Will the semiconductor industry recover in 2020?

Translated from - semiwiki

Semiconductors fell 12% in 2019

The World Semiconductor Trade Statistics (WSTS) report said the global semiconductor market was worth $412 billion in 2019, down 12.1% from $469 billion in 2018. The biggest drop was in memory (mainly DRAM and Flash), which fell by a third from a year ago. However, overall semiconductor demand has fallen this year as global economic growth slowed from 3.6% in 2018 to 2.9% in 2019, according to the International Monetary Fund (IMF).

For several years now, we have been tracking the accuracy of semiconductor market forecasts from various sources. We look at publicly available forecasts made in the previous year or early in the forecast year, before WSTS publishes monthly data for the forecast year (usually in early March). Based on these criteria, we have come up with the results for the most accurate forecasts for 2019. Objective Analysis in December 2018 forecasted a 5% decline in the semiconductor market in 2019 due to weakness in the memory market. Also in December 2018, Morgan Stanley had predicted a 5% decline for 2019. Thus, Objective Analysis and Morgan Stanley won the (virtual) forecast award for 2019. UBS followed closely behind with a forecast of a 4.3% decline. Most forecasters expect China's economy to continue to grow in the low single digits through 2019. Our December 2018 forecast for 2019 was 4% growth.

Outlook for 2020 and 2021

The IMF’s January 2020 World Economic Outlook Update calls for global GDP growth to accelerate from 2.9% in 2019 to 3.3% in 2020 and 3.4% in 2021. GDP growth in advanced economies is not expected to accelerate, with GDP growth of 1.6% in 2020 and 2021, slightly lower than 1.7% in 2019. The acceleration will come from emerging and developing economies, with GDP growth rising from 3.7% in 2019 to 4.4% in 2020 and 4.6% in 2021. The slowdown in China will be more than offset by faster growth elsewhere, especially in India and the ASEAN-5.

US-China trade and Brexit

Two key issues that have been a concern for the global economy over the past few years have been at least partially resolved. China and the United States reached a first phase trade agreement, which was signed on January 15, 2020. Under the agreement, the United States will reduce tariffs on Chinese imports, and China will purchase more American agricultural products and financial services. Although many issues still remain, the agreement reduces the possibility that the United States will become a major trading partner in the Sino-US trade war.

The United Kingdom officially left the European Union on January 31, 2020. The process, known as Brexit, will see a transition period for the rest of the year, with new rounds of negotiations on new trade agreements and other issues between the United Kingdom and the European Union. Before the official exit, Brexit has been a question mark for both the British and European economies.

Coronavirus

Just as the US-China trade and Brexit issues are in the initial stages of being resolved, new threats to global health and the economy have emerged. In December 2019, a deadly new coronavirus began to spread in Wuhan, China. This new coronavirus has been named COVID-19 by the World Health Organization (WHO).

COVID-19 is certainly a global health problem. There are also legitimate concerns about the economic side, how efforts to stop the spread of the virus will affect Chinese production and demand. The International Monetary Fund did not consider COVID-19 in its January 2020 economic update. The IMF has since said that the impact of COVID-19 depends on how quickly the virus is contained. The optimistic scenario is that a quick resolution will cause Chinese GDP growth to fall sharply in the first quarter of 2020, but return to normal growth within the year. The pessimistic forecast is that a more severe outbreak will severely weaken the Chinese economy and disrupt global supply chains.

Meanwhile, some companies have taken steps to adapt to production issues in China. Samsung's Galaxy smartphone factory in Vietnam is running at full capacity and they are importing parts from China, Nikkei Asian Review reported. On February 17, Apple released its latest financial forecast, saying that the company will not be able to meet its March financial forecast due to supply constraints on the iPhone and declining demand for its products in the Chinese market. DigiTimes revealed that Apple is considering moving the manufacturing of some devices from mainland China to Taiwan. Omdia (a new organization formed by the merger of Informa Tech's research division and IHS Markit's technology research division) expects COVID-19 to reduce smartphone demand in China, disrupt display manufacturing, and affect China's gaming market. EETimes also published a detailed report on the impact of COVID-19 on technology companies.

Outlook for 2020

The near-term outlook for the semiconductor market is uncertain due to the COVID-19 outbreak. Of the eight major companies that provided revenue forecasts for the first quarter of 2020, six expect revenue to be lower than in the fourth quarter of 2019, ranging from -3% at Texas Instruments to -14.3% at STMicroelectronics. Qualcomm expects revenue growth of 4.4% and Infineon Technologies AG expects growth of 5.0%, but both companies cited concerns about the coronavirus.

Semiconductor market forecasts for 2020 vary widely. Objective Analysis (co-winner of our 2019 Forecast Award) predicts “zero at best” change in 2020 due to the ongoing memory recession. At the other extreme, Future Horizons calls for at least 10% growth, perhaps 15%. Other forecasts range from 3% to 8%. Based on COVID-19 concerns, our 2020 forecast for Semiconductor Intelligence is being revised down to 7.0% from 10% in December 2019, primarily based on COVID-19 concerns.

The outlook for 2021 is expected to be slightly better than that for 2020. The four agencies that provide growth forecasts for 2021 see an improvement in economic growth from 2020, ranging from 4.9% in the Cowan LRA model to 9.6% in IHS Markit. Our forecast for 2021 Semiconductor Intelligence remains at the 8% forecast in December 2019.