IHS Downgrades Semiconductor Market Outlook - Revenue Decline Now Expected for 2012

August 24, 2012
Dale Ford

Weakening economic conditions are spurring reduced demand for PCs and related electronic components, prompting IHS to downgrade its forecast for 2012 global semiconductor market chip revenue.

Global semiconductor revenue now is expected to decline slightly for the year, contracting by 0.1 percent, according to preliminary results from the IHS iSuppli Application Market Forecast Tool from information and analytics provider IHS (NYSE: IHS). The previous IHS forecast called for marginal growth of less than 3 percent. This will mark the first annual decline for the global semiconductor industry since 2009.

“The expected decline in 2012 represents a major event for the global semiconductor market,” said Dale Ford, senior director at IHS. “Throughout all of 2011, even though electronics markets were very weak, IHS never projected revenue to decline for the entire year. However, the disappointing results in the second quarter and weak third-quarter expectations driven by poor economic conditions are expected to cause the semiconductor market to retreat this year.”

Drawn and Quartered

Global semiconductor revenue dropped modestly by 3.6 percent in the first quarter of 2012 compared to the fourth quarter of 2011—reflecting normal seasonal patterns.

However, revenue growth in the second quarter amounted to only about 3.0 percent compared to the first quarter—a tepid level of increase when seen against historical averages. Revenue guidance from key chip suppliers for the third quarter indicates the overall market will grow by just slightly more than 6.0 percent sequentially, another weak performance.

Subdued expansions during these two key quarters indicate the semiconductor market will not generate sufficient growth to prevent the market from contracting for the year.

PCs Depress Semiconductor Growth

PCs and related peripherals are the key market segment pulling down the overall semiconductor market in 2012. The previous IHS forecast predicted that the expansion of the wireless communications sector would be sufficient to propel growth for the overall semiconductor market in 2012. However, the downward pressure created by the worsening deceleration of the PC semiconductor market will outweigh the mid single-digit growth in semiconductor demand forecast expected for wireless communications and the smaller industrial electronics segment.

“While the introduction and shipment of exciting new products such as ultrabooks and other ultrathin PC platforms in the second half of the year will give the PC market a much needed boost, the counterweight of growing economic worries will place strong downward pressure on the overall PC market and limit both consumer and corporate spending in 2012 ,” said Ford.

The weak performance will result in a broad-based revenue decline in 2012 across most semiconductor component categories.

At this point, IHS is still forecasting a strong growth rebound of more than 9 percent in 2013, based on expectations of improving economic conditions. However, multiple high-impact events still present the risk of a strong downturn in the economy in 2013, which would also pull down the electronics and semiconductor industries. These potential events range from the Eurozone crisis, to significantly slower growth in China, to the potential federal tax and budget fiscal cliff in the United States, to turmoil in the Middle East.

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