Chip Sales Down But Not Out, Gartner Says

The global semiconductor industry appears to be resilient in the face of U.S. economic troubles, showing a normal revenue decline in first quarter, Gartner said Monday.

Global chip industry revenue probably declined 7 percent to US$62 billion in the first quarter, down from $67 billion in the fourth quarter of last year, Gartner said in its weekly Semiconductor DQ Monday Report.

"Unless sales were much weaker than expected in March, the seasonal decline in sales in early 2008 is likely to be within the normal range and should not be a cause for major alarm, despite worries about the weakening U.S. economy and its potential impact on global macroeconomic conditions," wrote Gartner analyst Richard Gordon wrote in the report.

Other evidence also appears to indicate the chip sector may be facing some pockets of weakness due to global economic strains.

Last week, iSuppli reported that excess chip inventories likely fell about 14.6 percent to $2.9 billion in the first three months of this year, which normally indicates rising semiconductor sales. The market researcher pointed out, however, that the decline this time is more likely due to production cut backs, and not from stronger sales.

"The expected drop in surplus stockpiles in the first quarter mainly is due to a pullback in semiconductor production among suppliers," said Rosemary Farrell, an iSuppli analyst, in a report. "In reaction to the lackluster demand late in December, chip suppliers began throttling back on manufacturing. This allowed their customers to draw down their inventories."

Gartner's Gordon said the second quarter will be vital for the chip industry. Flat-or-better sequential chip sales in the second quarter will confirm that the global chip industry has managed to avoid a sharp slowdown, and will place the industry on track for growth through the second half of 2008 and into 2009, he said.

Last week, signs of further economic weakness in the U.S. caused wider concern that an economic slowdown is deepening, and that it could impact the global IT business. U.S. payrolls dropped by 80,000 in March and unemployment rose to 5.1 percent, according to the U.S. Department of Labor.

In addition, during testimony to lawmakers, Federal Reserve Chairman Ben Bernanke said U.S. GDP (gross domestic product) may not grow at all in the first half of this year, and may even contract slightly. The classic definition of a recession is two successive quarters of falling growth.