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The only way is up, well sort of

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“The chip market has entered its eleventh industry recession,” comments Future Horizons’ Malcolm Penn.
Despite the fact the first half of 2008 was stronger than many predicted, the relentless deterioration in the global financial markets has finally tipped the global economy into recession. Not surprisingly, it has taken the chip market with it says Malcolm Penn, CEO and Chairman of industry analyst house Future Horizons, in the November report.

“We now expect Q4-08 to be down 6% on Q3-08, making 2008’s growth just 2.2% on 2007, the fourth consecutive year of single digit market value growth,” said Penn. “Staring a global economic recession in the face, a chip market contraction in 2009 is unavoidable; the only big question is ‘how bad will it be’? The concern on everyone’s mind is if 2009 will be a re-run of 2001?”

“Any recession is bad, but some are worse than others, and right now 2009 won’t be a 2001 replay,” Penn explains. “The 2001 slowdown was triggered by a simultaneous collapse of the dot-com inflated demand euphoria, the 9-11 driven economic slowdown and a massive inventory burn just as a huge amount of excess capacity was coming on stream.”

“Everything that could have gone wrong did go wrong, the so-called perfect storm,” said Penn. “This time around, aside from the economy, all the other underlying industry trends are good. Inventories are not seriously bloated, wafer fab capacity utilisation levels are high, capital expenditure is very low and decreasing and ASPs were in the midst of a long term structural recovery phase. All of these factors will help cushion the economic slowdown,” he said.

“That said, we expect the first half of 2009 to be bad, down 8.7% on the second half of 2008, with the recovery starting to kick in Q3-09, making the full year’s market down just 2% on 2008. 2010 should then see a strong market rebound, driven by seasonality and the green shoots of a recovering world economy,” Penn continued.

Penn further reasons that because the 2011 improving economic momentum will be taking place against a parallel capacity undershoot, it is highly likely that 2011-12 will be the next industry double digit growth years.
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