IHS: No bright holiday season for semiconductor suppliers

It's been a poor year for the semiconductor industry, with all the gains made during 2011 expected to be wiped out.

A weak economy is going to mean cause global semiconductor revenue to shrink by year-end, wiping out all the gains made last year, claims a new report.

Photo credit: Lyric Semiconductor

The IHS report claims that semiconductor revenues for the year will amount to $303 billion, down 2.3 percent from $310 billion in 2011. This cancels out the 1.3 percent gain made by the industry last year.

And these predictions are at the optimistic end of the spectrum. If economic conditions do not improve, 2012 fourth quarter revenues could drag the industry down even further. 

"The global economy continues to be the most critical variable affecting the semiconductor space both this year and the next, especially because the chip industry is highly dependent on consumer spending," said Len Jelinek, director and chief analyst of semiconductor manufacturing at IHS. "And until consumers believe their financial position is stable or improving, consumer spending will likely remain soft."

"The result on the whole is that chip suppliers aren't running their manufacturing operations optimally, and also are manufacturing products solely based on historical demand. In some instances, projected demand does not materialize as well, adding to the already slow-moving inventory pile," Jelinek added.

Another problem is excess inventory, which means that end-equipment manufacturers have been delaying the placement of orders for additional components. This, combined with the fact that there are significant drivers in sight to increase demand for silicon suppliers during the near term has placed a significant damper on the industry as a whole.

But it isn't all bad news. 

Next year is expected to be better, with silicon shipments tentatively expected to climb during the first quarter, as companies work to strike a balance between inventory and demand. The downside, this anticipated recovery is more than three months away, and anything could still happen to throw a spanner in the works.