The Trouble With Extroverted Execs (and the Upside of Introversion)
by 
Lisa Cairns
Historically, the semiconductor and electronics industry is a story of ebb and flow: the cycles of demand and the lulls that follow. Mix in the greater, macro-economic waves of variables that push or pull at consumer confidence and spending and you get a pattern that held out for the better part of several decades.
The year 2014 had us all quite excited with a lovely return to growth and healthy outlooks after the post recession period. But then 2015 happened and numbers dropped around the industry despite the promise of significantly increased tech penetration for automotive and medical, IoT/IoE, and greater adoption of industry and manufacturing automation.
Data and forecasts for the second half of 2016 are not indicating any real bright spots as of yet. The industry remains sluggish with sales and volumes lighter than usual; the positive news is that while 2016 is expected to come in below 2015 levels for global sales, volume, and for equipment spending, 2017 is anticipated to see a return to sustainable growth that will continue into 2018, according to SIA and WSTS. More specifically, WSTS’s Spring 2016 market forecast underscored the key data:
WSTS expects the world semiconductor market to be down 2.4% in 2016 at US$327 billion with growth returning in 2017 and 2018. For 2016, growth in Optoelectronics (1.8%), Sensors (7.6%), and Analog ICs (1.0%) is expected to be offset by declines in Memory (-10.2%) and Logic (-2.5%). By geography, for 2016, declines are expected across all regions with the largest decline in Americas.
For 2017 and 2018, all major product categories and all regions are forecasted to grow reaching US$341 billion in 2018. As a result, the worldwide semiconductor market is forecasted to be up ~2% year-on-year in both 2017 and 2018.
By region, a positive growth rate is projected for all regions in 2017 and 2018. The Americas and Asia Pacific regions are expected to show the highest growth rate accounting for approximately 80% of the market
Across the semiconductor and electronics industry, oversupply due to demand weakness has reigned this year. The trend is not showing any letup at this point, but manufacturers and OEMs are rebalancing inventories and working to regain a healthy balance for the industry. The ongoing global PC slump is still a real variable in these depressed numbers. As IDC recently reported, the 2016 forecast is for a 7.3% decline in worldwide PC shipments:
The outlook continues to call for progressively smaller declines through 2017 followed by stable volume in 2018. However, growth in 2016 is now expected to be roughly 2% below earlier projections as conditions have been weaker than expected. Growth in the first quarter of 2016 (1Q16) came in at -12.5%, just below IDC's forecast of -11.3%, and inhibitors such as weak currencies, depressed commodity prices, political uncertainty, and delayed projects continue to constrain shipments.
The decline in PC demand is not isolated though; the industry has experienced depressed mobile demand as well as softening for tablets and related notebook devices that were originally seen as taking from PC demand. Worldwide, mobile OEMs and supply chain partners are dealing with the effects of the slowdown: Ericsson is reported to be looking at mass layoffs in Sweden, Apple has released slowing sales, and chip manufacturers are seeing the impact particularly in the memory market, as EPS’s Gina Roos reported.
Looking ahead though, markets and component sectors across the board are forecasted to improve. For the PC market, there is no anticipation of a recovery into positive growth over previous years, but rather a stabilizing and slowing of the decreases, which will allow for a more stable position for PC makers. The factors contributing to the slower PC sales, however, are not likely to abate; IDC identified these as including “[…] unfavorable currency movements, depressed commodity prices, political uncertainty and project delays.”
Similarly, SEMI recently announced that the slowdown in fab line construction and equipment spending is forecasted to rebound after a slow start to 2016:
[…] it is expected to gain momentum through the end of the year. For 2016, 1.5 percent growth over 2015 is expected while 13 percent growth is forecast in 2017.
Fab equipment spending ─ including new, secondary, and in-house ─ was down 2 percent in 2015. However, activity in the 3D NAND, 10nm Logic, and Foundry segments is expected to push equipment spending up to US$36 billion in 2016, 1.5 percent over 2015, and to $40.7 billion in 2017, up 13 percent. Equipment will be purchased for existing fabs, lines that are being converted to leading-edge technology, as well as equipment going into new fabs and lines that began construction in the prior year.
For memory, there are some important positives, as Roos pointed out, particularly as the growth of servers, cloud services, and SSDs continues, demanding greater memory volume and driving refresh cycles for installations. The second half of 2016 is already being forecasted as showing memory-IC market improvements as oversupply is reduced and the potential for strong NAND demand could pull supply low, supporting price increases, according to DigiTimes.
The growth of mobile is rooted in the digital economy, which will be a major variable driving economies going forward. As Gartner underscored:
Gartner calls new economic models arising from digital business the "economics of connections." This idea builds upon Metcalfe's law, which was originally used to describe telecommunications networks and states that the value of an agent within a network increases exponentially as the number of connections increases. For example, a network of two telephones can only make one connection, but a network of five can make 10 connections, and so on.
"Digital business significantly changes this type of value calculation that guides investment decisions," said Ms. Burton. "First, tens of billions of things will join the billions of people and millions of businesses online. Second, any of these agents will be able to play multiple roles: customer, partner, supplier, employee, competitor, or a combination of them."
Taken together, while there are serious headwinds that will hamper growth worldwide, particularly for sectors such as PCs and some components, the current doldrums are (hopefully) more related to a transitional economic phase as we move, globally, into new models of business and technological engagement. The Digital Economy is still only in nascent stages and growth will resume, but the traditional cycles are likely to be a thing of the past with new cycles only just emerging.
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