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Semiconductors Fail to Connect


AMD, Intel slammed by declining demand.

Demand for consumer electronics, ranging from personal computers to cameras, is crashing during the economic crunch, slashing the worldwide market for semiconductors.

Semiconductor revenue in 2009 is expected to total $219.2 billion, a 16.3% decline from 2008.

Gartner Research says preliminary 2008 results released last week showed revenue at $261.9 billion, a 4.4% dip from 2007. The revised forecast underscores the severity of the economic downturn.

"While many executives may try to compare this downturn to the 2001 tech bubble, this downturn is different in many ways," Bryan Lewis, Gartner's research vice president, said in a prepared statement. "This downturn is broad-based, not limited to only technology, has a much different growth profile before the downturn, and has far less inventory buildup. Inventory levels this time have been monitored and more tightly controlled throughout the entire food chain, and this will help the market come back more quickly than in 2001."

Major chip-makers, including Intel (INTC), Advanced Micro Devices (AMD), Taiwan Semiconductor Manufacturing Company (TSM) and Samsung expect weak sales in the immediate future.

However, Gartner expects the semiconductor industry to rebound in 2010 and 2011. Worldwide semiconductor revenue is expected to reach $251.2 billion in 2010, a 14.6% increase over 2009. In 2011, revenue is expected to reach $274.9 billion, a 9.4% increase from 2010.

There is great uncertainty in the industry, and if the economy continues to deteriorate, 2009's semiconductor sales could fall as much as 24.7% from last year.

"However, with such a steep decline in the fourth quarter of 2008, it is possible that some companies have over-corrected to be on the safe side by keeping inventory levels at the absolute minimum," Lewis says. "This leaves the door open for semiconductor sales in the first quarter of 2009 to be somewhat better than seasonally expected as some inventories will need to be replenished."

That's cold comfort for investors holding semiconductor stocks, but about as good as it gets right now.

In 2001, semiconductor sales plunged 32.5% from the previous year, the industry's worst downturn in history. But the collapse came after two strong years. In 1999, revenue increased 22% and in 2000, revenue grew 34%.

Don't look for similar growth any time soon.
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