Global semiconductor revenues set to shrink in 2012, IHS says

Press release; Jessie Shen, DIGITIMES [Tuesday 18 December 2012]

Semiconductor silicon revenues will close the year at US$303 billion, down 2.3% from US$310 billion in 2011, according to IHS iSuppli. The projected decline comes in contrast to the 1.3% gain made last year.

The year 2012 will end on a decline, with worldwide semiconductor revenues set to decrease by 0.7% in the fourth quarter compared to the third, IHS said.

"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," said Len Jelinek, director and chief analyst of semiconductor manufacturing at IHS. "And until consumers believe their financial position is stable or improving, consumer spending will likely remain soft."

The complete reversal in growth is indicative of how distressing conditions have become for the industry, and the downward pressure on sales has not eased, IHS noted. With final numbers yet to come in, fears abound that industry revenues could decline even more than currently predicted in the fourth quarter, if economic conditions do not improve, IHS said.

The level of semiconductor inventory is a significant concern, IHS pointed out. 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 does not materialize as well, 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, IHS indicated. 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.

Prospects brighten in 2013, with silicon shipments tentatively expected to climb late in the first quarter, when companies achieve equilibrium between inventory and demand, according to IHS. That, however, is more than three months away—and anything could still happen to further derail the fragile growth scenario, said IHS.