Semiconductor industry facing double-digit declines in Q4, into Q1’09

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Semiconductor industry facing double-digit declines in Q4, into Q1'09

Milwaukee (WI) – Robert W. Baird & Company, an Equity Research firm, is forecasting an extremely bleak 9 to 12 months ahead for several key areas of the general semiconductor industries. Declines on the order of 50% in some areas are being seen in Q4 with no reversal of this trend forecast until Q3’2009.

Big declines this and next quarter

In inventory purchases, distributors are seeing 25% to 30% sequential declines this quarter. Many of them are implementing tight inventory control mechanisms as their inventories rise, according to Baird.

Original design notebook manufacturers (ODMs) are seeing 10% to 15% sequential declines, while the related digital TV component makers are tracking well over 30% down. Foundry utilization rates are down by as much as 50%, and are expected to decline even further this month.

Samsung, the number two chipmaker in the world in 2007, is the only company not significantly affected right now. This is due to their recent customer acquisition of Xilinx who will use Samsung to manufacture 40nm products next year.

Bottom, then up

No rebound is expected before Q3’2009, though Baird believes Q2’2009 will be the leveling off point following a record low in Q1’2009. BlueMatrix states in their report on Baird’s research, “Visibility [an outlook on future trends] seldom extends over four weeks [out from any given point and time.  As such, a] potential order recovery in Q3’2009 would suggest a Q1’2009 bottom for semiconductor stocks.”

Intel, the world’s largest semiconductor corporation with nearly $34 billion in revenue in 2007, issued guidance last month that their Q4 revenues would be down anywhere from $700 million to $1.3 billion, closing in around $9 billion down from the $10+ billion originally forecast. Today, AMD, the world’s 10th largest semiconductor company in 2007, announced its revenues would be down nearly twice as much (percentage-wise) as Intel’s.

Other major semiconductor players currently being hit by industry trends include Texas Instruments, Toshiba, STMicroelectronics, Hynix, Renesas Technology, Sony and Infineon.

Summary of trends

Baird reports that November saw a 25% decline month-to-month, with another 10-15% expected in December. Many orders simply “disappeared” for December, according to the report, driven primarily by consumers not spending and replacement products not being needed.

Notebook sales, while increasing in market share world-wide, are looking at 20-30% declines throughout Q1. Netbooks show a positive trend and are expected to double in 2009 to over 20 million units. Overall, notebook sales are expected to be flat year-on-year at around 120 million units.

Mobile phone OEMs are also seeing downturns. A recent forecast was changed from 10-15% quarterly growth to an 8% decline. Component makers are expecting 12% declines in Q4, following a 5% decline last quarter. They are expecting an overall 10% decline in 2009.

The main thrust of the declines is consumer spending. Overall, the report cites a 30% decrease in consumer spending in Q4. Revenues are expected to be 30% down, which is worse than the normal season declines of 10%. The sale of LCD TVs is “particularly weak,” according to the report.