Semiconductor Recovery Still Years Away
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Fans of apocalypse predictions have been obsessed with the ancient Inca prophecy that the world will end in 2012, but for chip makers, that's just when things will be getting back to normal, according to Gartner, IDC, and In-Stat.
The first three quarter of 2008 were fine, it was the fourth quarter where things crashed and burned. The three market research firms all think that it will take another three years before semiconductor sales finally get back to 2008 levels. That sentiment was echoed by Morris Chang, the chairman of Taiwan Semiconductor Manufacturing Company (TSMC), the largest independent manufacturer of chips in the world
Chang told the Wall Street Journal earlier this week "You get a precipitous drop and a very slow rise. I think it will be 2012 before the total revenue of the semiconductor industry gets back to the 2008 level."
TSMC's fourth quarter 2008 revenue suffered a 31 percent drop from Q4 2007 levels.
This prompted a question on the subject to Intel CEO Paul Otellini at a Goldman Sachs investor conference in San Francisco. Otellini said that orders have become "more predictable," but added he was not ready to say the industry has hit bottom.
All of this comes from similar predictions of decline from the analysts. Gartner projects 2009 worldwide semiconductor revenue to reach $194.5 billion, a 24.1 percent decline from 2008 revenue. Growth will not return until 2010.
"We believe that the financial crisis has reset the semiconductor market," said Bryan Lewis, research vice president at Gartner in a statement. "After the 2001 recession, in which semiconductor sales plummeted by a record 32.5 percent, semiconductor sales took about four years to get back to 2000 levels. The rebound after this recession will be similar to that in 2001 because there will be three years of modest growth after the worst year."
IDC, meanwhile, expects a 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 will be a worldwide phenomena, not just in the U.S.
"The semiconductor industry downturn will be prolonged by macroeconomic uncertainty this year," said Mario Morales, vice president for semiconductor research at IDC in a statement. "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."
DRAM as wild card
Gartner sees DRAM as the wild card in the semiconductor forecasts for 2009. DRAM suppliers lost more than $13 billion in 2007 and 2008.This has lead to one bankruptcy, Qimonda, and likely more. This is leading to a drop in supply, which could raise prices.
The problem is actually similar to what the industry faced earlier this decade, in the dot-bomb era, when worthless, over-hyped Internet startups began to drop like flies. The problem is a huge oversupply and overcapacity, said Jim McGregor, senior analyst with In-Stat. He also expects a three year recovery, or as long as five years, if government meddling prolongs the recovery.
"This is something most people have missed. We overbuilt capacity in everything. We overbuilt capacity in homes and cars and computers and everything else," he told InternetNews.com. "The problem is, normally you use price to find equilibrium between supply and demand. But the supply got so out of hand, we didn't know what demand was. Now we're trying to find it as demand is dropping."
The problem will not be fixed until some capacity and supply is taken out of the market and and both consumers and businesses start spending. That applies not just to Intel but cars, houses, and everything else, he said. "Right now, everyone is in conservation mode, only spending on what they need. We're going to be in this for at least three years," said McGregor.
The one positive is that the industry did learn from the dot-bomb mess.
"A lot of these guys have been very conservative. They've hoarding cash since the dot com implosion or buying back stock. So that's good for our industry," said McGregor.