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Gartner Sees Chips Faring Better Than Expected

The semiconductor market won't shrink as much as previously expected this year, according to a Gartner report issued today, but there's a flip side to that revelation: The recovery in the chips market is mostly due to one nation's stimulus spending.

Thanks to China coming out with a stimulus package that's put money in the hands of consumers, sales of PCs, mobile phones and LCD TVs have driven increasing demand for semiconductors, Gartner said.

This caused the analyst firm to revise its estimates for 2009 semiconductor revenues upward, to $212 billion -- a 17.1 percent decline from 2008 revenue of $255 billion. That's a modest improvement over Gartner's previous projections in second quarter that semiconductor revenue would decline 22.4 percent during the year.

However, Bryan Lewis, research vice president at Gartner, noted that the increase is due to China's own stimulus package to get consumers spending, and the Chinese government can't maintain that program forever.

"The bulk of the action was in China, followed by some extra action in North America and Europe," Lewis told InternetNews.com. "China was by far the leader because of the stimulus package."

The Chinese government launched a $586 billion stimulus program of its own late last year, some of which went to lending money to consumers for almost no interest to get them buying high-tech products. A good chunk of China's stimulus money went to high-tech purchases.

This helped boost sales for some firms in second quarter well beyond what observers had expected. Intel (NASDAQ: INTC) posted 12 percent sequential revenue growth while Samsung saw a 30 percent increase sequentially in chip sales driven by firming memory prices, exchange rates, and a rebound in PC production. Qualcomm reported that its cell phone chip sales increased 35.7 percent sequentially.

However, it wasn't all consumers buying.

"What happened was the system companies cut back too far and then had to buy back inventory real quick," Lewis said. "So a lot of it was inventory restocking. It did beg the question of did they rob some of Q3 with all the Q2 spending, but it doesn't look it. Q3 also looks strong, too."

Whether China can sustain the momentum, and whether the release of Windows 7 spurs further sales, remain unanswered.

"It all depends on how some consumers are feeling around Christmas time. We could have some excess inventory, but if we continue to have stimulus packages in China, we could keep rolling," Lewis said.

Gartner sees Microsoft's October debut of Window 7 having a minimal impact until 2010. That's due to its launch late in the year, which means that companies won't get to buying until next year -- and even then, Lewis said he figures it will be necessity that drives sales.

"It's more driven by [the fact that] PCs are getting old than people are going after Windows 7," he said.

Gartner's projections for 2010 worldwide semiconductor revenue is total $233 billion, a 10.3 percent increase from 2009 projections, but still a decline from 2008. In fact, Q1 2010 chip sales may actually fall 5 percent over Q1 2009.

Lewis said he did not expect semiconductor revenues to surpass 2008 levels until at least 2012.