Taking A Pulse On The IC Biz

It’s been a difficult period for the semiconductor industry.

The coronavirus outbreak has put a damper on what was supposed to be a strong year in the semiconductor industry in 2020. Many are holding out hopes for a rebound in the second half of the year. That’s still a big unknown.

The forecasts are gloomy. For example, VLSI Research has three different scenarios for the semiconductor and equipment industries in 2020 and 2021. If there is a mild impact for Covid-19, VLSI Research projects a 6.3% sales decline in the equipment industry in 2020, compared to 2019. In the same scenario, the IC market is projected to decline by 4.3% in 2020, according to the firm.

VLSI Research has also presented a forecast if there is a severe impact from Covid-19. Those numbers are bad. Business is expected to roar back in 2021.

To gain some insights in the market, Semiconductor Engineering discussed the status of the IC and equipment industry with Dan Hutcheson, chief executive of VLSI Research, and Risto Puhakka, president of the research firm. What follows are excerpts of that conversation.

Impact of shelter-at-home policy
Nearly all nations have been affected by the virus. Many are under a shelter-at-home policy. Businesses have been shut down.

This in turn has impacted much of the tech industry, including some of the largest players. At least 150 companies have given warnings about possible earnings impact due to the coronavirus and forced closures based upon directives from various government agencies.

Consumer spending is a mixed picture in the work-at-home economy. “The problem is that there was a hiccup in assembling components,” Hutcheson said. “Look at the end market. As soon as people started going to work from home, these companies were buying PCs. Everybody was upgrading their networks. So there was demand for more DRAM and servers.”

This created an imbalance in the supply chain. “Because the assemblers were kind of shut down in China, that created a big gap between what was being produced by our industry, and what could go directly to the consumer. And that’s just beginning to recover now,” Hutcheson said.

Still, consumer demand is high for electronics. “There’s a shortage of PCs and laptops. People have been buying high-end smartphones. We follow the weekly prices. They’re all up,” Hutcheson said.

Automotive and industrial products are down, however.

Semiconductors
Despite the impact from Covid-19, IDMs and foundries are still developing and shipping chips. The forecasts are lower with some uncertainty in the market.

Leading-edge processes are in demand, although memory is a mixed picture. “If you look at spot pricing, it’s trending down. There is a reasonable supply there,” Puhakka said

“The fabs are running. TSMC, Samsung, Intel, Micron and Hynix are all going full bore,” Puhakka said. “They all have been moving one way or the other to the data economy. In order to serve that data economy, they need the capacity.”

March was a slow month, but April is critical. “April is the month that the production ramp starts for the holidays,” Hutcheson said. “TSMC’s CoWoS, their advanced packaging line, is totally slammed right now. The orders for that have completely beat all their expectations. It’s going into high-bandwidth memory. It’s going into graphics cards. It’s going into the AI stuff.”

Semiconductor equipment
It’s been a mixed picture for equipment vendors. Many have given warnings about a possible earnings impact. Plus, several nations have imposed shut downs, which has rocked the supply chain.

“The equipment guys and the supply chain are not doing bad at all. They have had their share of hassles in supply chain logistics. They are shipping tools,” Puhakka said. “They’re scrambling through the supply chain. It looks like they are getting a handle on it. But it’s been a mad scramble for the last two months.”

So are there delays in obtaining equipment? “There are not big delays. We’re talking weeks, rather than months. And in some cases, we’ve also seen that the customers want to pull in the tool orders, because they were concerned about their logistics. The public knowledge is that EUV tools were pulled in,” Puhakka said

The supply chain issues are impacting several tool types. “Everyone is scrambling to get EUV tools. One of the problems is that there’s a shortage of transport air freight,” Hutcheson said.

The end result? “The semiconductor unit volumes are clearly dropping. We do expect there is going to be slower demand on equipment. And that’s why we have minus 6% for equipment for this year,” Puhakka said.

Government stimulus plans
Governments are playing a big role here. What about the U.S. government’s role in all of this?

“The Fed said they’re going to inject $2.3 trillion,” Hutcheson said. “Add that to the $2.2 trillion of the CARES Act. That equals 20% of real GDP. That’s a fundamental explosion of influx of money into the economy. That’s going to keep things really going, so we’re going to power out of this really fast.”