate

The cut comes on a more-cautious demand-side outlook, much of is being influenced by DRAM and NAND, according to Gartner.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 3/3/2008

Gartner has become the latest research company to lower its estimates for 2008 semiconductor market growth, nearly halving its previous estimates.

Analyst Richard Gordon wrote in the company’s Semiconductor DQ Monday report this morning that Gartner has reduced its forecast for total semiconductor market growth in 2008 to 3.4%, compared with 6.2% last quarter.

The cut comes on a more-cautious demand-side outlook, much of is being influenced by memory, according to Gartner.  The company pointed to the DRAM market, which has been in recession since the start of 2007, and said it expects DRAM revenue to decline by about 15% in 2008, with pricing remaining under pressure through Q3. Gartner further pointed to NAND flash as a trouble spot for the overall semiconductor market.

“What has impacted our forecast for the semiconductor market to a greater extent -- not only in 2008 but through 2012 -- is updated assumptions about the commodity memory market,” Gordon wrote.  “However, the main change to the forecast is in NAND flash memory, where we have reduced our market growth forecast for 2008 to less than 15%, compared with close to 30% the previous quarter. This market witnessed a challenging end to 2007 and a rough start to 2008 because of severe oversupply and continued downward pricing pressure, and we see no respite in the short term,” the analyst said.

ISuppli also trimmed its 2008 forecast on the memory market and last week slashed its forecast for NAND  memory market revenue growth on reports that Apple Inc has issued order reductions for the flash memory. Further, the Semiconductor Industry Association this morning released January worldwide semiconductor sales numbers that were heavily impacted by the current DRAM and NAND environments.

Gartner continued to note the struggling US economy and its sway on the global economy. Gartner first warned of a US economic downturn in November 2007.

“All the signs are pointing to a slowdown or even a recession in the US economy,” Gordon wrote. “This reduction in US GDP will likely impact other developed economies, such as Western Europe and Japan, but it is thought that emerging economies, most notably China and India, will escape relatively unscathed. Overall, though, a decline in global GDP is forecast for 2008, but how this might affect demand for electronic goods and therefore semiconductors is far from clear.”

Gordon continued to state that businesses are remaining cautious, but have yet given notice of significant cuts in IT spending in 2008. The analyst said semiconductor industry executives are not reporting a slowdown in customer orders, but are acknowledging that order visibility further out than next quarter is poor.

“This lack of order visibility is of particular concern when end-market electronics demand is determined by consumers rather than businesses. Consumer spending behavior is unpredictable, and further shocks to the global economy could cause consumers to rein in discretionary spending if they fear the prospect of personal economic hardship,” Gordon said.

On that, Gartner said it is expecting some weakening in short-term semiconductor demand but is not expecting a sharp slowdown. “However, we are not discounting the possibility that the demand side of the semiconductor industry could get (much) worse, which could cause a contraction in the market this year,” Gordon vigilantly wrote.

“We expect a rebound in 2009 and market growth of 9.4%, as the macroeconomic cycle plays out, bringing renewed demand at the same time as supply tightens as a result of reduced capital spending in 2008. In the medium to long term, we forecast semiconductor revenue growth of 6.5% in 2010, ahead of a cyclical downturn of 0.7% growth in 2011, before returning to growth of 5.3% in 2012. A compound annual growth rate of 5% through 2012 is forecast,” Gordon concluded.