Semiconductor revenue hit by massive slowdown, Gartner says

It could take five years for the market to return to previous revenue levels

Affected by the worsening global recession, it may take up to five years for the semiconductor market to return to the revenue levels of the previous years, Gartner Inc. said in a survey report.

Semiconductor revenue may not get back to 2008 revenue levels until 2013, Gartner said in a report released on Wednesday. The recession is a massive setback for semiconductor companies, mirroring a decline not seen since 2001, when the Internet bubble burst, said Bryan Lewis, a Gartner analyst.

"After the 2001 recession, in which semiconductor sales plummeted by a record 32.5%, semiconductor sales took about four years to get back to 2000 levels," Lewis said.

Over the next year, worldwide semiconductor revenue is expected to reach $194.5 billion, a 24.1% decline from 2008 revenue. Gartner had earlier predicted a fall of 16% in yearly semiconductor revenue.

Restrained consumer and business spending on products such as PCs and cell phones is having an even more adverse effect on semiconductor revenue than expected, said Jon Erensen, another analyst at Gartner. Those products use semiconductors and represent about one-third of the industry's revenue.

The semiconductor revenue will hit rock bottom by the middle of 2009, and a slow recovery may start in 2010 when demand for products starts increasing, Erensen said. The recovery will have a rollover effect, with chip makers investing to build capacity in fabrication plants in anticipation of meeting the increased semiconductor demand.

But for now, chip production has been cut back, with fabs recording lower utilization rates as demand for semiconductors weakens, Erensen said. This reduced supply could lead to significant price increases for memory products in the second half of 2009, he noted.

Dynamic RAM is an especially price-sensitive space and could see a price rise later this year as semiconductor manufacturers cut supply, Erensen said. Prices may start falling when demand increases for PCs and cell phones around 2010 and manufacturers build out capacity to meet the demand.

Copyright © 2009 IDG Communications, Inc.

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