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Chip revenue in massive fall, Gartner says

Slow PC and phone sales hit suppliers

The recession continues to weigh on the worldwide semiconductor industry, which recorded a giant revenue drop in the first quarter of 2009, Gartner said on Wednesday.

The revenue drop underlined a significant year-over-year revenue drop Gartner has predicted for the entire 2009. Semiconductor revenue during the first quarter was $45.2bn, a drop from $65.5bn in last year's first quarter.

Revenue will bottom out by the middle of 2009, with sustained growth expected to start in the second quarter of 2010 when demand for products increases, said Paul Middleton, a research analyst with Gartner.

Worldwide semiconductor revenue is expected to reach $194.5bn in 2009, a 24.1 percent decline from 2008 revenue. That could be the worst possible revenue decline that the semiconductor industry has seen since the internet bubble burst in 2001, when semiconductor sales plummeted by a record 32.5 percent, Gartner has said.

Reduced spending on products like PCs and mobile phones has seriously impacted semiconductor revenue, Middleton said. Those products use semiconductors and represent about one-third of the industry's revenue.

Spending on PC products could start recovering after reaching rock bottom in the first quarter of 2009, but that won't fix overall revenue woes. Spending on mobile phones may bottom out in the third quarter of this year, which will continue to have an adverse effect on semiconductor revenue this year.

In this down cycle, semiconductor manufacturers are seeing dropping profits and reduced revenue that could lead to consolidation, Middleton said. He declined to name particular companies that may be up for grabs, but said larger players could gobble up smaller players. An acquisition is a key strategy that helps buyers acquire customers and intellectual property from erstwhile competitors, while also reducing competition in the space.

Chip makers are also cutting back on capacity in fabrication plants to adapt to the reduced demand during the recession.

Gartner also said in a study released on Wednesday that Intel recorded the top semiconductor revenue during 2008, followed by Samsung, Toshiba and Texas Instruments (TI).

Intel's semiconductor revenue for 2008 was $33.8bn, a 13.3 percent market share, but a 0.5 percent decline from the previous year. Samsung saw a massive 15 percent year-over-year decline to $17.4bn. Toshiba and TI were a close third and fourth, seeing their revenue drop 10.3 percent and 10 percent, respectively.

Companies like Elpida did relatively better, showing only slight decline because of a stronger DRAM supply chain than the larger companies, Middleton said.

Overall semiconductor revenue for 2008 was $255bn, a 5.4 percent drop from 2007 revenue, Gartner said in the study.


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