Gartner slashes semi industry outlook to just 2.5% growth

By Colleen Taylor, Contributing Editor -- 5/31/2007

Gartner Inc. on Wednesday issued an even deeper-than-expected cut in its 2007 worldwide semiconductor forecast.   

The market research firm said it had cut its forecast for the semiconductor industry's 2007 performance to $269.2 billion, a 2.5 percent increase from 2006. In Gartner's previous forecast, it predicted a 2007 revenue increase of 6.4 percent. And in a research note published earlier this week, the firm warned that it would likely lower its outlook to "below 5 percent" growth, but gave no indication that its forecast would dip quite so low.

The firm said that the sharp decline in optimism for the year's performance was due to more severe declines in DRAM average selling prices (ASP) than previously expected and continued price competition in the compute MPU segment. In its report issued Wednesday, Gartner said semiconductor sales in Q1 were more than 5 percent lower than in Q4 2006, which was "worse than the expected decline" that would normally be associated with a seasonal build up in inventory levels at year end.

"Since the beginning of this year, soft semiconductor market conditions have been exacerbated by sharply declining ASPs in key device markets such as DRAM, MPU and application-specific standard products (ASSPs)," Richard Gordon, research VP at Gartner, said in a statement. "It is likely that, despite continued unit growth in influential electronic systems markets, downward device ASP pressure will remain in place for much of 2007 as oversupplied semiconductor market conditions persist."

Gartner is certainly not alone in its newly downgraded outlook. This week the World Semiconductor Trade Statistics (WSTS) group released its spring 2007 forecast report, which forecast just 2.3 percent growth for the global semiconductor market -- down significantly from the projection of 8.6 percent growth the group issued last autumn. Last month, iSuppli forecasted that global semiconductor revenue will rise to $281.4 billion in 2007, up 8.1 percent from $260.2 billion in 2006; the firm had previously predicted 10.6 percent growth for the year. And IC Insights lowered its expectations for full-year 2007 worldwide IC market growth a whopping 5 percentage points from 7 percent to 2 percent.

Looking further down the road, Gartner, for one, has a more optimistic outlook for the years to come. The firm said it expects the worldwide semiconductor industry to return to modest annual growth of 8.7 percent and 7.2 percent in 2008 and 2009, respectively.

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