Falling Chip Forecasts

It’s time to take a pulse of the semiconductor market amid the memory downturn and trade frictions with China.

For some time, the DRAM and NAND markets have been hit hard with falling prices and oversupply. Then, the Trump administration last year slapped tariffs on Chinese goods. China retaliated. And the trade war rages on between the U.S. and China.

More recently, the U.S. Department of Commerce effectively banned China’s Huawei from buying components from U.S. companies by placing them on the “entity list.” The impact from the Huawei ban has been felt throughout the semiconductor supply chain. The following companies have exposure to Huawei—Qorvo, Synaptics, Qualcomm, Xilinx, Cirrus, Silicon Labs, ADI, On Semiconductor and TI, according to KeyBanc Capital Markets. Cree, Skyworks and others are also impacted.

What shook up the market was Broadcom, which recently reduced its sales forecast by $2 billion for the year, “primarily due to aggressive customer inventory reduction triggered by the Huawei export restriction and increased tariffs,” said John Vinh, an analyst with KeyBanc Capital Markets.

So what’s next? To get an idea where the industry is today, Semiconductor Engineering polled several market researchers to take a pulse on the market.

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IC Insights
2018 chip growth— plus 17%
Previous 2019 chip forecast—minus 9%
Current 2019 chip forecast—minus 13%

“Given the uncertainty surrounding the U.S. and China trade war, IC Insights depicts three full-year IC market growth scenarios, each with an assumption of when a trade agreement may be signed,” said Bill McClean, president of IC Insights.

In the most probable scenario, McClean said: “A trade agreement is signed sometime in the first half of 3Q19. In this scenario, a slight decline in the 2Q19 IC market is followed by double-digit IC market growth in 3Q19 and moderate growth in 4Q19. The 2H19/1H19 IC market growth rate is a strong 18%, but full-year growth shows a double-digit decline of 13%.”

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IHS Markit
2018 chip growth— plus 15%
Previous 2019 chip forecast— minus 7.4%
Current 2019 chip forecast— minus 12.5 (Updated: June 22)

“As of May 2019, Huawei claimed to have inventory ranging from three to six months to more than a year of various semiconductor components required in its smartphone and networking equipment designs because the U.S. ban was anticipated well in advance. The company also produces its own chips and the majority of its smartphones contain them. In fact, the company is working toward a goal of eventually providing 90% of its smartphone chips,” said Myson Robles Bruce, research manager at IHS Markit.

“However, U.S. suppliers like Micron, Western Digital, Qualcomm, Broadcom, Intel, Qorvo, Skyworks, Xilinx and Inphi will all lose business from Huawei as a result of the ban. It remains to be seen how suppliers in Europe and Asia will be impacted because although they are not subject to the ban directly, they do rely upon U.S. businesses to an extent in producing chips sold to Huawei,” Bruce said.

Assuming that there’s only an impact on U.S. suppliers, the ban moves the overall semiconductor market down by 1% to 2% on an annual basis, he said.
There are other factors:
*“Powerful companies like Intel are intensely lobbying the U.S. government to lift the ban,” he said.
*“The ban could be lifted temporarily to be put into effect later, in the interests of U.S. federal contractors or any company receiving federal aid that relies upon Huawei technology,” he said.
*“There could be a resolution arising from negotiations between the U.S. and China, and much could change next year if there is a new U.S. administration elected,” he added.

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Objective Analysis
2018 chip growth— ND
Previous 2019 chip forecast— ND
New 2019 chip forecast— ND

“It’s simply too early to tell what’s going on with the U.S. trade war with China,” said Jim Handy, an analyst at Objective Analysis. “The single word that best describes the current situation is ‘unpredictable.’ The U.S. actions, which the SIA has made perfectly clear work against the interest of U.S. semiconductor makers, are poorly thought through, unevenly applied, and occasionally abandoned midstream.

“China doesn’t take the first move and its responses are always in proportion to the action taken against the country. It is clear that China is following a carefully considered game plan that includes several different possible scenarios. The worst-possible outcome will take years to overcome,” he said.

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Semico Research
2018 chip growth—plus 16%
Previous 2019 chip forecast—minus 1.6%
New 2019 chip forecast–minus 10.5%

“The Semico semiconductor revenue forecast has been revised downward as a result of accelerating weakness in memory ASP, continued slow end market demand as well as the industry burn-off of inventory in certain product categories,” said Jim Feldhan, president of Semico. “In addition, economic concerns about the global economy has generated widespread uncertainty and cautious planning from the corporate world. Political tensions and tariffs have also contributed to the lower forecast as consumer purchasing power will decline as a result of higher prices from food to energy and electronics.”

Semico’s prior forecast published in February was minus 1.6%. “We have lowered the outlook to minus 10.5%. The decline in memory revenues accounts for 80% of the total decline in revenues, now falling over 26%. Optoelectronics and sensors are the only two product groups still projected to grow this year,” Feldhan said.

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VLSI Research
2018 chip growth— 15.5%
Previous 2019 chip forecast—minus 8.4%.
Current 2019 chip forecast—minus 12%.

“There has been a clear downward pressure on the semiconductor market since the ‘Trade Talk Fail’ with China on May 10,” said Dan Hutcheson, chief executive of VLSI Research. “Up until that point, there had been a general recovery underway. Since then, VLSI Research has seen the effects ripple through the supply chain from lower electronics demand and device pricing to IC and semiconductor production equipment demand.”

The impact has been big enough for VLSI Research to lower its 2019 forecast for electronics in general from +1% to -3%. “2019’s IC market is now expected to get approximately a $50 billion haircut to $357.8 billion. This drop amounts to -12%, which is the worst decline seen since 2001,” Hutcheson said.