Gartner Predicts Additional Revenue Losses for Semiconductor Companies in 2009

The world’s semiconductor industry is poised to lose revenue in 2008 and 2009 – the first time the industry has ever lost money in back-to-back years, according to a new report from Gartner.

The Dec. 16 Gartner report found that the world’s semiconductor companies will collect $219.2 billion in revenue in 2009, a decline of more than 16 percent compared to 2008. Last week, Gartner published another report that found preliminary semiconductor revenue for 2008 is estimated at $261.9 billion, a 4.4 percent decline from 2007.

The previous Gartner report found that only Intel, Qualcomm and NEC Electronics had managed to collect more revenue in 2008 than in 2007. The reason for the historic drop in revenue is the ongoing global financial crisis, which has meant less consumer and business spending on desktops, laptops, smart phones, gadgets, as well as high-end hardware such as server systems.

While the hardware outlook for 2009 is bleak, Gartner found that the loss of revenue is not as severe as 2001. In that year, semiconductor revenue fell 32.5 percent from the year before, according to Gartner.

Intel and Advanced Micro Devices have each issued reports that found their fourth-quarter sales will be below previous expectations.

However, the market for DRAM (dynamic RAM) could mean that the industry will collect even less revenue in 2009 than Gartner is predicting right now. The market for all types of memory products, including DRAM and NAND flash memory, continues to fall due to oversupply, but the Gartner report found DRAM industry alone has lost about $12 billion in the last 18 months.

“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,” Andrew Norwood, a Gartner analyst, wrote in the Dec. 16 report. “Either way, we are expecting DRAM pricing to firm during the second half of 2009, and this has the potential to moderate the decline in 2009 semiconductor revenue.”

Gartner is revising it semiconductor outlook after the financial crisis began on Wall Street in September. Originally, Gartner called for the industry to grow its revenues less than 1 percent in 2008 and revenue to decline only 2.2 percent in 2009. Now, Gartner analysts believe that revenue in the fourth quarter of 2008 will fall 24.4 percent.

There is a possibility that semiconductor companies have “overcorrected” their inventories in response to the financial crisis, which could mean that the industry might bounce back a little in 2009.

At best, Garter believes that the entire semiconductor will not grow its revenue until 2010, when analysts are predicting a 14 percent increase in revenue for a total of $251.2 billion. Revenue in 2011 should reach $274.9 billion.