2009 equipment sales could hit lows not seen since 2003, Gartner warns

According to Gartner's estimates, 2009 capital spending expectations are reduced from $41.1 billion to $39 billion and 2009 total equipment spending expectations are reduced from $30.5 billion to $26.8 billion.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 11/17/2008

Gartner Inc today lowered its capital and equipment spending forecast for the second time in as many months, warning that the next year could see a capital spending decline of about 17% and capital equipment revenue decline of 18%.

The revised forecast comes after Gartner in October suggested 2009 equipment demand would be slower than anticipated and after the research company earlier this month estimated the financial crisis will remove more than $25 billion from the semiconductor market in 2009, forcing worldwide semiconductor revenue growth in the year to be anywhere from a decline of 2% to growth of 1%.

"While our associated [October] capital equipment forecast … was already based on lowered semiconductor sales expectations, the increased downside for 2009 sales and a number of downward revisions in 2009 capital spending budgets compel us to lower our capital and equipment spending expectations to the downside scenario, stated in our most recent forecast. With that, we currently expect a capital spending decline of about 17% in 2009 and capital equipment to drop roughly 18%," Analysts Klaus Rinnen, Mark Stromberg, and Dean Freeman, said in Gartner's Semiconductor DQ Monday Report this morning.

According to Gartner's estimates, 2009 capital spending expectations are reduced from $41.1 billion to $39 billion and 2009 total equipment spending expectations are reduced from $30.5 billion to $26.8 billion.

"In absolute terms, the industry's sales potential is declining further, by $3.7 billion, from our October forecast, rolling sales back to the pre-2004 level. We see a quarterly revenue bottom in mid-2009, at $6.3 billion, which is a level not seen since the fourth quarter of
2003," the analysts said.

Advice for equipment vendors

Gartner advised that semiconductor equipment vendors need to plan on turbulent conditions and extremely poor visibility at least into mid-2009, and prepare to be highly flexible in terms of both push-outs and pull-ins of orders.

Looking to inventory, Gartner suggested vendors should be prepared for extremely short lead times to take advantage of any opportunities and should scrutinize order books to evaluate whether certain customer projects will really happen and when they will realistically occur.

"Tighten your inventory control during these tumultuous times. Order visibility will be extremely poor. Reduce your component orders, but order more frequently," the analysts said.

Gartner further said that vendors should evaluate their customers' financial position and ability to pay. "Although there might be the will to take the equipment, the cash to pay for it might not be available," the analysts said.

Gartner advised vendors should "strengthen their leading-edge equipment offerings because demand for these equipment types will be relatively stronger," and also said that vendors should "find ways to be more involved in refurbished equipment sales as the industry continues on its course to retire 1.1 million 200-mm wafer starts per month (wspm) capacity in the 2008 to 2009 time frame."

Finally, Gartner reminded that while vendors should consider strengthening their relationship with outsourcing service companies because they will experience faster growth when an upcycle returns, top employees should be treated as valued resources though the downturn.

"Be careful to preserve key employees while taking cost-cutting measures. With its continued growth, the solar industry will be especially attractive to employees who are trying to find a safe haven during this downcycle," the analysts said.