STAMFORD, USA: Never before has the semiconductor industry experienced revenue declines in back-to-back years, but this will occur in 2009 as worldwide semiconductor revenue is forecast to total $219.2 billion, a 16.3 percent decline from 2008 revenue, according to Gartner Inc.

Gartner’s preliminary 2008 market share results released last week show 2008 revenue reached $261.9 billion, a 4.4 percent decline from 2007.

Gartner’s last official forecast, issued in mid-November, had expected 2008 worldwide semiconductor revenue to grow 0.2 percent, and for the market to decline 2.2 percent in 2009. However, the financial crisis is having an unprecedented negative impact on fourth quarter 2008 sales and profits. Gartner expects semiconductor sales in the fourth quarter of 2008 to show a record quarter-on-quarter decline of 24.4 percent, surpassing the 20 percent decline record set in the second quarter of 2001.

“While many executives may try to compare this downturn to the 2001 tech bubble, this downturn is different in many ways,” said Bryan Lewis, research vice president at Gartner. “This downturn is broad-based, not limited to only technology, has a much different growth profile before the downturn, and has far less inventory buildup. Inventory levels this time have been monitored and more tightly controlled throughout the entire food chain, and this will help the market come back more quickly than in 2001.”

In 2001, the semiconductor industry experienced its worst revenue downturn in history, with sales declining 32.5 percent from the previous year. However, that collapse was following two strong revenue growth years in 1999 and 2000 when revenue grew 22 percent and 34 percent, respectively.

Gartner analysts said the wild card for the semiconductor industry in 2009 is DRAM. The DRAM industry has been in a downturn for 18 months and losses are now approaching $12 billion.

“The DRAM market is so bad that suppliers must either significantly scale back supply, or the weaker players will be forced into mergers or bankruptcy. Either way, we are expecting DRAM pricing to firm during the second half of 2009, and this has the potential to moderate the decline in 2009 semiconductor revenue," said Andrew Norwood, research vice president at Gartner. “Only widespread government support for the ailing DRAM vendors could avert this supply rationalization, and that would be a disaster for the industry as it would just prolong the current downturn.”

At this time, there is much uncertainty in the market. In fact, Gartner analysts have said that in the negative scenario, the semiconductor industry could decline 24.7 percent. “However, with such a steep decline in the fourth quarter of 2008, it is possible that some companies have over-corrected to be on the safe side by keeping inventory levels at the absolute minimum,” Lewis said. “This leaves the door open for semiconductor sales in the first quarter of 2009 to be somewhat better than seasonally expected as some inventories will need to be replenished.”

Gartner expects the semiconductor industry to bounce back in 2010 and 2011, with worldwide semiconductor revenue reaching $251.2 billion in 2010, a 14.6 percent increase from 2009, and in 2011 revenue reaching $274.9 billion, a 9.4 percent increase from the previous year.