Semiconductor Industry Faces First Year Of Revenue Decline Since 2001Semiconductor Industry Faces First Year Of Revenue Decline Since 2001

The global semiconductor industry this year will see its first revenue decline in seven years, as manufacturers enter a period of "fear and great uncertainty" brought on by the economic downturn, a market researcher said Wednesday.

Semiconductor revenue worldwide is expected to fall by 2% this year to $266.6 billion from $272 billion last year, iSuppli said. The new figure is a dramatic drop from the research firm's September forecast of 3.5% growth and will be the first year-to-year decline for the industry since the dot-com bust of 2001 that sent revenue plummeting by 28.7%.

The latest forecast is based on third-quarter results of 121 semiconductor suppliers and on fourth-quarter revenue estimates provided by major chipmakers. "Weak-to-strongly-negative growth was reported in the third quarter by the complete range of semiconductor suppliers, large and small, across all markets,” Dale Ford, senior VP of iSuppli market intelligence services, said in a statement.

The industry in the fourth quarter is expected to see a 10.9% decline, compared with the same period a year ago, with suppliers of memory chips used in PCs, portable media players, and other devices suffering the most severe declines, iSuppli said. But with an increasing number of semiconductor suppliers reducing their fourth-quarter outlook, industry revenue for the quarter and the year could fall further.

"In discussions with semiconductor suppliers, equipment [original equipment manufacturers] and contract manufacturers, a story of fear and great uncertainty has emerged," Ford said. "As dramatic declines in consumer and industrial confidence began developing in late summer, order cancellations began to grow and in many cases, slowing orders degenerated into a complete stop in orders as players across the supply chain moved to extremely cautious positions in the face of increasingly negative economic news."

The psychology of industry players has shifted to a survival mentality of cost control and cash conservation, the researcher said. Contributing to the strategy is the extremely low level of consumer confidence, which translates into low retail sales. What isn't yet clear is how deep the economic downturn is and whether the industry decline will extend into 2009 and possibly 2010, iSuppli said.

ISuppli isn't the only research firm to lower its forecast for the semiconductor industry. Gartner this month lowered its 2009 projected revenue growth for the industry to 1% over this year, or $282 billion.

Meanwhile, the World Semiconductor Trade Statistics, an industry trade group, this week lowered its growth projections for this year and next year to 2.5% and 2.2%, respectively.