Mar. 24, 2008 – Worries about a looming US economic recession (if it’s not in one already) are causing alarm across many sectors, and some analysts (notably Gartner) have already downgraded their expectations for 2008 for the IC industry. That’s premature, according to market research firm IC Insights, which argues that the results from 1Q08 will set the stage for the rest of the year.

The firm has laid out best/worst case scenarios for 2008 IC sales, and in the middle it’s holding to its original 9% growth forecast it made in late 2007 — in this model, the firm predicts that 1Q sales will slip -4%, followed by a -2% decline in 2Q — but then a surge 15% in 3Q, and staying positive in 4Q with 3% growth.

A best-case scenario shows overall 14% IC market growth this year, by adding a couple of percentage points to each quarter’s projected sequential growth (see figure below). A worst-case scenario of -3% annual growth is calculated via a severe -9% slide in 1Q, another -4% in 2Q, then a 10% increase in 3Q, and then back to a -3% decline in 4Q.

The US seems on the brink of a quarterly decline in US GDP, the firm acknowledges, but it’s still too early to make any adjustments based no “spot news headlines and a survey of US economists,” referring to a report by the Wall Street Journal. Still, if a recession does happen, look for the worst-case IC scenario to emerge. The firm notes that a key metric for the upcoming year’s health is the sequential increase/decline from 4Q to 1Q. Since 1975, there have been five years of negative growth (1975, 1985, 1996, 1998, and 2001), and in each of them the 4Q-1Q comparison has showed a decline (-13%, -18%, -9, -10%, and -20%, respectively).

Based on that history, if IC sales in 1Q08 decline by -9% or more, “the 2008 IC market would be on pace for another negative year — but until actual 1Q08 results are known, typically in late April, “we believe it is more prudent to stay with our current outlook of 9% growth,” the firm writes in its report, cautioning that often “IC forecast revisions made in the late winter must be revised back up in the summer.”

(It’s worth noting that another analyst firm, iSuppli, thinks that the second quarter of 2008, traditionally a period of accelerating growth, will be the key to gauging the industry’s health for the rest of the year.)