Oct. 28, 2008 – Many OEMs are holding off on the usual holiday-season production ramp amid expectations of weak consumer demand due to the global economic crisis, and this is creating a ripple effect all along the electronic systems supply chain from ODMs and EMS companies to chip packaging and foundries, and ultimately causing a shortfall in 4Q08 chip orders, notes Gartner in a new research report.
Due to lead-times, wafer makers have only recently pulled back on their builds, so much of that inventory will end up sitting around in the final quarter of the year. On top of that, wafer starts will be sluggish through 1Q09 as fabs churn through the leftover wafer inventory made before the financial mess erupted. And from the sounds of industry 3Q08 results, most firms are anticipating weak market conditions through year’s end and maybe longer — including the Asia/Pacific and Japan regions that account for two-thirds of worldwide semiconductor sales, indicating the now global scope of the financial crisis that started with US subprime loan debacle.
“The speed and intensity of these knock-on effects suggest that the supply chain is planning for reduced demand well into 1Q09,” write Gartner analysts Andrew Phillips and Jim Walker. They cite a range of factors, including:
– Notebook PC demand could end up down 20% this year, according to “market consensus” of chip ODMs;
– Taiwan’s Compal lowered its 2008 PC production plans by 10% (to 29M units);
– Linear Technology sees a 20% Q/Q revenue decline in 4Q08, and audio codec supplier Wolfson Microelectronics (formerly a key Apple iPod component supplier) expects a 24% dropoff;
– TSMC’s utilization rate is already below 75% (vs. ~85% expected for chipmakers overall), and expects 4Q08 shipments to be down 24% vs. 3Q08;
– ChipMOS posted a 33% decline in September 2008 sales;
– the Guangzhou (China) Export Trade Fair earlier this month reported a 30% decline in European and North American visitors from the spring event, and they didn’t place orders (most orders were from Brazil and Russia);
– Wafer shipments declined ~2% in 3Q08, and bigger dropoffs are expected in both 4Q08 and 1Q09.
Hardest hit market segments will be high-end consumer electronics (e.g., laptops, LCD TVs, media players, portable navigation devices), with somewhat lesser impact to gadgets such as 3G mobile phones where demand is spurred by contract renewals with operators that necessitate handset upgrades, according to the analysts.