The global industrial semiconductor industry reached $43.5 billion in 2016, up 3.8 percent year-over-year, thanks to broad-based demand across the industrial electronics equipment sector, according to IHS Markit. This growth has continued into 2017. While this is good news for industrial component suppliers, buyers will need to start closely monitoring lead times for a variety of semiconductors.
Several industry segments contributed to the late-in-the-year surge in demand in the industrial semiconductor market last year, according to IHS. Markets that show continued growth include commercial and military avionics, digital signage, network video surveillance, HVAC, smart meters, traction, PV inverters, LED lighting and medical electronics including cardiac equipment, hearing aids and imaging systems.
Industry analysts and suppliers expect continued growth in end equipment in 2017, particularly in industrial sectors that have seen slow-to-no growth over the past few years.
The IHS report also finds that several component segments, including optical semiconductors, discrete power devices and microcontrollers will drive growth in 2017 across many end-market sectors. Thanks to strength in the LED lighting market, the LED segment is forecast to grow from $9.4 billion in 2016 to $14.3 billion in 2021. Growth is attributed to the phase-out of incandescent bulbs in many countries and lower average selling prices (ASPs) for LED lamps.
Another energy-efficient trend is found in the factory automation market, which is driving growth for discrete power transistors, thyristors, rectifiers and power diodes. The market for these devices is expected to reach $8 billion in 2021, up from $5.7 billion in 2015.
The microcontroller (MCU) market forecast indicates strong growth in the long term, reaching $7 billion in 2021, up from $4.4 billion in 2016. IHS attributes “this growth to both shipments and average selling price driven by system level cost savings provided by MCUs through advances in power efficiency and integration integrated features supporting connectivity, security, sensors and HMI.”
Signs of Strength
IHS credits “industrial growth to the U.S. economy and improved economic conditions in Europe and large emerging countries like China, India and Brazil toward the end of 2016.”
A 2017 Prime Advantage survey of midsized U.S. industrial manufacturers supports continued optimism in the U.S. economy. The survey finds that industrial manufacturers are more optimistic about the U.S. economy in 2017 compared to last year, jumping 48 percentage points.
"The results of our 2017 CFO Survey indicate great confidence in manufacturing among our members, along with the most positive view of the U.S. economy that we have recorded in years," said Dan Grant, president of Prime Advantage, earlier this year. "The supply chain partnerships and strategic resources created by Prime Advantage and our network of endorsed suppliers look to help our members reach these soaring expectations.”
The distribution industry, which derives a significant portion of its business from the industrial sector, also predicts good growth in several industrial segments. Twenty-nine out of the top 50 electronics distributors believe the industrial market will fuel growth in 2017, followed by medical, aerospace/military, energy, and transportation.
In 2016, the top 50 distributors derived 28 percent of its revenues from the industrial sector, followed by aerospace (23%), automotive (9%) and computers (9%). They consistently derive about 28 percent of their sales from industrial applications.
In addition to strong and steady automotive business in the U.S. and the EU, Phil Gallagher, president, Avnet Core Distribution business, told EPSNews there’s also a very large industrial base of customers that continues to be healthy. “Industrial has always been a big part of distribution’s business – it’s our bread and butter – and it’s a steady, good business. We are seeing a high demand for parts across our industrial customer base.”
Arrow Electronics believes the industrial segment will show growth again in 2017 after slow to no growth, said Alan Bird, president of Arrow Electronics Inc.'s Americas components business, earlier this year.
There are pockets of growth in several industrial segments such as agricultural and heavy machinery that have been “extremely depressed,” said Bird. These segments have hit the bottom and will stabilize and bounce back this year, he added.
Bird also expects lighting and transportation/automotive to be robust growth drivers in 2017. “We believe our investments continue to be in the right areas and all of those verticals will continue to show growth going forward,” he said.
One of the hottest emerging technologies in the industrial sector is the internet of things (IoT). A recent Semico report estimates that semiconductor sales to the industrial IoT will grow at a 7.7 percent compound annual growth rate (CAGR) over the next five years, higher than the 4.8 percent CAGR for industrial semiconductors from 2010 to 2015.
The IoT is a driving force in the distribution industry, said Jeff Newell, senior VP of products, Mouser Electronics, earlier this year. “We are seeing great growth in two primary design products related to IoT: microcontrollers and sensors. We have increased our product offerings in both of these areas, particularly for industrial needs. Also, our popular Empowering Innovation Together program with celebrity engineer and Mouser customer Grant Imahara is helping to inspire creative thinking and innovation for new designs.”
Growing strength and demand for IoT innovation also played a role in the top five ranking of industrial semiconductor suppliers. While Texas Instruments (TI) held onto the top spot, Intel jumped to second place, up two positions, on its strength in IoT. Rounding out the top five is STMicroelectronics in the number three position; Infineon in the number four slot, swapping positions with Intel, and Analog Devices.
“The Intel IoT group’s double-digit revenue growth is attributed to strength in factory automation, video surveillance and medical segments,” said IHS.
Other big shifts in the IHS top 20 ranking include Toshiba, ON Semi and Microchip Technology, which all moved up to the top 10 ranks. They displaced Nichia, Renesas and Xilinx. Eight companies out of the top 10 semiconductor suppliers achieved growth in 2016, with two companies posting double-digit growth due to mergers.
“Toshiba, ON Semiconductor and Microchip Technology climbed into the top 10 industrial semiconductor supplier ranks in 2016,” said Robbie Galoso, principal analyst, industrial semiconductors for IHS Markit, in a statement.
“Toshiba’s industrial market share rank jumped to number six, according to survey feedback,” said Galoso. “Toshiba’s industrial electronics revenue grew from $1.1 billion in 2015 to $1.4 billion in 2016—a 30.5 percent bounce driven by discretes, microcomponent integrated circuits (ICs), memory and logic IC solutions in manufacturing and process automation, power and energy as well as security and video surveillance.”
There is no surprise that mergers and acquisitions had an impact on the rankings. Galoso noted that the “combined ON Semiconductor - Fairchild organization generated $1.3 billion in 2016 industrial revenues, catapulting the consolidated company into seventh place.”
“The acquisition of Fairchild allowed On Semiconductor to leapfrog to the top ranks of the power discrete market, forecast to be one of the higher growth markets over the next five years,” said IHS Markit.
“The Microchip Technology – Atmel merger generated $1.2 billion in revenues in 2016, propelling the combined company into 10th place,” said IHS Markit. “The acquisition of leading microcontroller supplier, Atmel, positioned Microchip as the third-ranked supplier of microcomponent ICs in the industrial market, after Intel and TI. The combination of Microchip and Atmel created an MCU powerhouse, allowing it to compete effectively against the combined NXP Freescale.”
Another significant change in the ranks is Chinese firm MLS making the top 20 ranking, displacing Maxim, due to its “massive investments in LED manufacturing capacity,” according to Galoso.
“MLS posted revenue growth of 27 percent, to $640 million, building its share against competition including top-20 firms Nichia, Osram and Cree,” added Galoso.
IHS Market expects mergers and acquisitions to continue to play a role in the industrial semiconductor segments and rankings. As an example, Analog Devices is expected to increase its lead in market share this year due to its acquisition of Linear Technology.
“A joint Analog Devices - Linear Technology would battle for the number four spot and impressive gains in test and measurement, manufacturing and process automation as well as medical electronics,” IHS Markit said.