Slow PC Sales, Struggling Economy Hobble Semiconductor Space: Gartner

Gartner analysts lowered their forecasts in the semiconductor market for both 2011 and 2012, due in large part to slowing PC sales and difficult global economic conditions.

Slowing demand for PCs and other computing devices, driven by larger concerns about the economy in the United States and abroad, is one of several factors playing into the decision by Gartner analysts to reduce their projections for the 2011 and 2012 semiconductor markets.

Gartner analysts said in a report Sept. 15 that they expect worldwide revenue in the semiconductor space for the year to come in at about $299 billion, a 0.1 percent decline from 2010. In the second quarter, Gartner had predicted a 5.1 percent increase in revenues for the year.

The continued slowing in demand for PCs is conspiring with high inventory and manufacturing overcapacity to create an environment where the third quarter-typically a strong one for the semiconductor industry-could be relatively weak, according to Bryan Lewis, research vice president at Gartner.

"Semiconductor companies' third-quarter guidance is well below seasonal averages," Lewis said in a statement. "The current guidance by vendors points to flat-to-down third-quarter growth. Typically, we see guidance for 8 to 9 percent growth in the third quarter because of back-to-school and the holiday build. The supply chain is also showing significant slowdown, and semiconductor-related inventory levels are still elevated."

Gartner and other analyst firms over the past few months have been adjusting downward their 2011 forecasts for PCs as demand-particularly among consumers-has continued to slow and concerns about the economies in the United States and Europe have grown. Gartner analysts said they expect PC production unit growth to come in about 3.4 percent; in the second quarter, they had estimated growth would be about 9.5 percent.

Mobile phone production unit growth also has taken a hit, with Gartner lowering its forecast from 12.9 percent in the second quarter to 11.5 percent this quarter. In addition, DRAM makers also are suffering from the decline in PC demand-as well as falling prices-with revenue forecast to decline 26.6 percent. NAND flash and data processing ASICs are expected to grow about 20 percent, thanks in large part to the growth in sales of smartphones and Apple's iPad.

Gartner's Lewis said he expects the problems to spill over into next year. He added, "2012 is the wild card. We have lowered our 2012 semiconductor forecast from 8.6 percent to 4.6 percent due to a worsening macroeconomic outlook. However, the odds of a double-dip U.S. recession continue to rise and are raising fear that sales prospects will deteriorate further."

Even as analysts earlier this year were talking about healthy growth for the semiconductor industry, they also cautioned that the global economy could be a drag on business if it worsened. In July, IDC analysts said that despite such drivers as new chips from Intel and Advanced Micro Devices, as well as the continued commercial adoption of Microsoft's Windows 7 OS and growing demand for smartphones, they were pegging growth in the 2012 semiconductor market to be about 5 percent, in contrast to the 9 percent increase that was expected in 2011. However, they also said things could change, particularly if the economic picture darkened.

"IDC also cautions that continued macroeconomic problems, such as persistent high unemployment with the associated low consumer sentiment in the U.S., the ongoing sovereign debt crisis, especially in Europe and the U.S., fear of recession in the U.S. and Japan in 2012, and fear of high inflation in China, India and Brazil, will likely impact the semiconductor market negatively in 2012," IDC analyst Mali Venkatesan said in a statement at the time. "But long-term secular growth-driven by end applications such as smartphones, media tablets, mobile PCs, set-top boxes, LCD TVs, wired networks, industrial automation and automotive infotainment-remains strong."