Big Chip Decline in 2009, Rebound in 2010, Full Recovery Far Off

According to recent estimates from World Semiconductor Trade Statistics (WSTS), the global semiconductor market in 2009 will see an almost 22 percent drop from the previous year. And even though growth is supposed to return in 2010 and increase in 2011, a slightly deeper look at the numbers suggests that full recovery is years off.

The current forecast is far grimmer than the one the group issued last November, revised downward by about 20 percentage points. Although it expects a 21.6 percent drop this year compared to last, the good news -- at least if the estimates are more accurate now -- is that the group sees 7.3 percent positive growth for chip sales starting in 2010 and then climbing to 8.9 percent in 2011. Forecast details are in the WSTS chart below.

If you do the math, that should bring sales in 2011 to about 3.3 percent above 2008 rates, so full recovery and then some. First thing to notice is that in no chip sector and in no geographic area does the forecast see 2011 sales fully returning to the 2008 level -- and those numbers were down an overall 2.8 percent from 2007. In other words, although the growth is welcome, real recovery for chip manufacturing is probably at least three years off.

Notice the geographic pattern. The Americas are likely to see the closest to a full recovery, but they also took the single biggest hit in 2008 and then are expected to take a lesser hit in 2009, so you might expect the region to move more strongly into recovery a bit earlier than other parts of the world. Even more interesting is how comparatively hard-hit both Europe and Japan might remain.

The pattern among types of devices also seems a bit disturbing. Optoelectronics will do fine, and logic and memory largely recover. But consider that prices, particularly on the latter, keep plummeting. So while this forecast would show close to market recovery in dollar sales, it won't be close in terms of corporate earnings, meaning probably more companies going out of business, more layoffs, and more industry consolidation.

I think the analysis can even go a bit further. When I think of companies selling products to consumers, I think of each device needing some combination of ICs and discrete semiconductors, particularly if you're looking at embedded chips. But these categories are going to remain far off from 2007 levels even in 2012. Even considering single chips expanding what functions they can provide, cutting down the total needed in some cases, this still gives the vibe of all forms of electronics sales being off for some time to come.