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Disasters, economic malaise whack chip industry

Tough times are hitting the semiconductor business, with analyst firm IHS predicting only meager revenue growth this year.

IHS forecasts meager growth for the semiconductor industry in 2011 and cautioned that an expected 2013 recovery could be hurt by global economic troubles.
IHS forecasts meager revenue growth for the semiconductor industry in 2011 and cautioned that an expected 2013 recovery could be hurt by global economic troubles. Data from IHS; chart by Stephen Shankland

Bad news for anybody in the business of making the chips that power PCs and store movies on iPads.

IHS today said it's dramatically reduced its forecast for semiconductor sales worldwide for 2011, cutting the expected growth rate from 2.9 percent all the way down to 1.2 percent. The industry has swung from boom to bust many times in its decades of existence, but hard times still have the same unpleasant ripple effects: less money to fund research into next-generation products and to pay for next-generation manufacturing facilities.

And it's those investments that ultimately matter to the consumer eager for more smartphones with computing horsepower, cameras that take photos in dim conditions, and tablets that can store more movies to entertain the kids during a cross-country road trip.

The market research firm attributed the problem to a one-two punch of natural disasters.

First came the earthquake and tsunami in Japan that hampered operations there. Next came flooding in Thailand that hobbled hard-drive manufacturing and therefore is hurting personal computer sales.

Compounding this is a difficult global economy that could hurt a recovery in the semiconductor market:

Weak economic conditions are forecast to persist into 2012 as worldwide GDP growth is projected to remain flat at 3.0 percent compared to 2011. The weak economy will continue to depress consumer spending, the foremost driver of electronics and semiconductor market demand. As a result, IHS forecasts 2012 semiconductor revenue growth will amount to an anemic 3.2 percent. A return to stronger growth will not begin until 2013. However, any forecast for growth is cautious in nature as a number of factors threaten to drive the economy back into recession, which would push the semiconductor market into a double dip.

The darkest times were for DRAM memory, the sort that serves as the main memory for most computing devices. NAND flash memory, though, which is used to store data such as songs and video on smartphones and tablets, is a bright spot for 2011 but likely won't fare so well next year.

Other bright spots are sales of image sensors, used in an ever-wider array of consumer and industrial products, and the microprocessors that serve as computers' brains. Intel, Samsung, Renesas, Qualcomm, and AMD expect growth in the fourth quarter, IHS said.

"That will limit the overall market decline," IHS said. And though IHS said any growth at all will be encouraging, it maintained a sober tone. "While third-quarter revenue increased, conditions have been worsening in the last three months of the year."