System ICs Set to See Revenue Recovery Start in Q3, Double-digit Growth in 2010

The global core silicon market appears to have hit bottom and is set to resume revenue growth in Q3, according to estimates from iSuppli Corp. released this week.

The market research company defines core silicon semiconductors as the key chips that implement the specific, individual functionality in an electronic system and includes ASICs, ASSPs (application-specific standard products), and PLDs (programmable logic devices) in the category.

According to iSuppli, the core silicon market saw its revenue fall by nearly one-third over the past six months and is set to see its revenue rise to $19 billion in Q3, up 8.3 percent from an estimated $17.6 billion in Q2. The revenue increase will mark the first sequential rise since a year earlier when revenue increased by 6.7 percent in Q3 2008.

“The current downturn is fundamentally different from any previous semiconductor cycle,” said Jordan Selburn, principal analyst for core silicon at iSuppli, in a statement. “This cycle is driven by forces external to the chip industry, primarily the global economy, that are impacting both business and consumer spending. It’s unclear even to economic experts and financial czars when the various bailouts and reductions in interest rates will turn the global economy around.”

However, iSuppli noted that core silicon suppliers are experiencing increasing demand from some of the market’s largest application drivers.

“The core silicon market hinges on a few major applications for most of its revenue," Selburn said. "While some areas, most notably desktop PCs and 1G/2G mobile handsets, now are forecast to actually suffer a decline in unit shipments from 2008 to 2009, others, such as 3G wireless phones, netbook PCs, and set-top boxes, are still expected to grow despite the crippled economy. These markets alone will be enough to keep the core silicon market moving down the tracks toward an expected expansion in 2010.”

To be true, iSuppli reported that while the return of sequential growth is an encouraging sign for the market, a more important metric is year-over-year growth. The core silicon market is not expected to resume quarterly year-over-year growth until the first three months of 2010, the company said, pointing out that when this occurs the core silicon market will be set to achieve annual revenue growth.

After a 24.2 percent decline in 2009, revenue will bounce back to double-digit growth in 2010, with a 10.1 percent increase for the year, iSuppli predicted.

Still cautious, iSuppli said that it is possible that the timing of the core silicon recovery could be delayed if the economy degrades beyond current expectations.

“However, this scenario seems unlikely, and the current signs of optimism—at least optimistic in relation to the past six months—are lighting the way toward the end of what remains a very gloomy, dark tunnel,” Selburn concluded.

iSuppli Corp.