Tuesday, November 23, 2010

3 Reasons Tech Recovery Is Stalling

    3 Reasons Tech Recovery Is Stalling
  • Global semiconductor revenue in 2011 will likely grow only about 5 percent, compared with 30 percent in 2010, muting expectations for the rest of the IT sector. Analysts' reasons for this trend are threefold: stubborn unemployment, tight credit availability and the lack of recovery in the housing market.
  • Global semiconductor revenue in 2011 will likely grow only about 5 percent, compared with 30 percent in 2010, muting expectations for the rest of the IT sector. Analysts' reasons for this trend are threefold: stubborn unemployment, tight credit availability and the lack of recovery in the housing market.Market analysts at iSuppli Corp. (El Segundo, Calif.) recently predicted that the spectacular semiconductor market recovery in 2010 was cooling, on track for a modest 5.1 percent gain in 2011, compared with the meteoric 32 percent increase predicted for 2010. The reasons, however, are not directly related to semiconductors, fueling predictions that IT sector growth will be stunted next year too.
    Depleted inventories from recession-induced belt-tightening combined with stronger-than-expected consumer demand in 2010 prompted stellar 32 percent semiconductor market growth in 2010—up to $302 billion from just $205 billion in 2009, according to iSuppli. However, now that inventories have been renewed, three more general economic problem areas will mute growth next year, slowing semiconductor buying trends to just 5.1 percent growth in 2011—up just $15.4 billion to $317.4 billion. Slow steady growth will continue in 2012, according to iSuppli, reaching $357.4 billion by 2014.
    IT sector growth may cool too, due to the same three bogeymen: stubborn unemployment, tight credit and continued softness in the housing market. Those factors are inhibiting consumer spending, resulting in a softening of demand and muted growth across the board—factors that will likely be mimicked by the IT sector at least through the first quarter of 2011.
    The good news is that technology markets have already regained the ground lost during the recession, and steady growth will likely continue for the foreseeable future (see figure below). IT markets, for instance, have rebounded from their dismal performance in 2009 to achieve levels that have already exceeded their previous peaks in 2007 of about $272 billion. Computer systems and peripherals experienced the biggest boost, accounting for 40 percent of the regained ground, according to iSuppli. PCs also have rebounded, gaining 22.8 percent over the same period in 2009. Wireless has rebounded as well, accounting for 20 percent of the total growth—a trend that is likely to continue as far as 2014. The remaining rebound sector was consumer electronics, holding 19 percent share of the newfound total market.

    Tech sector rebound in 2010 has already regained the lost ground from the 2008 recession, but growth rate will cool to a sustainable 5 percent until 2014.
    The bad news is that all these markets will be affected by replenished inventories and low consumer confidence levels, both prompted by the big three: jobless recovery, tight credit and poor housing market prospects. Even the bell-weather flat-panel television segment is weakening in the fourth quarter of 2010, resulting in inventory build-ups in both the United States and Asia.
    Likewise, data center equipment—which consumes its fair share of semiconductor microchips—will dip to single-digit growth, along with communication equipment and even automotive electronics, which account for 9 percent and 6 percent of the total market, respectively, so says iSuppli in its latest report titled "Semiconductor Revenue Growth Targets Soft Landing Following 2010 Boom."
     

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