Chip Sales Up 17% In 2Q

Worldwide semiconductor revenue this year will decline less than expected, as sales get a boost from government stimulus packages and lower prices for PCs and LCD TVs, a market research firm said Wednesday.

Revenue is on track to reach $212 billion, a 17.1% drop from $255 billion last year, according to Gartner. The analyst firm had predicted in the second quarter that sales would fall by 22.4%.

The better-than-expected performance of the semiconductor market was reflected in a 17% rise in revenue in the second quarter from the previous quarter. "Consumers reacted strongly to reduced PC and LCD TV pricing as price elasticity was amazing," Bryan Lewis, research VP at Gartner, said in a statement.

In addition, chip manufacturers benefited from government stimulus packages to combat the economic recession. China's actions, for example, worked "remarkably well to boost short-term demand," Lewis said.

"Governments worldwide took action quickly and extensively to avoid a meltdown, and it worked," he said.

Sequential revenue growth in the second quarter reported by some of the leading chip makers bodes well for the PC and mobile phone market, Gartner said. For example, Intel posted 12% quarter-to-quarter revenue growth, while Samsung posted a 30% rise due to firming memory prices, exchange rates, and a rebound in PC production. Qualcomm reported its cell-phone chip sales rose 35.7%.

Nevertheless, for the full year, all major segments of the semiconductor market are expected to see double-digital declines from 2008, Gartner said. For example, the memory market and micro-components segment, which includes PC microprocessors, are expected to experience drops of 13.5% and 19.2%, respectively.

Looking ahead, Gartner predicts worldwide semiconductor revenue to total $233 billion in 2010, a 10.3% increase from this year's projections. However, the fourth quarter of this year and the first quarter of next year will be extremely important in shaping the annual growth rate for 2010.

"We are currently expecting the fourth quarter of 2009 to be slightly positive, in line with typical seasonal patterns, but foundries have reported they are concerned that demand may drop off more than seasonal in the fourth quarter, and it may carry into first quarter 2010," Lewis said. "Gartner's most likely scenario is calling for a negative 5% growth in the first quarter of 2010 as customers take a pause and absorb all the devices they purchased over the previous three quarters."

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