Chip sales to decline 9.6% this year, Gartner now says

semiconductors
Gartner now says chip sales will be down nearly 10% this year, still not as high as some estimates of more than 12% down. (Getty Images)

Global sales of chips are forecast to drop 9.6% in 2019, Gartner said recently, far worse than the 3.4% decline that the analyst firm predicted last quarter.

A dramatic 42% decline in DRAM prices is also anticipated for the year due to an oversupply.

The forecast for semiconductor revenue is now $429 billion, down from $475 billion in 2018.

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Weaker prices for memory and some other chips plus the U.S.-China trade dispute are part of the reason, as well as lower growth in smartphones, servers and PCs. 

This is the lowest growth since 2009, said Ben Lee, a Gartner analyst, in a statement June 22. He urged semiconductor product managers to review production and investment plans to protect their companies.

The DRAM market oversupply is expected to last through until mid-2020. There are signs of slower demand recovery on the part of hyperscale vendors and increases in inventory levels of DRAM vendors.

Gartner said the dispute between the U.S. and China and U.S. restrictions on Chinese companies like Huawei will have a longer-term impact on chip supply and demand. China’s domestic chip production will accelerate as a result. More manufacturing will also relocate outside China during the dispute and many companies will diversify their manufacturing base.

Lee also said high smartphone inventory and sluggish solid-state array demand will last for a few more quarters.

Gartner’s prediction of a revenue decline of 9.6% is not as high as some other forecasts, including a 12.1% decline predicted by the World Semiconductor Trade Statistics group in June.

Some U.S. technology companies are making note of the impact of U.S.-China trade disputes on their second quarter earnings and their forecasts for the rest of the year. Xilinx CEO Victor Peng on Wednesday urged a resolution of the trade concerns “as quickly as possible so market-driven trade can resume.”

U.S. and China trade negotiators are set to meet next Tuesday in Shanghai for two days, but Treasury Secretary Steven Mnuchin said on CNBC Wednesday that “there are a lot of issues” to be addressed. He said the meeting next week will be followed up by a meeting in Washington later, adding, “hopefully, we’ll continue to progress.”

An official statement from Treasury said the discussions will cover a range of issues, including IP, forced technology transfer, non-tariff barriers, agriculture, services, the trade deficit and enforcement.

RELATED: “Xilinx sees sales to Huawei down by half this fiscal year” 

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