Semiconductor recovery commences

EL SEGUNDO, USA: Although global semiconductor revenue is set to decline in 2009 for the second consecutive year, quarterly year-over-year growth is expected to finally return to the market in the fourth quarter, signaling the start of the industry recovery, according to iSuppli Corp.

As iSuppli previously announced, global semiconductor revenue is set to contract by 16.5 percent in 2009.

This follows a 5.4 percent decrease in 2008. However, revenue is expected to rise by 10.6 percent in the fourth quarter of 2009 compared to the same period in 2008. The fourth quarter will mark the first quarter in 2009 that revenue has risen compared to the same period a year earlier.

The figure presents iSuppli’s forecast and estimate of year-over-year percentage growth for all four quarters of 2009.Source: iSuppli, Oct. 2009

“The seeds of the current recovery were sown in the second quarter,” said Dale Ford, senior vice president, market intelligence, for iSuppli. “During that period, manufacturers began to report positive book-to-bill ratios, indicating future revenue growth. This was followed by another sequential increase in revenue in the third quarter.

“Meanwhile, semiconductor inventories returned to more normal levels in the third quarter after chip suppliers shed stockpiles. They did this by slashing costs dramatically in order to reduce unsold inventory they’d been carrying since the beginning of 2009.”

Caution ahead
While these signs are encouraging, and sequential quarterly increases in revenue will continue into 2010, this growth will not be sufficient to lift semiconductor revenues back to pre-recessionary levels until the 2011-2012 time frame.

Furthermore, there remain some worrisome indicators, such as the climbing U.S. unemployment rate, which reached 9.7 percent in August and is projected to exceed 10 percent at its peak. Also worrisome are the struggling credit and banking markets as well as the rising number of foreclosures in the US housing market, clouding the overall economic outlook. Collectively, these factors have served to constrain consumer spending.

Conflicting signs
Not surprisingly, these conflicting elements have led to tempered optimism in iSuppli’s latest version of its Application Market Forecast Tool (AMFT).

While iSuppli is forecasting a 16.5 percent decline in semiconductor revenue in 2009, it’s significantly less than iSuppli’s previous forecast of a 23 percent plunge. The boost in the outlook is a result of the strong quarterly increases seen in the second quarter and positive earnings projections for the third quarter. That said, the recovery will not be apparent in many areas until later this year.

Hot and cold
The pattern of a weak first half of the year followed by a strong second won’t be relegated to 2009 alone. iSuppli forecasts that the first two quarters of 2010 will see revenue that is slightly down compared to the fourth quarter of 2009—but the second half of the year will deliver a strong performance. This will result in 13.8 percent growth in global semiconductor revenue in 2010, ending the two-year losing streak.

Subsequent years will see a return to single-digit percentage growth in the semiconductor industry as conditions stabilize.

Source: iSuppli, USA