What’s On Your Holiday Gift List?

This month Semico reduced our semiconductor growth outlook for 2015 and 2016. The slowdown is mainly due to lower sales of electronic devices such as new convertible notebooks and even smartphones. TSMC reported near-term uncertainty due to higher than seasonal inventories, customers’ cautious inventory management, along with active inventory reductions. The new iPhone 6s and 6s Plus rolled out in September with a record-breaking 13 million first week sales, due in part to an opening week that included a broader geographic area which included China. Will there be shortages during the peak holiday sales season?

For more than a year, the IPI has been pointing to a better second half for 2015, but reports from the major foundries continue to indicate slower manufacturing activity and fewer units being produced. Is there a major imbalance on the horizon? Semico’s indicators point to an efficient inventory level which means if we have a good holiday season will companies begin to ramp into a frenzy in December and January? The slower activity at the foundries could be due to the major consolidation going on in the industry. Merged companies may be underestimating their sales related to the upcoming holiday demand. As companies merge, there are fewer foundry customers. But wouldn’t there be just as much unit demand?

Semico believes that, as the industry continues to consolidate, the companies on the chopping block have cut back on production and inventories. There are fewer companies and the industry is becoming leaner, more efficient. Following is a look at unit sales and related wafer demand for a few key semiconductor products.

The two product categories on track to experience the largest wafer demand growth in 2015 are microcontrollers and optoelectronics. The main drivers of MCU unit growth include IC cards and the multipurpose (industrial) segment.

Worldwide smart card MCU shipments grew more than 40% in 2014. The rollout of EMV in the United States is one of the main reasons for the big surge in smart card sales. EMV stands for Europay, MasterCard and Visa. It is a global standard for cards equipped with a smart chip used to authenticate chip-card transactions. There are approximately 1.2 billion payment cards in the United States. By the end of 2014, 120 million chip cards had been issued and 600 million are forecast to be in use by the end of 2015. That means about half a billion cards will be issued in the United States alone this year. The reason for the surge is that October 2015 marks a significant milestone in the liability shift. The United States is about halfway through a six-year migration program. (Source: Semico Report MP114-15, NFC: On the Brink of Something Big)

Worldwide, smart card shipments continue to grow in 2015. Semico projects IC card MCUs will experience 26% unit growth this year. Semico anticipates future growth in MCUs will be due to opportunities around IoT deployment.

The other segment registering healthy unit growth in 2015 is optoelectronics. As shown in the chart, units are expected to grow 12.8%, even larger than the 10.9% growth experienced in 2014. Wafer demand is expected to increase 13.4%.

CMOS image sensors and LEDs continue to experience growth in consumer and automotive applications, and ASPs continue to drop, especially for LEDs. Wafer demand for image sensors is expected to increase by 16.0% in 2015.

At the other end of the spectrum are products that are usually viewed as the backbone of the semiconductor industry, i.e., chips for computing and communication. Both microprocessors and communication MOS logic chips are sluggish or declining.

As expected, the tablet market continues to experience a slowing of its sales growth rate. In addition, the PC market has hit a wall. The notebook market experienced an increase in sales in 2014 as new convertible notebook models reached the market. However, sales slowed in the second half of 2014 and sluggish demand has plagued the first half of 2015. The total PC market will see a negative growth rate in 2015. Processor units are expected to remain essentially flat, and wafer demand will also remain flat.

Total MOS Logic communication units are expected to register a 1.8% decline in 2015. This follows a decline of 8.1% for units in 2014. The major culprit in 2014 was a 24% decline in short-range communications. This year the culprit is wireless communication cellular phones, but not necessarily the application processor. Application processors that are designed for low power applications—especially smartphones and tablets, which integrate multiple components including central processing, graphics, and connectivity, as well as multimedia codecs—will grow slightly. The decline is occurring in other cellular phone chips. This category will experience a decline of 14% in units.

Overall, semiconductor units and revenues are slower than expected. However, Semico believes that due to mergers and acquisitions and the preparations for even more consolidation in the future, many companies are being overly cautious with regard to product rollouts and production.

So what’s on your holiday gift list? A drone? A new smartphone? How about a security system for your home that integrates your thermostat as well as HD cameras throughout the property? If the holiday season results in the type of sales that Apple experienced for their new 6s and 6s Plus iPhones, Semico expects production to begin ramping up in Q1 2016 and may even be humming “It’s the Most Wonderful Time of the Year” by Q4 2015.

For more product details on unit and wafer demand numbers, please contact Rick Vogelei, [email protected].