Analysts Reduce Yearly Growth Forecasts for Semiconductor Industry, Expect Slow Sales in Q4

The analyst group’s original estimation was that global semiconductor revenue growth in 2011 would be around 2.9 percent. This projection has been adjusted to a more modest 1.2 percent. While a 2011 year-over-year growth of 1.2 percent pales in comparison to the 32.4 percent the market saw in 2010, any growth is good growth, IHS analysts stressed.

"Although the forecast of 1.2 percent revenue growth in 2011 is just barely positive, an expansion of any magnitude is significant from the standpoint of market psychology," said Dale Ford, senior vice president, electronics market intelligence ar HIS, in the report. "Given the worsening economic environment and growing pessimism in the electronics supply chain, many market forecasters had projected third-quarter revenues would decline, and pull down the results for the full year of 2011. Even the prospect of marginal growth casts a much more optimistic light on the market performance for the year."

A surprisingly lucrative third quarter, IHS said, was the market's saving grace this year. With a revenue of $78.7 billion and a quarterly growth of 3.5 percent, Q3 is the reason the semiconductor industry, even if by the skin of its teeth, is expected to see any growth at all this year. Chip sales in Q4 would have to suffer pretty substantially – at least by 7 percent, IHS said – to yield a year-over-year decline.

On a more granular level, IHS reported that microprocessors, image sensors and NAND flash memory were the "bright spots" in the 2011 semiconductor market, with revenue in each segment expected to rise by more than 15 percent.

DRAM, SRAM, NOR Flash memory, and digital signal processors, on the other hand, will see revenue declines of 15 percent or more in 2011.

A shaky macro-economic environment, coupled with the continued supply chain disruption caused by Asia’s natural disasters, imply a similarly meager growth rate for 2012, IHS analysts said.

Flooding in Thailand, for instance, is predicted to stunt HDD production by approximately 30 percent in Q4 of 2011, IHS estimated. In light of its looming impact on PC shipments, analysts predict that the floods’ trickle-down effect will reach the semiconductor industry somewhere around Q1 of 2012.

The uncertainty surrounding the floods' impacts is prompting system builders and vendors alike to brace themselves for a hit at the start of the new year.

"We just don’t know where it’s going to go from here. We are only a couple weeks into this mess, and it’s not going to clear up anytime soon," said Glen E. Coffield, president of Smart Guys Computers, a system builder based in Longwood, Fla. "The reality is, I don’t think anybody knows how long it’s going to last."

IHS forecasts 2012 semiconductor revenue growth to be an improved, yet still low, 3.2 percent. A return to stronger growth, the firm said, will not begin until 2013.