As posted by: Wall Street JournalA grim 2008 is looking like it will be followed by an even worse 2009 for makers of computer chips.
New research from Gartner Inc. and KPMG LLP point to a sharp decline in revenue for chip makers next year, with negative implications for both employment and capital spending for the closely watched industry.
Toshiba Corp. and SanDisk Corp. Tuesday also announced plans for a 30% reduction in production at a joint venture, a response to a glut in chips known as flash memory.
Many semiconductor makers were suffering from plummeting prices and excess production capacity even before the recession's impact began to be felt in September. Conditions appear to have worsened significantly through the fall.
Gartner forecast Tuesday a 4.4% drop in world-wide semiconductor revenue for the year, based on a sudden drop in orders that it expects to trigger a 24.4% plunge in revenue for the fourth quarter. In mid-November, the firm had projected industry revenue would grow 0.2% this year.
Gartner now expects revenue to decline 16.3% in 2009, marking the first time sales have fallen in back-to-back years for chip companies.
"It's just like falling off a cliff," said Amy Leong, a Gartner analyst, of the shift in order rates.
A survey of 85 semiconductor executives by KPMG, scheduled for release Wednesday, reinforces the pattern. The firm, which provides accounting and advisory services to chip makers, says 52% of those surveyed in November predicted revenue to fall in 2009.
Some 70% of the executives surveyed in November expect their companies to decrease their global work force in the next 12 months, and 48% see research and development spending falling.
Virtually all categories of products that use chips have been affected by the slump, including cellphones, PCs and cars. Among chip sectors, the hardest hit have been makers of NAND flash memory -- a mainstay of digital cameras and music players -- and dynamic random-access memory, or DRAM, which is used in computers.
Toshiba and SanDisk said they plan to cut production of NAND chips in January at their operations in Yokkaichi, Japan. Toshiba said it will also halt production of other non-memory chips at three different plants in Japan for as many as 25 days.
While the chip-production cut may help alleviate an oversupply of chips, analysts say it won't necessarily help Toshiba recoup losses from its chip operations.
"The key for a recovery in the global chip sector is demand, not supply. Unless the amount of global chip supply is cut to more than half from the current level, it looks hard to expect a turnaround in chip prices without a recovery in demand," said Kim Hyun-joong, an analyst at Tong Yang Securities.
Samsung Electronics Co., which is No. 1 in shipments of NAND chips, said it has no plans at the moment to cut its output, a Samsung spokesman said.
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