Gartner ‘surprised’ by semiconductor market’s robust 1H

Warning of a coming widespread slowdown in the electronics sector, Gartner notes 5% first-half semiconductor sales growth on demand from PCs and cell phones, and questions just how long that will last.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 8/12/2008

While remaining cautious and warning of a coming widespread slowdown in the electronics sector, Gartner this week shared its view of the semiconductor market, one that describes an industry that may have dodged significant damage done by the harsh economic situation for the time being.

In doing so, the research company noted recently released World Semiconductor Trade Statistics (WSTS) figures for June, which put total semiconductor sales at $25.5 billion, up 26% from $20.5 billion in May and up 12% from $22.7 billion in June 2007.

The June WSTS figure was slightly higher than Gartner’s expectation of $25 billion and contributed to Q2 sales of $64.7 billion, up 3% sequentially. Gartner had stated in April that Q2 was the quarter to watch when it comes to the year’s growth and said at the time that even flat growth would be encouraging, given the economic climate. When combined with Q1 sales of $62.8 billion, total sales in the first half of 2008 were $127.5 billion, a growth of 5% compared to the same period in 2007, Gartner noted.

“We find it surprising that the semiconductor market has remained remarkably robust in the first half of 2008,” Richard Gordon, a research VP at Gartner, said in the company’s Semiconductor DQ Monday Report. “The global macroeconomic environment continues to worsen. The effect of the ‘credit crunch’ on the US (and to some extent European) housing markets has further eroded consumer confidence. In addition to downbeat sentiment on how well off consumers are feeling, high energy prices are having a material effect on disposable income, causing many to re-evaluate discretionary purchases.”

Just as Gordon (pictured, right) noted in a July Gartner report, he said this week that PCs and cell phones are the prime drivers behind the semiconductor industry’s sales growth. The SIA (Semiconductor Industry Association) made similar statements last week based on the WSTS numbers.

“In an effort to explain why semiconductor sales have held up well so far this year we need only look at the markets for PCs and cell phones, which dominate semiconductor consumption and have recorded strong unit sales in Q1 and Q2. Notably, it is demand in the emerging regions that has fueled this unit growth in these two important markets. The question is: How long before demand slows down in the likes of China, India, Russia, and South America?”

Always conservative, Gartner said it expects second-half semiconductor market growth to be modest.

“The consensus view among economics commentators is that the global economy will get worse before it gets better. Governments and central banks can do little to stimulate growth in the face of rising inflation. Governments will be reluctant to make meaningful tax cuts when debt is high, and central banks will want to see inflation under control before cutting interest rates,” Gordon said.

Gartner predicted the economic cycle will run its course through the second half and into the first half of 2009 as markets correct themselves before any recovery can begin in the second half of next year. In the meantime, the market research company said the semiconductor market must rely on businesses to maintain strategic investments in IT worldwide and on continued consumer spending in emerging economies.

“As the economic cycle unfolds it seems inconceivable that we will not see a more significant reduction in spending on electronics, even in the most resilient of industry sectors and regional markets. Therefore, in coming months we expect to see signs of a widespread slowdown in the electronics sector, which would directly impact semiconductor sales,” Gordon said.

Gartner projected sales of about $140 billion for the second half, which would represent growth of around 3% compared to the same period last year and would lead to annual sales of about $267 billion for an annual growth rate of about 4% for 2008 as a whole. Gartner further said it expects a “relatively weak” start to 2009, before a stronger second half of the year sets the market up for an annual growth rate in the mid to high single digits.

Gartner’s next forecast update is scheduled for August 27.