2/3/2010
By Carlos Guillen, Semiconductor Analyst

As 2009 approached its end, I had been progressively more optimistic that semiconductor industry revenue would finish the year at a much better than expected level. And indeed, this was the case, but it was actually even better than I expected.

In fact, according to Semiconductor Industry Associations (SIA) data, global semiconductor revenue finished the year at $226 billion, decreasing from the $249 billion reached in 2008, representing a decline of 8.97%. I, on the other hand, had expected a decline of 10.1%. Clearly the consumer held on stronger than I expected. Demand for PCs, handhelds, LCD TVs, and general consumer electronics provided a cushion to the general drop in spending.

In December, the trailing three month average revenue totaled $22.4 billion, decreasing 1.24 percent from the $22.7 billion achieved in the prior month, breaking a nine month trend of month-to-month growth. However, the November to December revenue decline is just a matter of seasonality, nothing to be concerned about. In fact, the average contraction in this period during the last ten years is approximately 4 percent, which basically means that the dip in December was actually better than it should have been.

It is also worth noting that growth in emerging markets is also supporting overall semiconductor revenue growth. In fact, while overall revenues seasonally declined in December, revenues from Asia-Pacific actually opposed seasonality. It is apparent that growing investments in communications infrastructure is fueling demand for a host of semiconductor components in this region.

I believe 2010 will be a good year for the semiconductor industry as demand for PCs and handhelds will continue to boost revenues. Moreover, improving technologies are allowing the development of new products that are creating new markets. Some of these new market makers include devices such as net-books and tablets. As such, I expect revenue in 2010 to grow by 15.5%, up from our prior estimate of 13.9%. March quarter revenues should sequentially decline along with seasonality, decreasing approximately 5.19%. And if the economy recovers faster than expected, Semiconductor revenues may come better than expected again.

Carlos Guillen
Wall Street Strategies