Global semicon mid-year review: Not a blip, but recovery won't be smooth, says iSuppli

According to a release from iSuppli today, following four consecutive quarters of reductions, global inventories of chips have declined to appropriate levels, clearing the way for stockpile rebuilding and higher sales in the second half of the year.

However, this particular blog post looks at a previous study from iSuppli where it trimmed the 2009 chip and electronics forecasts, but sees second-half rebound.

Thanks to my good friends, Jon Cassell and Debra Jaramilla, I was able to connect with Dale Ford, senior vice president, market intelligence services, for iSuppli, for a discussion on this particular study.

Given the lingering economic woes and continuing poor visibility into future demand trends, iSuppli, as mentioned, reduced its forecasts for global semiconductor and electronic equipment revenue in 2009.

Worldwide electronic equipment revenue is set to decline to $1.38 trillion in 2009, down 9.8 percent from $1.53 trillion in 2008. iSuppli's previous forecast in April predicted a 7.6 percent decline in revenue. Global semiconductor revenue is set to fall to $198.9 billion in 2009, down 23 percent from $258.5 billion in 2008. iSuppli's April forecast called for a 21.5 percent decline.

I quizzed Ford on how iSuppli sees the global semicon market performing over the rest of the year. He said: "We do expect sequential improvement in the second half of 2009 compared to the first half of 2009. However, the market will remain significantly below the market level of the same period in 2008."

It is also apt to determine the behaviour of the electronic equipment segment in the same period. iSuppli expects a similar pattern in the electronics segment based on the current economic outlook and guidance from key OEMs.

According to iSuppli's study, while all of the electronics segments are likely to suffer contractions in 2009, the automotive sector was a major culprit behind the downgrade. So, is it fair to only blame the automotive sector for the downgrade?

No, said Ford. "It should be noted that the downgrade is very minor and reflects a more broad-based impact of the economy on the electronics market."

I mentioned about a new study from iSuppli, which talks about global chip inventories declining to appropriate levels, clearing the way for stockpile rebuilding and higher sales during H2-2009.

Prior to the release of this study, I had asked Dale Ford and iSuppli whether we would see companies revising their forecasts.

According to Ford, companies are already revising their forecasts and this has been noted in some of the earnings announcements this week. However, there is still great uncertainty in the economy and this presents the likelihood that company and industry expectations will continue to fluctuate.

As for iSuppli's growth prediction for H2-09, its current published second half outlook calls for H2-09 to grow by over 17 percent compared to H1-09. iSuppli also is sticking to the 13.1 percent growth for the semiconductor industry in 2010.

As for the factors now leading to conditions looking up in H2, Ford said that the global economy is the dominant factor driving industry growth. All other factors are secondary in comparison.

It would also be interesting to see how the Japanese semiconductor industry is likely to hold out in H2. Ford added: "Japanese semiconductor suppliers have experienced a very difficult H1. However, with improving consumer sentiment, they have the opportunity for an improved H2."

There is also a clear indication of the starting of the correction phase to rebalance over-depleted inventories. Ford said that a number of companies have noted that their Q2 sales are influenced both by rebalancing inventories and expectations of H2-09 demand.

If firms still continue in a wait-and-see mode, won't this serve to make the market dynamics worse as firms are then faced with a massive catch-up problem? What should they do?

Ford advised: "There is the potential for companies to miss opportunities in the market if they are too passive. Companies need to aggressively communicate with their partners and clients to obtain the best visibility possible in planning their tactics and strategies for meeting market demand."

Recovery or blip?
Finally, is this really the start of the chip market recovery or a blip on the statistics radar screen?

He said: "While we do not consider this to be a 'blip', we do expect that the 'recovery' will not be smooth. Ongoing uncertainty and volatility in the economy will impact the progress of the market moving forward."