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Monday, March 09, 2009

Semiconductor Market Free Fall is Troubling

The sharp global economic meltdown which began in late 2007 is now affecting consumer and IT spending in a very significant way. The semiconductor market, which was one of the first industries to be affected, remains in a state of fluid turbulence.

Semiconductors are an integral part of almost every electronic device and the broad base declines in units shipped resulting from deteriorating demand and expectations for continued weakness going forward has driven a lower outlook for the industry this year.

Following a slight revenue decline of 2 percent in 2008, primarily due to a very weak fourth quarter, the worldwide semiconductor market will not recover until 2010. In fact, IDC expects a further revenue decline of 22 percent in 2009, due to double digit declines in unit shipments of key system markets, low utilization rates, and price erosion.

This abrupt slowdown will not only affect the U.S. and Europe, but also Japan and the overall Asia/Pacific regions.

IDC's Worldwide Semiconductor Applications Forecast, which covers over 55 of the largest device applications, reports that key device applications such as personal computers, consumer, and mobile phones are all experiencing a significant decline in units shipped.

This, coupled with ample ASP erosion, is aiding in the 22+ percent free fall decline forecasted by IDC for this year. "The semiconductor industry downturn will be prolonged by macroeconomic uncertainty this year," said Mario Morales, vice president for Semiconductor Research at IDC.

With demand visibility low, utilization rates at frozen levels, and supplier inventories growing because of deteriorating demand targets, IDC does not expect year-over-year growth for semiconductor revenues until the second quarter of 2010.

"The semiconductor market, which is tightly correlated to GDP, will not reach an inflection point until GDP rises and consumer spending rebounds," added Brianne Lovett, research manager for Worldwide Semiconductor Market Forecaster at IDC.

"The semiconductor market will begin to stabilize at the end of 2009 and improve in 2010 with a positive growth rate. However, the market will not rise to the levels seen in 2007 and 2008, until beyond 2011."