Despite a projected 5.4 percent increase in global semiconductor revenue in 2015, this is down from 7.9 percent growth in 2014, according to Gartner Inc. The forecast is also down from the previous quarter’s forecast of 5.8 percent growth.
The semiconductor industry is forecast to reach $358 billion in revenue, driven by strong growth in several product segments, including application-specific standard products (ASSPs) in smartphones, DRAM and NAND flash in ultra-mobiles and solid-state drives (SSDs).
"Semiconductor revenue growth in 2015 is expected to slow from the 7.9 percent growth experienced in 2014 as DRAM returns to more traditional price reductions and the industry burns off excess holiday inventory," said Jon Erensen, research director of Gartner, in a statement. "DRAM pricing was unusually firm in 2014 due to short supply, which propelled DRAM to be the fastest-growing device type in 2014 with 31.7 percent revenue growth. DRAM supply and demand will be in line in 2015, driving bit pricing down a more traditional 16.8 percent and reducing annual DRAM revenue growth to 7.7 percent."
The largest dollar increases by application is expected to come from smartphones, SSDs, and ultra-mobiles, said Gartner. Compute applications will continue to be the largest market for semiconductors, followed by wireless and consumer applications in 2015. These three device categories account for more than two-thirds of total semiconductor revenue, according to the market research firm.
However, in 2015, the industrial electronics segment is expected to record the largest revenue growth at 9.1 percent. Growth will be driven primarily by LED lighting for industrial and residential applications and smart city projects, along with the Internet of Things (IoT) in 2015 and beyond, said Gartner.
Wireless applications, driven primarily by mobile phones, is forecast to be the next biggest growth market for semiconductors. Gartner reports that 2015 revenue growth for wireless, specifically mobile phones, is the same as the previous quarter’s forecast.
"While mobile phone semiconductor sales will remain robust, driven by the accelerating shift to smartphones and 4G Long Term Evolution, there is concern that weak sell-through for other electronic equipment categories will result in higher inventory levels and drag down semiconductor sales in the first quarter of 2015," stated Erensen.
Lower Semiconductor Capital Spending
In addition, Gartner expects global semiconductor capital spending to increase by only 0.8 percent in 2015 to reach $65.7 billion, reporting much lower growth than the 12.9 percent increase in 2014.
Capital equipment spending is forecast to increase 5.6 percent in 2015, down from 11.3 percent in the third quarter 2014 forecast, as the largest spenders adopt conservative investment strategies, pulling back on new fab construction to focus on ramping up new capacity, according to Gartner.
“Equipment spending outperformed capital spending in 2014 and will continue to do so in 2015, a situation that will reverse in 2016. Total capital spending will grow 0.8 percent in 2015, compared with 8.8 percent in our previous forecast,” said Bob Johnson, research vice president at Gartner, in a statement. “As we get better visibility into individual company spending plans for 2015, it is apparent that caution is a prevailing sentiment, with the exception of memory where manufacturers are adding capacity in response to favorable market conditions.”
The report, "Forecast Analysis: Semiconductor Capital Spending and Manufacturing Equipment, Worldwide, 4Q14” finds that memory suppliers will shift their new capacity focus from NAND to DRAM in 2015 to leverage profitable market conditions, but the spending with shift back to NAND in 2016 and beyond as DRAM market conditions worsen.
In addition, $1.4 billion of the $4.4 billion total capex reduction from the previous quarter’s forecast includes a $3.6 billion reduction for NAND Flash, a $0.2 million reduction for NOR flash and a $2.4 billion increase for DRAM. However, as the DRAM market enters into an oversupply scenario after 2015, Gartner’s forecast for NAND flash capex increases over the next few years as NAND manufacturers add more capacity to meet increased demand for SSDs.
Overall, Gartner said memory capex remains strong for 2015 with a 13.5 percent increase, compared to a 17.7 percent increase in the previous quarter’s forecast. The key reason is a “strong pricing environment” that will drive spending growth.
The report also finds that foundries will continue to outspend logic integrated device manufacturers (IDMs) in 2015. Foundry spending is expected to increase by 4.8 percent, compared to a 5.3 percent decrease in total logic spending. Gartner’s longer term outlook for logic spending is flat.