UK: Despite the sub-prime market fiasco, the first half 2008 chip market held up well, better in fact than many predicted, but come the second half, the repercussions had spread to the bigger global financial system, tipping the US, Japan and Europe into recession.

With the real economy now collapsed, September marked the start of the 11th chip industry downdown. We now expect Q4-08 to be down 6 percent on Q3-08, making 2008's growth just 2.2 percent on 2007, the fourth consecutive year of single digit market value growth.

Staring a global economic recession in the face, a chip market contraction in 2009 is unavoidable; the only big question is "How bad will it be will?" Implicit in this question is "Will 2009 be a re-run of 2001?"

We think no, neither in depth nor length. Wishful thinking? Well we are still unashamedly bullish on the long-term industry prospects, but our reasoning is based on more than just hope.

The 2001 slowdown was triggered by both demand and supply-side issues simultaneously, namely the collapse of the dot-com inflated demand euphoria, a 9-11 driven economic slowdown and a massive inventory burn just as a huge amount of excess capacity was coming on stream. Everything that could have gone wrong did go wrong, the so-called 'perfect storm'.

Entering 2009, the circumstances are completely different. First, we have no serious overcapacity in place (pre-slowdown utilisation rates were in the 90 percent region), with Cap Ex deep in a retrenchment that started 12-18 months before the slowdown hit home. Second, prior to the financial meltdown there was little sign of inflated demand, with IC units running at or below the 10 percent per year long-term trend line and no serious excess inventory in the supply chain.

This means we 'only' have to deal with the impact of the global economic slowdown. The biggest problem here is the world is confused, uncertain and divided on how this will play out; in short nobody really knows what the outcome will be. That being said, with the amount of money being thrown at the problem, one has to believe (hope?) that the recession will be short-lived.

2009 chip growth will be unavoidably negative, in the -2 percent range, we feel. However, the 2010-11 rebound could be much stronger than most people currently feel.