Gartner says 2009 chip sales decline to set record

Upcoming year will mark the first time semiconductor industry will experience revenue declines in back-to-back years, market research firm says.

Can the chip industry doldrums get any worse? Yes, Gartner says. In fact, semiconductor sales may set a record for consecutive yearly declines.

The market research firm on Tuesday predicted that in 2009, the chip industry will see back-to-back yearly declines for the first time in its history, with global chip revenue expected to decline 16.3 percent, to $219.2 billion.

Sales in the fourth quarter of 2008 will post a historic decline too, sinking to a record quarter-over-quarter decline of 24.4 percent, surpassing the 20 percent decline record set in the second quarter of 2001, the firm forecasts.

Gartner's preliminary 2008 market share results, released last week, showed 2008 revenue reaching $261.9 billion, a 4.4 percent decline from 2007.

The market researcher had to quickly revise a mid-November forecast. That report had said 2008 worldwide semiconductor revenue would grow 0.2 percent, and the market would decline 2.2 percent in 2009. "However, the financial crisis is having an unprecedented negative impact on fourth-quarter 2008 sales and profits," Gartner said.

In 2001, the semiconductor industry saw its worst revenue shortfall in history, with sales declining 32.5 percent from the previous year, according to Gartner. "However, this followed two strong revenue growth years, in 1999 and 2000, when revenue grew 22 percent and 34 percent, respectively."

One bright spot is that chip inventory is being managed better than the previous market decline in 2001.

"While many executives may try to compare this downturn to the 2001 tech bubble, this downturn is different in many ways," Bryan Lewis, research vice president at Gartner, said in a statement. "This downturn is broad-based, not limited to only technology, has a much different growth profile before the downturn, and has far less inventory buildup. Inventory levels this time have been monitored and more tightly controlled throughout the entire food chain, and this will help the market come back more quickly than in 2001."

The "wild card" for the chip industry in 2009 is DRAM, the main memory used in PCs. "The DRAM industry has been in a downturn for 18 months, and losses are now approaching $12 billion," according to Gartner.

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