Financial crisis will cost semiconductor market more than $25B in 2009, Gartner reports

"In a recession, it is important to remember that there will not only be a potential reduction in the number of systems sold, but also a move to lower-cost systems with less semiconductor content," says Bryan Lewis, research VP at Gartner.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 11/3/2008

One week after projecting a "long, dark season" for OEMs, Gartner Inc today estimated that the current financial crisis will remove more than $25 billion from the semiconductor market in 2009.

According to the market research company's preliminary 2009 estimates, the economic crisis will force worldwide semiconductor revenue growth in the year to be only 1%, down by almost 7% from previous estimates.

The severity of the estimate drop is not in revenue alone; it also exhibits the speed at which the economic situation changed. Indeed, in the just closed Q3, Gartner estimated worldwide semiconductor revenue for 2009 at $307.7 billion, a 7.8% increase from 2008 revenue. Gartner analysts now expect worldwide semiconductor revenue in 2009 to total approximately $282 billion.

Q3 strength will not continue

Gartner noted that semiconductor companies mostly met expectations for Q3 and that the overall industry grew by approximately 5% sequentially. However, guidance for Q4 continues to drop. On that, the market research company now expects worldwide semiconductor revenue in 2008 will total $279.4 billion, a slim 2% increase from 2007.

"Semiconductor growth was surprisingly strong until recently, given the very weak economic environment, but this will start to change in the fourth quarter of 2008," Bryan Lewis (pictured), research VP at Gartner, said in a statement. "Mounting evidence suggests that the semiconductor industry will see negative growth starting in the fourth quarter of 2008, and that this will continue throughout most of 2009."

Lewis explained in Gartner's Semiconductor DQ Monday Report today that the company has explored the potential impact of the financial crisis on the semiconductor industry using two primary techniques: sensitivity analysis, documenting the potential impact of lowering system units and device content for specific key application markets; and quarterly projections, using the latest trends. From that, Gartner establishes its top-line profile.

"Growth in 2008 and 2009 has been reduced, while growth in 2010 and 2011 has been increased, as we expect a strong rebound after the financial crisis. We now expect the next supply-driven downturn to be in 2012, rather than 2011," Lewis said in the report.

Gartner noted that PCs and cell phones account for approximately a third of the total semiconductor market and therefore are the biggest applications for adjusting growth. For example, Gartner said that if the system unit percentage change of PCs is lowered by 8%, that would impact semiconductor growth by 1.61%.

"In a recession, it is important to remember that there will not only be a potential reduction in the number of systems sold, but also a move to lower-cost systems with less semiconductor content," Lewis continued.

Gartner will release a bottom-up, application-driven Q4 semiconductor forecast in late November.