Bad signs for a 2009 chip recovery

Today’s Wall Street Journal has an interesting article on the forecast for the chip business next year, and it is pretty grim.

Many semiconductor makers were suffering from plummeting prices and excess production capacity even before the recession’s impact began to be felt in September. Conditions appear to have worsened significantly through the fall.

Gartner forecast Tuesday a 4.4% drop in world-wide semiconductor revenue for the year, based on a sudden drop in orders that it expects to trigger a 24.4% plunge in revenue for the fourth quarter. In mid-November, the firm had projected industry revenue would grow 0.2% this year.
Gartner now expects revenue to decline 16.3% in 2009, marking the first time sales have fallen in back-to-back years for chip companies.

“It’s just like falling off a cliff,” said Amy Leong, a Gartner analyst, of the shift in order rates.

A survey of 85 semiconductor executives by KPMG, scheduled for release Wednesday, reinforces the pattern. The firm, which provides accounting and advisory services to chip makers, says 52% of those surveyed in November predicted revenue to fall in 2009.

Some 70% of the executives surveyed in November expect their companies to decrease their global work force in the next 12 months, and 48% see research and development spending falling.

Quite a few chip manufacturing companies and chip design companies have been our customers over the years, because modeling chips takes a lot of storage. Therefore, Zerowait has been working with chip companies for many years to support their storage infrastructures. During the last downturn in their market we helped a few of them weather the economic storms. It seems like industry is entering another rough period now, and we are working with some of them to help them through 2009.

2009 may be a hard time to be in the electronics commodity business.

“The key for a recovery in the global chip sector is demand, not supply. Unless the amount of global chip supply is cut to more than half from the current level, it looks hard to expect a turnaround in chip prices without a recovery in demand,” said Kim Hyun-joong, an analyst at Tong Yang Securities.

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