IC Insights Lowers Semiconductor Market Forecast

The global semiconductor market in 2016 is being dragged down by a weak global economy – in part due to the Brexit vote – and a weak DRAM market, according to IC Insights. As a result, the market researcher lowered its semiconductor forecast for 2016 to negative one percent growth.

IC Insights joins other forecasters in their bleak forecast for 2016. IDC recently reported it expects global semiconductor sales in 2016 to decline for the second consecutive year, to $324 billion, by 2.3 percent. The market researcher attributes some of the decline to weakness in consumer PC demand and oversupply of DRAM and NAND memory devices, which has had a negative impact on pricing.

Similarly, Gartner Inc. expects global semiconductor revenue to reach $333 billion in 2016, falling by 0.6 percent from 2015. This follows a drop of 2.3 percent in 2015, due to weak demand for electronic equipment, high inventory levels, and a strong dollar in some regions, according to the market researcher.

“The health of the semiconductor industry is increasingly tied to the health of the worldwide economy,” said IC Insights. The market researcher forecasts 2016 global GDP growth of 2.3 percent, which is “below the 2.5 percent level that is considered to be the global recession threshold.”

IC Insights’ analysts expect the annual global semiconductor market growth rates to continue closely tracking GDP growth. (See Figure 1.) The forecast is part of its upcoming Mid-Year Update to The McClean Report 2016

One of the key contributors to a downgraded semiconductor market forecast was the Brexit vote in June, which analysts believe will negatively impact the global economy. The biggest negative impact on economic growth is the uncertainty, said IC Insights.

Some of the uncertainty shared in the report includes:

• Whether the U.K. will actually leave the EU. Since the Brexit vote is not legally binding, and still needs to be approved by the U.K. government, there is uncertainty if its departure from the EU will actually happen.

• Whether the U.K. will come apart itself. There are rumblings about Scotland breaking away from being a part of the U.K. in order for it to remain as part of the EU.

• What trade deals will be made by the U.K. if it does leave the EU? As part of its exit from the EU, the U.K. will need to establish numerous new trade deals with the EU. There is tremendous uncertainty regarding whether these deals would have a positive or negative effect on the U.K. economy.

• Will other countries follow the U.K. and depart from the EU? Anxiety persists over whether the EU will fall apart as other countries attempt their own exit. Some countries mentioned as possibly following the U.K. out of the EU include the Netherlands (Nexit), France (Frexit), Italy, Austria, and Sweden (Swexit).

The other factor that has a significant impact on the semiconductor industry is the weak DRAM market. Here’s why. The DRAM market, at $45 billion, was the largest product category for semiconductors in 2015, and IC Insights expects the DRAM market to fall by 19 percent to $36.5 billion in 2016.

“The DRAM market alone is forecast to shave three percentage points off of total semiconductor market growth this year. Semiconductor market growth excluding DRAM is forecast to be +2 percent,” said IC Insights.

The biggest impact on the DRAM market is the fast drop in DRAM pricing over the past 18 months, according to IC Insights. The average selling price (ASP) for a DRAM is forecast to drop to $2.55 in 2016, a 16 percent decline, compared to the DRAM ASP of $3.03 in 2015.

Earlier this year, IC Insights reported that seven of the Top 20 semiconductor suppliers showed double-digit declines in the first quarter of 2016. Micron, Qualcomm, and SK Hynix reported ≥25 percent declines. Both Micron and SK Hynix are giants in the memory market. The total top 20 sales were down by six percent in the first quarter.