Gartner: Worst is yet to come

Gartner has given up hope for growth in 2008, now projecting a 4.4% revenue decline, and says 2009 is going to be considerably worse.

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

Worldwide semiconductor industry revenue will total only $261.9 billion in 2008, a decline of 4.4% compared to 2007, according to preliminary results by Gartner Inc.

The revenue decline projection is the latest in a steady string of forecast reductions from Gartner, as well as many other industry watchers. Gartner in November had projected a most-likely scenario of a 2% increase for 2008 revenue, with a worst-case scenario of 1.1% growth.  

The market research company made those estimates in the first week of November after semiconductor companies mostly met expectations for Q3 and that the overall industry grew by approximately 5% sequentially. Since then, several industry kingpins, including Broadcom, Intel, and Texas instruments, have lowered their expectations for the current quarter, mostly on decreased demand and the financial crisis.

“In the last quarter of 2008, market conditions deteriorated significantly, and as the fourth quarter has progressed, many vendors have issued updated guidance for the quarter, reflecting weakening market conditions,” said Andrew Norwood, Gartner's research VP, in a statement today. “Unfortunately for vendors, 2009 is going to be considerably worse. Some have compared the precipitous decline in semiconductor demand to that of the 2001 ‘dot-com’ bubble. However, unlike 2001, this economic downturn is much more broad-based and not limited primarily to the technology sector.

“Given this increased uncertainty, all semiconductor companies should be focused on cash preservation and inventory management,” Norwood advised. “While gross margin for IDMs (integrated device manufacturers) will show significant declines owing to underutilized factories, focusing on inventory now should help the recovery when demand returns. This is also an excellent opportunity for the larger companies with stronger balance sheets to make strategic acquisitions.”

According to Gartner's preliminary data, Intel held the top position for the 17th consecutive year, and it increased its market share to 13.1% in 2008. To be true, Gartner’s 2007 revenue includes Intel’s NOR flash memory business, which was spun off in Q2 and merged with ST's NAND business to form Numonyx.  Comparing only continuing operations, Intel’s revenue grew 6.5%, Gartner said, beating the market average by nearly 11%. (See table below.)

Meanwhile, Qualcomm experienced the strongest growth rate among the top 10 vendors, as its revenue increased 15% in 2008, Gartner reported. The research company noted Qualcomm was driven by strong growth the first three quarters of the year, but that it felt the impact of the economic downturn in Q4 as carriers and OEMs reduced their inventory of CDMA-based devices and chipsets.

Struggling vendors for the year included Hynix Semiconductor and Infineon technologies.

Gartner reported that Hynix suffered the steepest decline among the top 10 semiconductor vendors in 2008, as revenue dropped 29.7%, hit hard by the oversupply-forced price drop of DRAM and NAND.

Gartner pointed out that all vendors focused on the DRAM and NAND flash markets experienced strong revenue declines due to oversupply and strong price reductions.

“Infineon had a tough year as its memory subsidiary, Qimonda, which it is looking to divest, is becoming marginalized within the DRAM industry” Norwood said. However, not all of its problems were related to memory, Gartner said, noting the boardroom coup that lead to the ousting of its CEO, Dr Wolfgang Ziebart.

Gartner noted that 2009 will mark only the fifth time in the last 25 years that the semiconductor industry will post a decline in revenue. The research company did not update its November-issued forecast for 2009, which predicted a most-likely scenario of a 2.2% revenue decline next year and a worst-case scenario 10.3% drop.

Top 10 preliminary worldwide semiconductor vendors by revenue estimates (millions of dollars)