That little spike in semiconductor stocks we saw in Q1 may be coming to a screeching halt, if the new numbers we're seeing are any good.
Actually, the drop in semiconductor revenues from Q1 2008 to Q2 is fairly amazing, and I don't mean that in a good way.
Here's the scoop. Semiconductor equipment revenues during the second quarter of 2008 amounted to $7.83 billion. That's down from $10.6 billion reported in the first quarter of 2008 -- sharp decline of 26%. From year to year, the revenue figure for the semiconductor industry fell to 26% from 29% - not as bad, but hardly encouraging, either.
So what's the reason? Sure, the slowing global economy is having an impact. Companies are holding on their wallets like barnacles attached to the hull of a boat. On a year over year basis, the second quarter revenue represented a sharp drop of 29% - along term trend that doesn't show any sign of abating.
That's going to mean a continued slowdown in the semiconductor field, in my opinion. With revenues dropping like a stone, capacity expansion will curtail on an industry-wide basis, with key areas like new hires, research and development and marketing all feeling the pinch of an increasingly sour tech spending climate.
I'm just guessing here but it's going to take a few quarters to shake this out, with the semiconductor sector likely rebounding during the second half of 2009 - six months after a new president takes over the White House (the emotional relief of a changing of the guard shouldn't be underestimated but most economists don't talk about it). Also impacting sector growth by 2009 are key economic bourses like China and India, which spend billions on semiconductor equipment to trigger their larger investments in IT infrastructures. That pace has also ground down in '08, but economists believe that as inflation slows, which has been the case for the past few months, consumers will come out from under their umbrellas and start spending again. By then we'll see a solid uptick in consumer demand for items like cell phones and handheld units.
I'm not alone. SEMI, the semiconductor trade association, estimates that global semiconductor fab equipment expenditures will increase by approximately 20% in 2009. Consequently, investors looking at semiconductors would do well to wait at least until January to start pouring money into the sector.