In the midst of the stock market tumbling in China and general, global economic malaise, there is still much to be said for sustainable growth trends across the semiconductor and electronics industry, from foundries to end-devices. However, along with this positive macro-trend for the industry is a disruptive shift that heralds a change in the balance of power and in long-standing supply chain relationships.
Despite the valid economic concerns many have for China’s stability, there are equally strong positive indicators for electronics growth based on the volume and scale of demand in the emerging markets of China, India, and other Asia-Pacific nations (APAC).
Certainly, not all is humming along for the semiconductor and electronics industry; demand for smartphones and tablets is slowing in North America and continued decline in PC sales remains problematic along with diminishing hope that Microsoft’s Windows 10 release would spur the typical enterprise and consumer refresh cycles. While concerns about some device sales linger, phablets are surging, picking up tablets’ slack, as IC Insights underscores in a report.
Global semiconductor sales numbers point to continued positive outlooks for the industry. The Semiconductor Industry Association (SIA) announced that chip sales in May rose a solid 5.1 percent, adding to 25-months of consecutive monthly growth on a year-on-year basis. The Americas led global semiconductor sales with 11.4 percent increase year-over-year, followed by Asia-Pacific with 3.3 percent.
Chip sales fell in Europe and Japan, though. While it might seem appropriate to attribute the declines in these regions to the Greek debt crisis and lingering economic troubles in Japan, these aren’t the only causal factors. The strengthening U.S. dollar, which has appreciated strongly against both the yen and the euro over the last several months, is also contributing to the weaker semiconductor sales in both Japan and in Europe, as previously reported on EPS.
There are a few data points out there that help shed light on what is going on and why there may be contradictions in the industry’s competitive landscape and current sales opportunities. The industry is experiencing a wave of maturing wave growth in China and Asia-Pacific.
One insight comes from the SIA release that highlights several important strategic developments. What is happening in the industry is not the usual OEM jostling for competitive advantages but rather, deeper, international moves to keep US chip manufacturers viable and embedded in the growing Chinese IC market:
“Congress and the President recently gave the U.S. semiconductor industry and other trade-dependent sectors a major boost by enacting Trade Promotion Authority (TPA), which makes it easier for the United States to strike deals on free trade agreements,” said John Neuffer, president and CEO of the SIA, in the statement. “With TPA, the United States is more likely to get the Trans-Pacific Partnership (TPP) and other critical trade agreements across the finish line, leading to continued growth and innovation in our industry and across the U.S. economy.”
Coupled with these trade policies and competitive strategies are the synergistic shifts in manufacturing and channel relationships by majors in the industry. More specifically, global companies continue to diversify and extend their relationships with locally based companies in China, India and across the APAC region (as well as Brazil, in some cases). One example of this local embedding is Intel Corp.’s – and to a much lesser degree Qualcomm’s – continued building of relationships with mid-sized, Chinese vendors, as recently reported in a Caixin Online article.
The strategic extension and diversification within China to work directly with Chinese partners point to the next phase in the market strategies and maturation of the Chinese electronics marketplace. Growth in China – and certainly India closely will follow – necessarily depends not on exporting to these ripe emerging markets, but will hinge on having entrenched, deep, and localized channels that directly serve and access local markets.
Added to this market strategy necessity are economic policies in both India and China that favor and require local manufacturing or the imposition of high tax rates, much like in Brazil. Unlike Brazil though, China especially is strategically increasing its ability to produce the significant volume of ICs it consumes – “[…] more than half the semiconductors sold each year, and its share is growing,” as Bloomberg Business reports, citing researcher Sanford C. Bernstein.
India, China, and the US continue to be core to sustainable growth for the global semiconductor industry. As sustainable growth continues in India and China, especially – and with these nations’ present focus on strengthening and rapidly growing localized chip and device manufacturing – the higher output and demand will shift the balance of power from the current global chip and OEM leaders unless truly localized channels and facilities are established to secure long-term viability.
The TPA and competitive moves by Intel and other vendors underscore the reality that the global semiconductor and electronics supply chain balance is shifting.