Pressure from a weak global economy will cause global semiconductor revenue to shrink by year-end, erasing the gains made by the industry last year, according to an IHS iSuppli Semiconductor Manufacturing & Supply market tracker report from information and analytics provider IHS.
Semiconductor silicon revenue will close the year at $303 billion, down 2.3 percent from $310 billion in 2011. The projected decline is in vivid contrast to the 1.3 percent gain made last year.
The global economy continues to be the most critical variable affecting the semiconductor space both this year and the next, especially because the chip industry is highly dependent on consumer spending. And until consumers believe their financial position is stable or improving, consumer spending will likely remain soft.
The decrease in 2012 of semiconductor inventory is a significant concern. The complete reversal—from positive expectations to negative numbers—is indicative of how distressing conditions have become for the industry, and the downward pressure on sales has not eased. With final numbers yet to come in, fears abound that industry revenue could decline by as much as 3 to 5 percent when the year finishes, if economic conditions do not improve.
Adding to widespread worries, the industry has not been able to reduce inventory within the channel or at chip suppliers. Given the excess inventory, end-equipment manufacturers have been delaying the placement of orders for additional components. The result on the whole is that chip suppliers aren’t running their manufacturing operations optimally, and also are manufacturing products solely based on historical demand. In some instances, projected demand also does not materialize, adding to the already slow-moving inventory pile.
As the year ends, the market finds itself at a difficult juncture, with no significant drivers in sight that will increase demand for silicon suppliers during the near term. All of the initial orders for manufacturing electronics systems that were anticipated for the holiday selling season have already been completed. And while the next opportunity for increased silicon demand will take place at the end of November when companies reorder components, market demand at that time will be small.
One significant factor, however, has the potential to bring about a quicker recovery and increase silicon demand, especially in the data processing segment of the semiconductor industry. The recent launch of Windows 8 could entice consumers into purchasing new PCs, especially the new super-thin notebooks known as Ultrabooks and other similar ultrathin PCs. For this to occur, however, retailers will need to lower their prices aggressively, so that the price point for the new PCs can become competitive with the next-generation media tablets that currently dominate the consumer electronics space, IHS iSuppli believes.
Overall, silicon shipments in the third quarter are thought to have increased by a meager 0.5 percent from the second quarter. Shipments for the final quarter of the year will fare worse, contracting 12 percent sequentially.
Prospects brighten next year, with silicon shipments tentatively expected to climb 11 percent by the time the first quarter ends, when companies achieve equilibrium between inventory and demand. That, however, is more than three months away—and anything could still happen to further derail the fragile growth scenario.
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