Pressure from a weak global economy caused global semiconductor revenue to shrink by year-end 2012, erasing the gains made by the industry in 2011, according to an IHS iSuppli Semiconductor Manufacturing & Supply Market Tracker Report from information and analytics provider IHS.
Semiconductor silicon revenue closed 2012 at $303 billion, down 2.3 per cent from $310 billion in 2011. The projected decline comes in contrast to the 1.3 per cent gain made last year.
This year will end on a decline, with worldwide semiconductor revenue set to decrease by 0.7 per cent in the fourth quarter compared to the third, as shown in the figure below, which presents the IHS forecast from November.
“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.” [Page Break]
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. With final numbers yet to come in, fears abound that industry revenue could decline even more than currently predicted in the fourth quarter, if economic conditions do not improve.
The level of semiconductor inventory is a significant concern.
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.[Page Break]
As the year endded, the market found itself at a difficult juncture, with no significant drivers in sight that will increase demand for silicon suppliers during the near term.
Prospects brighten this year, with silicon shipments tentatively expected to climb late in the first quarter, 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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