The global semiconductor industry is forecast to slow down and decrease in size this year. According to a recent survey by Gartner, respondents predicted that chip revenue will decline to be about 2.6 percent in 2019. However, there is good news. The industry is expected to bounce back to 8.1 percent growth in 2020, proceeded by a 1.8 percent contraction in 2021 — for an average of 5.6 percent growth in 2017-2022.
VLSI Research also predicts a decline (of about one percent) in semi revenues this year, increasing to a seven percent growth in 2020. Additionally, the research firm forecasts the market for wafer fab tools will plummet 11 percent this year. Linx Consulting anticipates the supplies market will grow to 6.9 percent through 2022, with just one down year in 2021.
Industry strategists agree: this year is a challenging one, but long-term market prospects are strong. A recession is likely to hit the semiconductor market for about a year, and the fall season will be particularly hard hit.
Collapsing memory costs after a DRAM supercycle are key factors in the 2019 downturn. Since Gartner completed its forecast, NAND flash prices are in free fall. This explains the complex semiconductor market in 2019. Nevertheless, it’s important to keep in mind that Gartner pegged NAND growth at 9.4 percent through 2022.
Additionally, the memory shift is excellent news for customers who’ve spent top dollars for DRAMs, funding 3D NAND fabs for Micron, Samsung, and SK Hynix. The DRAM market is experiencing limited competition and will likely stay this way for some time now that server and smartphone producers have confirmed they will pay for new development and innovation.
What’s more is automotive, manufacturing and storage markets will likely increase their share of growth as smartphone investments slow. Experts predict a more stable market with better ROI in the future.
One wild card to watch for is wafer supply, according to Michael Corbett, managing partner and co-founder of Linx Consulting, which traces the materials markets. New one or two-brand, silicon-wafer plants are expected to come online by 2022 to meet a predicted 16 percent rise in millions of square inches of chips.
It has been a decade since a vendor has built a new plant, a job that takes two to three years. This means wafer rates must rise as much as 35 percent to subsidize a new plant. Small and medium chip vendors will have to carry the freight because top chip makers will recapitulate to get the lowest prices. A bailout from China is uncertain, even though the country has yet to produce 300mm wafers without defects.
Incentives for semiconductors
The government announced several subsidies and incentives for setting up electronics manufacturing companies in India. The country has the potential to develop a bigger degree of self-sufficiency in electronics. One survey predicts the electronics system design and manufacturing (ESDM) market to rise from USD 76 Bn in 2013 to USD 400 Bn by 2020, indicating that the demand for semiconductors will increase in the country.
The Indian government has sanctioned a 100 percent Foreign Direct Investment (FDI) for the ESDM sector. The FDI in electronic manufacturing encountered an all-time high of Rs 1,23,000 crore (USD 18.34 Bn) in 2016 from about Rs 11,000 crore (USD 1.64 Bn) in 2014.
Additionally, companies are recognizing the potential of this sector and are reinvesting heavily in manufacturing in India. For instance, Panasonic Corporation is consolidating a new plant in Haryana, which will produce refrigerators and build research and development (R&D) center for appliances for the Indian business.
However, material suppliers still have a long way to go. There are plenty of potential challenges, according to economic and political analysts. Examples include a bear market on Wall Street, growing debt and interest charges related to trade conflicts, and Brexit. Tariff wars with China, which have corporate executives and investors cautious, will likely end in a few months. However, experts suggest preparing for an alternative and a probable recession.
Fortunately, the semiconductor is expected to return to stability shortly and at a lower rate of [macroeconomic] growth long-term — 2.7 percent.