Flat Q2 growth expected, not disappointing, Gartner says

The June quarter is expected to show flat growth when compared to the March quarter – and that's not such a bad thing, according to Gartner.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 6/16/2008

The June quarter is expected to show flat semiconductor sales growth when compared to the March quarter, according to analysis from Gartner Inc today that encourages a more positive outlook for full-year 2008.

The market research company pointed to recently released World Semiconductor Trade Statistics (WSTS) figures for April that put total semiconductor sales at $19.4 billion, down 24% from $25.6 billion in March, but up 5% from $18.4 billion in April 2007.

The three-month annual growth through April 2008 was 6%, up 2% compared with March, and corresponding 12-month annual growth was 3%, flat compared with the previous month, the data showed (see chart below).

WSTS figures place April’s worldwide semiconductor sales at $19.4 billion, which was in line with Gartner’s expectation of $19.2 billion. Based on April's sales figure and assuming a normal monthly sales pattern through the rest of Q2, Gartner believes total sales in the quarter will come in at about $63.5 billion. Such results would represent flat growth compared with Q1 sales.

“While this may appear to be a disappointing result, it actually represents encouraging market strength, given the ongoing worries about the potential negative impact on the electronics and semiconductor markets from worsening global macroeconomic conditions,” Gartner Analyst Richard Gordon (pictured right) said in the company’s Semiconductor DQ Monday Report.

Gartner has kept Q2 on its radar for sometime now, pointing to the June quarter as a good gauge for 2008’s growth success or failure. Indeed, Gordon in an April Semiconductor DQ Monday Report said that growth prospects for 2008 will largely be determined by the relative strength or weakness of Q2 sales. The analyst at that time said that flat-or-better Q2 sales will confirm that the global semiconductor industry has managed to avoid a sharp slowdown and place the market on a growth track through the second half of 2008 and into 2009.

“Our attention now switches to the third quarter, which is traditionally a strong growth quarter for the semiconductor industry. Continued end-market demand strength in the second half of the year is crucial to bring down semiconductor supply chain inventory levels and to guarantee positive annual revenue growth,” he said.

Inventory continues to be a concern for Gartner as it looks to full-year 2008. Just last month, the market research company said that theelectronics supply chain's inventory situation was worse than it had earlier predicted, stating that the failure to put the brakes on inventory appears to be a supply-side issue with certain semiconductor-device suppliers. Gartner noted such activity for memory, wireless communications, consumer, and diversified suppliers that compete in several device markets. In March, Gartner encouraged semiconductor companies to level or drop their inventories, warning that the inventory left from a poor Q4 2007 could negatively impact 2008.

“Based on sales of about $127 billion in the first half of 2008 — and assuming a normal annual profile of a stronger second half of the year compared with the first half — annual sales are projected at about $265 billion by WSTS measure. This would put annual growth at about 4%, which is in line with our most recent forecast update,” Gordon said.

Gartner earlier this month revised its full-year forecast to estimate 2008 semiconductor revenue growth at 4.6%. This was an increase on its Q1 revised forecast for 3.4% growth.

The SIA also recently released its June semiconductor market forecast update, which predicted 2008 semiconductor revenue of $266.6 billion or 4.3% annual growth. The WSTS in May estimated 4.7% sales growth for the 2008 market.

Gartner’s next scheduled forecast update is in August.