Semiconductor sales may escape harsh economy's impact, Gartner says
Suzanne Deffree, Electronic News
Gartner Inc’s optimism toward the semiconductor market continues to grow, as the market research company today said the industry will record Q2 sales growth.

Gartner in June predicted flat growth for the quarter and at the time said that even flat results would be an encouraging sign for the semiconductor market.

However, the company now expects Q2 sales to reach about $65 billion, which is sequential growth of 2% and year-over-year growth of 8%. Gartner noted numbers from the World Semiconductor Trade Statistics (WSTS) association that pegged May semiconductor sales at $20.5 billion, which was higher than Gartner’s expectation of $19.8 billion. (See WSTS chart below.) The market research company since April has put much stress on Q2 as the quarter to watch when it comes to the year’s growth.

According to Gartner data, Q1 sales were $63.5 billion, 4% higher than Q1 2007. For the first half of 2008, Gartner said it expects sales to total about $128 billion compared with $121 billion for the first half of 2007.

“Global macroeconomic conditions are continuing to deteriorate, especially in developed economies (although there are early signs of a slowing in growth in emerging regional markets, as well), as central banks and governments struggle with the consequences of troubled financial markets and sharply higher energy and raw material prices,” Richard Gordon (pictured, right), a research VP at Gartner, said in the company’s Semiconductor DQ Monday Report this morning. “Taking effective action to deal with slower growth in the face of increasing inflation is problematic, which suggests that the global economy will get worse before it gets better.”

Gartner said it is surprising how “relatively robust” semiconductor sales have been in the first half of the year, considering the economy.

“The fact is that, when the books are closed on the first half of 2008, according to WSTS measure, about an additional $7 billion will have been spent on semiconductors in the first six months of this year compared to last,” Gordon said. “We can conclude — and we have hard evidence from markets such as PCs and cell phones — that spending on electronics has held up well despite the effects of the economic downturn.”

Nevertheless, the question Gordon and Gartner are now asking is: Can this market strength continue?

Gartner pointed to the second half’s normal spending up tick on back-to-school and holiday-season purchases. With that in mind and citing WSTS data, the research company said semiconductor sales revenue should total about $139 billion in the second half for annual sales of about $267 billion and annual growth of about 4%.

“However, if the apparent relative immunity of the electronics market to worsening macroeconomic conditions evaporates in coming months, this would lead to a sharp slowdown in semiconductor sales in the second half of the year. In this worst-case scenario — say, if sales in the second half of 2008 failed to reach $125 billion — then annual growth for the semiconductor market would drop below 0%, signaling a market contraction and heralding challenging business conditions for the first half of 2009,” Gordon said.

Gartner’s next forecast update is scheduled for August.

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