The global semiconductor market is expected to rebound this year by as much as 7.9 percent, but the ghosts of 2019 haven’t vanished. Tariffs still impact more than $350 billion worth of imported Chinese goods -- including the chips and passives that are staples of electronic systems -- and economic indicators are suppressing spending.
“Brexit, trade issues and now the Coronavirus are causing global uncertainty,” said IC Insights president Bill McLean at a Boston-based forum. “Uncertainty causes [businesses and consumers] to freeze.”
First, the good news -- the global IC market will reach $384.78 billion this year, a nearly 8 percent increase in revenue. Unit growth, at 7 percent, will reach 319.12 billion. Price fluctuations, particularly in memory, account for the disparity.
Memory is expected to grow 14 percent in 2020 to $125.38 billion. The analog and logic segments will both grow by 5 percent, to $58.21 billion and $201.9 billion, respectively. Increased electronics content in products – automobiles, smart phones and computers – continues to drive growth. End-product consumption will remain flat.
“Products are growing something like 1 percent, so that’s impacting the semiconductor market,” said McLean. “Consumers need to feel good about the economy to feel good about upgrading their cars, PCs or smart phones.” Global economic forecasts for 2020 are not inspiring confidence.
The chip market and GDP
The fortunes of the semiconductor market are now tied to gross domestic product (GDP) growth rather than historic boom-bust cycles, according to McLean. Twenty years ago, 60 percent of semiconductors were shipped to businesses that are famously unable to forecast; now, 60 percent of chips go into consumer devices. Global GDP is expected to grow 2.6 percent in 2020, a slight increase from 2.4 percent last year.
The Chinese market – one of the biggest consumers of electronics goods—is forecast at a 5.7 percent increase in GDP. China’s trend has been on the decline since 2018 when GDP averaged 6.6 percent. “The Chinese are no longer shopping because of the Coronavirus,” McLean said. “People are staying home, which is not good for business. The Chinese, and worldwide, economy will suffer.”
Against this backdrop are headwinds in manufacturing growth, trade, and global competitiveness. As the saying goes, it’s complicated.
The purchasing manager’s index, or PMI, measures the health of the manufacturing industry—any number above 50 indicates expansion. The U.S. PMI has contracted for five consecutive months as demand for U.S. products has dropped precipitously. Manufacturers aren’t adding jobs, and the impact of tariffs not abated. December’s PMI registered 47.2.
“A level below 50 doesn’t necessarily mean a recession, but the trend is now below 48,” said McLean. “Since the trade war started the line has trended down considerably and the trend is not good going into 2020.” In 2018 the U.S. PMI neared 60; China’s PMI has been below 50 since that time.
The phase one trade deal between the U.S. and China has only stopped further escalation, McLean explained. Existing tariffs (and counter-tariffs) on key electronics goods have not been eliminated or rolled back. Phase two will almost certainly take place after the 2020 U.S. election.
“From China’s perspective, there’s no rush,” McLean said. “They know Trump, so they know what they are dealing with. A different administration may have a softer approach. It’s not going to make much difference this year, and tariffs are still hurting both economies.”
Capex and the road to self-sufficiency
The U.S. trade sanctions against China’s Huawei Technologies, in addition to tariffs, have discouraged 2020 capital spending in the semiconductor industry. But the damage will extend beyond this year.
Worldwide, semiconductor capital spending is forecast to decrease by roughly 6 percent this year, from $103.5 billion in 2019 to roughly $97.6 billion. Samsung is expected to decrease capex by 14 percent; SK Hynix by 32 percent, and Micron by 10 percent. Intel and TSMC will modestly increase spending by 3 percent and 7 percent, respectively.
Most semiconductor capex is flowing into the Asia-Pacific and in particular, China. Trade sanctions have only accelerated China’s desire to become less dependent on U.S. goods.
China's XMC/Yangtze River Storage Technology (XMC/YMTC) expects to migrate to 128-layer DRAM in 2020. CXMT plans to build a second fab this year. Fujian Jinhua Integrated Circuit Co. (JHICC) is in limbo, fighting a IP-theft lawsuit.
Still, the biggest chip producers in China are not Chinese. SK Hynix, Samsung, Intel share the top 5 slots with SMIC and Huahong Group. Chinese chip makers, except for Huawei’s HiSilicon unit, are lagging in leading-edge technology. In addition, McLean said, the Chinese don’t have a plans for analog, logic and other key IC segments.
“You aren’t self-sufficient if you can’t produce microcontrollers or A to D converters,” he said. “You also need analog and mixed signal. Where is [China] going to get this technology?” Even it if did, materials for wafers and packaging still must be imported from elsewhere. “Self-sufficiency isn’t going to happen.”
But China remains a huge consumer of electronics goods from the U.S. and elsewhere. The trade dispute between the U.S. and China has negatively impacted both markets and spurred global economic jitters.
"At least if you know how how bad the market is, you can adjust," said McLean. Recent events have only added to overall global uncertainty. "Even the big forecasters, such as the World Bank group, aren't enthused about economic growth over the next few years," he concluded.