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2020 IC Outlook: Uncertainty

How will the coronavirus impact the IC market?

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After a downturn in 2019, the semiconductor and equipment industries looked promising at the start of 2020.

In 2019, the downturn was primarily due to the memory markets, namely DRAM and NAND. Both DRAM and NAND saw lackluster demand and falling prices last year. At the start of 2020, though, the memory markets were beginning to recover.

Unlike memory, the logic and foundry markets were somewhat stronger in the latter part of 2019. Robust demand for foundry and logic spilled over into 2020.

Demand for analog, power semis and RF were lackluster in 2019. Many of those vendors were looking for renewed growth in 2020.

Then, not long ago, the coronavirus in China hit the market. The pandemic has expanded and spread, causing some turbulence in the supply chain. Companies have lowered their forecasts.

So what does this all mean for the IC market? To get a handle on the market, Semiconductor Engineering has reached out to various market researchers. Here’s the latest forecasts from researchers:

Gartner
2019 Semiconductor market—$418 billion (-11.9%)
2020 Semiconductor growth forecast—$470 billion (+12.5%)
2019 Semi CapEx—$96 billion (-11.9%)
2020 Semi CapEx forecast—$92.5 billion (-3.6%)

Over the last year, the volatility has revolved around the memory market, according to Bob Johnson, an analyst at Gartner.

Meanwhile, the worldwide wafer fab equipment (WFE) market is expected to reach $53.6 billion in 2020, down 1% over 2019, according to Johnson. “Intel has announced even higher capital spending plans for this year. So that may put capital spending nearly flat this year,” he said.

What about the impact of the coronavirus? “As for the effects of the coronavirus, we’re looking at it, but haven’t yet reached a conclusion as to what its effects will be,” Johnson said. “There are so many inputs and uncertainties, and the big question is whether the supply chain disruptions we hear about will be permanent or temporary, and what will their impact be on the overall year. There is also the big question about what this will do to overall electronics demand in China, especially on phones.

“However, I can be pretty certain that it won’t be positive,” he said. “So for right now, you can say that we’re definitely evaluating the projected impacts of the coronavirus on our forecasts, and that it definitely increases the downside risks.”

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IBS
2019 Semiconductor market—$400.9 billion (-16.1%)
2020 Semiconductor growth forecast—$432.75 billion (+7.95%)

“The key reason for growth in 2020 is increased gigabyte prices of DRAM and NAND, compared to the previous decline in gigabyte prices,” said Handel Jones, chief executive of IBS.

The coronavirus will impact the market. “The most likely scenario is now a 0.7% decline in the semiconductor market in 2020 over 2019,” Jones said.

There is also a chance it could reduce the volume of smartphones by 100 million units and reduction in volume of notebook computers by 30 million units, according to IBS.

“Recovery in demand in H2/2020 will not be large enough to compensate for the decline in H1/2020,” he said. “Growth of the semiconductor market in 2021 will be positive, provided there is not a further disruption in supply chains from the trade dispute between the U.S. and China.”

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IC Insights
2019 Semiconductor market—$442.3 billion (-12%)
2020 Semiconductor growth forecast—$473.9 billion (+7%)
2019 Semi CapEx—$103.5 billion (-2%)
2020 Semi CapEx forecast—$97 billion (-6%)

“The situation with the coronavirus has deteriorated,” said Bill McClean, president of IC Insights. “Many forecasters and companies (e.g., MediaTek) are lowering their expectations for 5G smartphone sales this year. Many economists now think WW GDP will be 0.3-0.5 points less than originally forecast a couple of months ago. We were originally forecasting 2.6% WW GDP growth, but I think we will lower that down to 2.2-2.3% (well below the global recession threshold). Some forecasters have also lowered their expectations for China’s GDP this year from 5.8%-6.0% to 4.6%-5.3%.

“Overall, we will likely lower our current 7% growth rate for the total semiconductor market this year, but won’t be publishing our new forecast until our March Update to The McClean Report,” he said.

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Semico Research
2019 Semiconductor market—(-12%)
2020 Semiconductor growth forecast—(+5.5%)

“Total revenues for semiconductor sales closed the year -12% in 2019 compared to 2018. Optoelectronics, sensors and discretes helped to counter the overall drop in revenues as IC revenues declined 15.3%,” said Jim Feldhan, president of Semico Research. “2020 is expected to be a recovery year with semiconductor revenues growing 5.5% over 2019. IC revenues are expected grow 5.9%.”

One product area is recovering. “After a very bad 2019 (-33% revenues), 2020 will be a recovery year for memory products. ASPs will remain relatively flat as memory products shift to higher density product lines,” he said. “MOS logic, mainly the foundry customer’s products lines, will experience 3.5% revenue growth while units will expand 17%.”

The coronavirus is contributing to global uncertainty. “While the worst situation is in China, the fact that some factories are still shuttered will have at least a short-term effect on the global supply chain from apparel, to automotive parts to smartphones. If the outbreak continues through March and into April, global GDP could be damped by 0.5%. Disruption in the semiconductor supply chain will result in pent-up demand. Semico expects a spike in demand when this crisis is over,” he added.

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VLSI Research
2019 IC market—$352.2 billion (-13.4%)
2020 IC growth forecast—$384.5 billion (+9.2%)
2019 Semi equipment—$75.7 billion (-9.5%)
2020 Semi equipment growth forecast—$79.2 billion (+4.7%)

“Excluding how the coronavirus plays out, the IC and equipment markets look strong in 2020,” said Dan Hutcheson, chief executive of VLSI Research. “2019’s excess inventories have been reduced and price elasticity have combined to break the fall of the NAND and DRAM markets. DRAM has been helped substantially by the return of data center investments, which had been digesting huge spends in 2018. Equipment had a hard turn late in 2019 due to logic spend and is being driven hard this year by 7nm and 5nm expansions. 2019 was the year EUV made it to production, but the real expansion is in 2020.”

What about the coronavirus? “The coronavirus is the $10 billion question,” Hutcheson said. “Previous pandemics have had small monthly and no quarterly impact on the IC market. Not even the SARS virus. There was not even a weekly impact of the 2014 Ebola virus. Sales did bump up a little on the week when the WHO declared an emergency 2009 H1N1 Swine Flu emergency and then they dipped to the negative in week+3. This has not been true for the coronavirus.

“When we correct for the Lunar New Year, the IC sales dip in week+1 was over 20%, compared to the same week the year before. This has been closer to the 2011 Sendai Earthquake, where there was a IC billings drop of just over 10% in week+1. So, it’s fairly clear there will be a significant impact on February’s IC billings and possibly Q1,” he said.



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