How Low Can We Go? Gartner Sees Bigger Drop in Chips

Gartner said today it expects chip sales to drop by 24 percent in 2009 — an unwelcome revision to its previous forecast of a 16 percent drop issued in December. Back in November, when the sky started falling, it had expected (hoped for?) a slim 1 percent growth rate for 2009. Now, the research firm expects semiconductor revenue to reach $194.5 billion in 2009.

In its worst-case scenario, Gartner expects the industry to fall 33 percent from 2008’s sales of $256.4 billion. That would shave $85 billion from the industry — or more than twice Intel’s (s INTC) sales last year. Given the difficulty Gartner is having predicting such an uncertain market — something echoed by industry executives — the worst case seems plausible.

”We believe that the financial crisis has reset the semiconductor market,” said Bryan Lewis, research vice president at Gartner, in a statement. ”After the 2001 recession, in which semiconductor sales plummeted by a record 32.5 percent, semiconductor sales took about four years to get back to 2000 levels.

This is bad news for the semiconductor companies, but worse for the businesses that provide equipment for chipmakers, such as Applied Materials (s AMAT), KLA-Tencor (s KLAC), Novellus (s NVLS) and Tokyo Electron. While investment into fabrication plants isn’t going to stop, the recession, overcapacity in certain markets and the potential for a wafer upgrade could push some of these companies to the brink.