From Uncertainty To New Markets

The 11th annual SEMI/Gartner Market Symposium at SEMICON West 2016 presented diverse perspectives on trends and developments in the macroeconomic environment as well as the semiconductor manufacturing supply chain. The themes have significant and immediate impact on the industry and include economic uncertainty, Brexit, China’s ambitious plans for an indigenous chip industry, and evolving end-markets.

Duncan Meldrum, chief economist at Hilltop Economics, led off the symposium with a discussion about economic uncertainty. His presentation discussed the recent Brexit announcement, turmoil in global financial markets, the U.S. presidential elections, and shifting policies in Japan, China, and Europe. Dr. Meldrum explained that following an economic crisis, the economy typically experiences a strong recovery. However, current elevated uncertainty levels are negatively impacting investments, causing a slowdown on the path to full economic recovery. He also noted that even though Brexit will temporarily suppress key drivers for semiconductor growth, the industry is expected to bounce back strongly in 2017.

Industry overviews and trends were presented by Bob Johnson, Research VP at Gartner, and Dan Tracy, Senior Director Industry Research at SEMI. Gartner downgraded its 2016 chip forecast from -0.6% to -3.0% this year, with growth of 4.7% anticipated in 2017. Factors muting the forecast include high inventory levels across the supply chain coupled with demand weakness in saturated key markets and an uncertain macroeconomic climate following the Brexit. It was also noted that no significant new demand driver is expected to emerge to reverse the current market condition.

Despite the dampened chip outlook, Gartner’s forecast for wafer-level processing equipment was adjusted slightly up from their 1Q2016 expectation of -1.8% to -1.1% for 2016. By contrast, SEMI’s outlook is more bullish, projecting total new equipment market (wafer processing, other front end, assembly and packaging, and test equipment), will increase 1.1% this year. SEMI’s relative optimism is based on the year-to-date data it collected from SEMI members, as well as CAPEX announcements by leading device manufacturers. SEMI also presented its semiconductor materials forecast, which is expected to be essentially flat this year and into 2017. But even with anemic growth, the materials market is expected to retain its #1 spot in dollar volume over the total equipment market, a position it has held since 2008.

Sam Wang, research VP at Gartner presented insights on foundries and the China market. Foundries enjoyed a high-growth period in the early part of the decade, primarily driven by advanced nodes. However, due to the maturation of the semiconductor industry, the slowing of Moore’s Law, and the fact that fewer customers now require leading edge devices, growth of foundry revenue has weakened and is expected to be subdued for the foreseeable future. By contrast, the Chinese government has established what is expected to become a $100 billion National IC Fund to develop the domestic semiconductor manufacturing supply chain to reduce the import/export imbalance of semiconductor chips. As a result, twelve new fab projects in China have been announced; eight of which are foundry related, according to Gartner.

Christian Gregor Dieseldorff, senior analyst and director Market Research at SEMI, highlighted the resurgence of 200mm fabs. He noted that much of the semiconductor content in mobile devices are made on relatively low-cost 200mm wafers, which is driving the need for increased 200mm fab capacity. Internet of Things (IoT) devices are expected to be made at lowest cost possible which is further fueling 200mm fab investments. He observed that China is investing in more 200mm fabs than any other region. SEMI predicts that 2019 Global 200mm fab capacity will be on par with 2006 capacity levels due to renewed investments in 200mm processing.

Jim Walker, VP of Research at Gartner, also discussed the impact of China’s IC Fund on acquisition activity in the Semiconductor Assembly and Test (SATS)/Outsourced Semiconductor Assembly and Test (OSAT) sector. The rationale behind this acquisition spree by entities based in China is the relative low cost of entry offered by packaging as compared to leading edge fabs that can cost $7 billion per facility. Packaging offers faster time to full production and revenue generation, with facilities that are already located in Asia. Another attractive feature of the SATS market is that it is fragmented with many small suppliers; there are over 150 suppliers; 38 with revenue of over $100 million according to Gartner.

William T. Chen, ASE Fellow, Senior Technical Advisor provided insights into the crucial role of heterogeneous integration through SiP (System in Package) in the broad electronics device market and how this technology is meeting IoT and cloud challenges. According to Chen, smart electronics, IoT-connected devices, smart phones and the Cloud constitute over 50% of global electronic system revenue. Innovation in packaging technologies incorporating heterogeneous integration and SiP are crucially important to support more and increasingly complex functionality. Chen noted that the iPhone 1 in 2007 had only 2 WLPs (wafer level packages), the iPhone 6 Plus now has more than 26 WLPs. This fast-paced growth can only be supported through collaboration across the supply chain, from design manufacturing to final test.

The last major theme of the symposium was evolving market drivers. Gartner’s Martin Reynolds, Vice President and Gartner Fellow presented on IoT and Deep Neural Networks. He stressed the importance of building a business case prior to deploying an IoT solution as well as the necessity of scrutinizing security and implementation costs. Elements required for successful implementation of an IoT solution include well executed data science and engaging customers. He identified deep neural networks as an enabler for IoT as they can transform preventative maintenance to predictive maintenance and are capable of converting complex patterns into small data packets, which decreases data transmission and storage requirements.

Jason Marsh, director of technology at NextFlex, introduced the audience to NextFlex, America’s Flexible Hybrid Electronics (FHE) Manufacturing Institute and presented an overview of FHE and the benefits FHEs deliver to IoT-based applications in sectors such as health care and the military. As an example, Marsh described the Institute’s efforts in human monitoring systems for medical, extreme performance, occupational and wellness applications. He provided an economic of the potential for FHE systems. RFID, OLED displays, printed and FHE sensors and conductive ink are the top four revenue generating segments in FHE, with a combined total of $34 billion in revenue in 2015. With the semiconductor industry forecast to contract this year, the thin film PV market now dominated by China, and the IoT’s insatiable need for smaller, faster and cheaper devices that require lower power, investors are taking a hard look at FHE’s potential.

While uncertainty in the markets continues to challenge the semiconductor industry, China and evolving end-markets will continue to influence the industry. Venues such as the SEMI/Gartner symposium provide a valuable forum to better understand market trends, opportunities, and issues facing the entire semiconductor supply chain.