Dec. 16, 2008 – A month after dropping its outlook for both 2008 and 2009, Gartner has decided its previous “worst-case scenario” for the chip industry isn’t nearly bad enough. It now projects a -4.4% decline in revenues to $261.9B, instead of the 1.1% increase it said five weeks ago and a flat outlook in mid-November. This will mark the fifth decline in the past 25 years.
Few changes are seen in the top ranks for 2008 chip sales, led once again by Intel which increased its lead over No. 2 Samsung. Intel’s 13% growth includes its NOR business spun off earlier this year to a JV, without which sales growth was only 6.5%; that still outperformed the market average by nearly 11 points, Gartner notes. Best growth in 2008 goes to Qualcomm, but even the fabless giant is being pressed in 4Q08 as carriers and OEMs reduce inventory of CDMA-based devices and chipsets, the analyst firm notes.
No surprise that the big slumps in 2008 were in the memory sector — Hynix and Infineon both lost more than -20% vs. a year ago thanks to steep price declines caused by excess supply (for Infineon due to its ties to memory subsidiary Qimonda, which it is still trying to divest). Infineon had other problems, too, Norwood notes, pointing to the “ousting” of former CEO Wolfgang Ziebart, though in positive news the company did enjoy some high-profile design wins in the Apple 3G iPhone.
Preliminary worldwide semiconductor vendors (US $M).
And the outlook for 2009 is even bleaker. The analyst firm’s Nov. 6 outlook had projected a sales range of -10.3% to +5.0%, later lowered to -2.2% in mid-November — but now it’s projecting a -16.3% decline to $219.2B, kicked off with a record plunge of -24.4% in 4Q08. And the firm isn’t ruling out the possibility of an even steeper decline, possibly close to -25%, though such a steep dropoff in 4Q08 might indicate firms are overcorrecting to be on the safe side and the 2009 decline won’t be as severe.
“All semiconductor companies should be focused on cash preservation and inventory management,” warns Gartner research VP Andrew Norwood. IDMs’ gross margins are sinking along with factory utilization rates, but “focusing on inventory now should help the recovery when demand returns,” he said, adding that for larger companies it’s a good time to explore M&A activity.
Comparisons to the 2001 dot-com bubble aren’t nearly negative enough, since the current economic downturn stretches well beyond the technology sector, says Gartner research VP Bryan Lewis, in a separate statement. He notes that this time around inventories are more tightly controlled, which will help the market ease back more quickly.
Nonetheless, the picture for the memory segment is getting worse. “The DRAM market is so bad that suppliers must either significantly scale back supply, or the weaker players will be forced into mergers or bankruptcy,” notes Norwood. DRAM pricing should firm up in 2H09, but reports of increased support for government bailouts for Taiwan’s and Korea’s DRAM suppliers “would be a disaster for the industry as it would just prolong the current downturn.”
The prize for chip firms able to ride out these rocky two years? Solid growth in 2010 (14.6% to $251.2B) and 2011 (9.4% to $274.9B).