Chip Vendors Leave '08 Wreck Behind

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Chip companies are rapidly closing the gap from the precipitous plunge they took one year ago after the economy collapsed under the weight of financial scandals and the housing market bubble finally popping.

Chip vendors should see an increase in year-over-year sales figures in the fourth quarter, the first time in 2009 for a year-on-year gain, according to a report from market researcher iSuppli on Tuesday. Of course, that figure is tempered by the fact that Q4 ’08 was a huge drop from the first three quarters of that year.

Revenue from chip sales is expected to rise by 10.6 percent in the fourth quarter compared to the same period in 2008. This would mark the first time this year that revenue has risen compared to the same period a year earlier, according to Dale Ford, senior vice president, market intelligence, for iSuppli.

“The seeds of the current recovery were sown in the second quarter,” said Ford in a statement. “During that period, manufacturers began to report positive book-to-bill ratios, indicating future revenue growth. This was followed by another sequential increase in revenue in the third quarter.”

When the economy flat lined last year, vendors and OEMs alike stopped buying new inventory and allowed existing supplies to bleed out until they were almost all gone, making Q1 particularly painful for all players. Then customers slowly began to refill inventories in Q2. In Q3, purchasing picked up and many of the sales didn’t go into inventory but straight into products.

Every PC OEM had a major launch behind the release of Windows 7 as they counted on the good reviews for the product and the belief in pent-up demand to drive sales. This resulted in chip sales accelerating every month.

Intel (NASDAQ: INTC) earlier this month reported third-quarter revenue was down only eight percent year-over-year, compared to the 26 percent YoY drop in Q1 and 15 percent YoY drop in Q2.

In its most recent quarter, AMD noted that third-quarter revenue was down 22 percent from a year ago, but up 18 percent sequentially from Q2.

It’s not over yet

But the chip companies shouldn’t be uncorking the champagne just yet. Global semiconductor revenue is expected to shrink by 16.5 percent in 2009, well below the 5.4 percent decrease in 2008.

iSuppli warns that while these signs are encouraging, and sequential quarterly increases in revenue will continue into 2010, this growth will not be sufficient to lift semiconductor revenues back to 2008 pre-recessionary levels until the 2011-2012 time frame, a prediction its counterparts at IDC and Gartner have both made.

iSuppli is also worried about the economic conditions in the country, with the U.S. unemployment rate at 9.7 percent and projected to exceed 10 percent at its peak. Also worrisome are the struggling credit and banking markets as well as the rising number of foreclosures in the U.S. housing market, clouding the overall economic outlook. Collectively, these factors have served to constrain consumer spending.

Article courtesy of InternetNews.com.