What’s Changing, What Isn’t

The global pandemic is creating economic chaos on a global scale. The big question now is when the coronavirus is brought under control, and just how long its effects will extend beyond the current health crisis.

For the semiconductor industry, which has weathered many long and deep financial swings, this one at least is finite. When the virus stops spreading, or when treatments are available, then markets begin recovering. But not everything goes back the way it was before. Service business like restaurants and travel, and retail sales do not automatically start back up, and that has an impact on consumer confidence that could extend well beyond the health crisis. So while people will still need smart phones, for example, those who were affected may postpone buying the latest smart phone. The same goes for new cars, clothing, and just about anything that isn’t essential.

On the other hand, the ability for many people to work from home could have a significant impact on sales of videoconferencing equipment, which is out of stock almost everywhere at the moment. And it could foster a boom in new housing in locations that are much farther from the office than people might have considered a month ago.

For the tech industry, much of this has seemed surreal. Many companies are considered “essential critical infrastructure.” So while some people still need to travel to the office, those who do not are being asked to work from home or told that going to the office is optional. Either way, most tech companies are still working. And chip and system design always continues during any downturn. In 2001 and 2008, sales of EDA tools remained strong.

“When this is over, every company will need new and competitive products,” said Wally Rhines, chairman emeritus of Mentor, a Siemens Business. “Even in the worst downturns, when there were thousands of layoffs at companies, it never made a dent in the design infrastructure. To do so would extend the downturn into market share loss.”

Unlike in the past, though, there isn’t just one end market. And it isn’t concentrated in just one region. So while the PC era led to the smartphone era with ever-smaller devices and a highly concentrated opportunity for a handful of large players, there now are multiple markets outside of mobility, including automotive, AI/ML/DL, cloud (Internet traffic is surging), industrial, edge computing, AR/VR and medical devices (which are surging, but for how long no one knows). In addition, there are multiple thriving geographical markets that didn’t exist in the past, including a thriving Asia/Pacific region, Europe with automotive and industrial, and solid growth in both the Middle East and South America — to hedge against any long-term problems.

Some of these application areas require new process nodes, advanced packaging, and new equipment for test and inspection. And nearly all require new expertise that remains in short supply, in addition to new and highly innovative chips that can boost performance and reduce power by leveraging new hardware architectures and more hardware-software-package-system co-design.

So despite all of the disruption, and a potential lag in consumer spending, the underlying market fundamentals are still strong. What’s changed is the timing for rolling out some of these pieces, and the possibility in some markets that not all of the pieces will go back exactly the same way as before. But from an overall semiconductor business perspective, the general consensus from dozens of interviews conducted over the past few weeks is that this is more of an economic pothole than a road washout.