Early 2020 Looks Promising For Semi Industry

Reports of 2Q’19 financials from all of the major OEMs in our 213 company global sample show that their electronic equipment sales declined 1.4 percent compared to the same quarter of last year (Chart 1). This OEM group’s combined sales growth peaked in 2018 and then declined and was still falling in the second quarter of this year (Chart 2).

Seasonality and currency exchange related electronic equipment growth
Strong seasonality traditionally overlays monthly world electronic equipment sales. Consumer electronics including personal computers and cell phones drive this seasonality, amplifying revenues at the year-end holiday season. Per Chart 3, world electronic sales start to build in late summer and then plummet after the Christmas holidays and into winter. This year’s normal busy season seasonal upturn appears to be a bit muted. For example, August 2019 was down 5 percent from August 2018. Of this 5 percent decline about 3.5 percent was currency exchange rate related (stronger dollar vs. other currencies) and the other 1.5 percent was an actual decline at constant currency exchange.

2Q’19 world electronic supply chain growth
Chart 4 compares 2Q’19 and 2Q’18 growth of a combined large number of suppliers in the global electronic supply chain. Some traditionally strong electronic equipment sectors – including automotive, data storage and instruments – saw a decline in the second quarter. In addition, the semiconductor chip, passive component and SEMI equipment sectors continued their decline.

Semiconductor component and capital equipment outlook
In its recently revised global semiconductor forecast, the World Semiconductor Trade Statistics group predicts a 13.3 percent sales decline this year followed by a 4.8 percent rebound in 2020 (Chart 5). Globally, both semiconductor chips and SEMI capital equipment shipments were shrinking at nearly a 15 recent rate in July (Chart 6). Based on both their 3/12 trajectories, true recovery (3/12>1) will not occur before year end.

Wafer foundry sales predicting year end recovery?
Taiwan-based wafer foundry sales are often a leading indicator of global semiconductor shipments (Chart 7). They turned up significantly in August. Per Chart 8, SEMI equipment and semiconductors will likely be led by foundry sales, reinforcing the prediction of a resumption in semiconductor chip and capital equipment growth in late 2019 or early 2020.

Global politics and trade fights could certainly interfere, but we appear to be inching forward.