iSuppli cuts chip forecast on 'warning signs' for market, 'DRAM drag'

At nearly a third of its earlier 2008 semiconductor revenue growth estimate, iSuppli drops its expectations to a 3.5% gain, blaming the suffering DRAM market and paralyzing economic conditions.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 10/9/2008

ISuppli Corp has become the second major chip industry research house to reduce its forecast for 2008 worldwide semiconductor revenue growth in as many weeks, warning of "significant potential downside" if economic conditions continue to worsen.

With the reduced forecast, iSuppli is now expecting growth at nearly two-thirds below its 2008 estimates made this time last year. According to iSuppli, global semiconductor industry revenue is expected to rise to $280.1 billion this year, up 3.5% from $270.6 billion in 2007. The analysis company's previous forecast, issued in August, predicted 4% growth for the year. Prior to that, iSuppli in December 2007 first warned of the then harshening economy's impact on its 2008 forecast. At that time, iSuppli expected 7.5% growth for the year, which was down from its September 2007 2008 growth prediction of 9.3%.

“The credit crisis is impacting the semiconductor market on several levels,” said Dale Ford, senior VP of market intelligence at iSuppli, in a statement this afternoon. “The first level is demand for electronic equipment from the Wall Street firms themselves, which is expected to drop and thus decrease demand for semiconductors. The second level, and a much more significant factor, is the impact on corporations in general. With companies unable to get credit, the crisis could spread to the wider economy, impacting demand for electronic equipment and semiconductors. The final level, and the most significant area of impact, is the broader effect on consumer confidence and spending if the overall economy collapses.”

ISuppli's data comes after IC Insights early last week said that semiconductor sales growth will realistically be between 1 and 5% in 2008 on 2007's total sales of $234.3 billion. IC Insights projected 7% growth in its mid-year forecast.

As IC Insights did, iSuppli put much of slowing growth's blame on the memory market. Noting that it has significantly downgraded its outlook for memory revenue, particularly DRAM, iSuppli reported that it has lowered its 2008 semiconductor memory revenue forecast by 5.8% and its DRAM outlook by 5.4%. "With memory expected to account for nearly 10% of global semiconductor revenue in 2008, this represents a major drag on global semiconductor revenue," iSuppli said.

Oversupply continues to plague the DRAM industry, shrinking ASPs (average selling prices) and suppliers' revenue. Following on a separate report iSuppli made last week about the credit crunch's direct impact on the DRAM market, the research company today said the DRAM industry began to note a weakening in demand from the key PC market in September. Cautiously optimistic, iSuppli said PC unit shipments are forecast to grow 12.5% this year and reported that they continued to defy the economic downturn through Q2.

Further helping its 2008 forecast, iSuppli has upped its estimates for global ASSP (application specific standard product) semiconductors. The company raised its 2008 ASSP revenue forecast by 3.2% for the year and noted that ASSPs represent a broad category of ICs that provide key functionality in all types of electronic equipment, from mobile-handset basebands to hard disk drive controllers.