Gartner ups 2008 semi revenue estimate, but still has inventory concerns

While Gartner continues to forecast low single-digit revenue growth of 4.6% for the semiconductor market in 2008, the market research company says the estimate has more to do with supply-side factors than weakness in demand.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 6/2/2008

Gartner Inc has increased its estimate for 2008 year-over-year worldwide semiconductor revenue growth, however, is still reporting concerns with the level of inventory in the supply chain.

The market research company today upped its revenue forecast for 2008 to $286.5 billion, a 4.6% gain on 2007 revenue of $273.9 billion. Gartner had nearly halved its original 2008 revenue estimate in Q1 to 3.4% growth. Since then, the World Semiconductor Trade Statistics (WSTS) group slashed its sales forecast for 2008, last week predicting global semiconductor market growth of 4.7% in 2008.

“It was widely assumed that the slowdown in the US economy that began in mid-2007 would reduce demand for electronics goods and, by extension, semiconductors in 2008,” said Richard Gordon, research VP at Gartner, in a statement today. “However, while we are still forecasting low single-digit growth for the semiconductor market in 2008, this has more to do with supply-side factors than weakness in demand.”

Gartner noted that in Q1, global sales of semiconductors were seasonally normal, helped by healthy PC and cell phone unit production. Analysts at the company have said there have been no signs of a significant slowdown in the markets for digital consumer electronics products and automotive electronics, demand for which could be expected to be affected by cutbacks in discretionary spending by consumers.

“Guidance from electronics and semiconductor vendors about the forecast level of sales in the second quarter of 2008 suggests that they are not expecting market conditions to worsen,” said Gordon (pictured right). “However, a leading indicator we are concerned about is the level of semiconductor supply chain inventory, which has increased in the past three quarters. If this trend does not show signs of reversal in the second quarter of 2008, then it may be a sign that demand is faltering.”

Gartner previously warned of the inventory situation in March when it encouraged the semiconductor industry to level or drop inventories on a notable spike in its Dataquest Semiconductor Inventory Index. Gartner then again in May said the semiconductor inventory situation was worse than it originally thought, reporting an increase in inventory days throughout most of the supply chain. 

Gartner noted today that it has not made any significant downward forecast revisions for 2008. In the commodity memory segment, the market research company said market conditions have marginally improved, and noted that it has made a significant upward change to its unit production forecast for portable navigation devices.

Gartner further said separately in its Semiconductor DQ Monday report this morning that it expects semiconductor market growth to accelerate slightly in 2009 as the macroeconomic cycle brings renewed demand and supply tightens on reduced capital spending in 2008. Gartner noted that its forecast 2009 growth rate has slipped slightly from 9.4% in Q1 to the present 7.9%.

Longer term, however, Gartner’s forecast is essentially unchanged. The company predicts growth will slow to 6.4% in 2010, ahead of a cyclical downturn, and crawl at 0.4% growth in 2011 before a return to 5.6% growth in 2012.