IDC thinks a recovery might start kicking in by Q3, but nobody else is that optimistic
Global chip sales will drop by 7.2% from last year as the semiconductor market works through a supply glut and ducks crossfire from the U.S.-China trade war, according to market research firm International Data Corp. (IDC).
Other analysts believe the outcome for the year could be worse than what IDC is projecting, however.
Sales this year are set to reach $440 billion compared with $474 billion in 2018, IDC said in a May 15 press statement. This year may mark the first decline after three years of growth.
For 2019, the logic segment is likely to grow 1% to $319 billion while DRAM and NAND are expected to decline in 2019 and 2020, IDC said.
"The current market downturn is being driven by a broad weakness in demand specifically centered in China and an ingestion of excess inventories in some of the major markets including automotive, mobile phones, and cloud infrastructure," said Mario Morales, a vice president with IDC.
While IDC said it expects a recovery to start in the third quarter of this year, other analysts were more cautious.
“Currently, we show the DRAM market down 22% and the total flash market down 16%, but we are re-evaluating and believe there is much more downside than upside risk to this forecast based on first-quarter results and second-quarter outlooks from the various memory suppliers,” IC Insights vice president Brian Matas said to EE Times in emailed comments.
In addition to the trade war and the memory glut, other negative factors include weak sales of smartphones and cryptocurrency mining equipment, which was a hot new business two years ago.
“If things don't get worked out quickly, the whole year could be very bad, worse than expected,” said Semiconductor Advisors president Robert Maire. “I don't see memory recovering any time in 2019.”
One of the biggest issues going forward will be a war between the U.S. and China for dominance of the 5G rollout, Maire said. US actions against China’s Huawei, ZTE and Fujian Jinhua Integrated Circuit indicate that the situation between the US and China will not get better any time soon, he added.
Resisting the pressure, China will probably double down on "made in China 2025", Maire said.
That national project is a strategic plan to move China away from being the world's workshop producing cheap, low quality goods due to lower labor costs and transforming to higher-value products and services.
Outside of China, the winners this year will be those companies whose sales drop the least, Matas said. “Intel, Microchip, TI and TSMC are still expecting low single-digit growth, but all have scaled back their full-year expectations after first-quarter results were posted,” he said.
On the same subject, Dan Hutcheson, CEO of VLSI Research, told EE Times, "I see the current big winners in the semiconductor market as AMD, MagnaChip, and Qualcomm. AMD because its leadership is strong and it’s leading a resurgence of X86 architecture in the cloud. Arm architectures were gaining here, when it was essentially an Intel sole-sourced market space. AMD revived the competitiveness of the X86 architecture. They're also catching up to the wave Nvidia started with AI.
“Magnachip's strategy pivot to OLED display drivers was not only a profitable move, but also one that's surfs a high-growth wave in consumer electronics,” Hutcheson continued. “Qualcomm, because they broke the Apple chains that bound them (to paraphrase Dickens). That said, companies that have a lower exposure to China should do better, given the trade craze."
A depletion in inventory for memory used in datacenter servers could drive an upturn in memory sales in second half of the year, Matas said. He expressed doubt that an inventory drawdown or a U.S.-China resolution on trade issues would offset the big sales declines in the first half of the year.
“It’s clear that 2019 isn’t going to be a great year as we have seen a broad-based inventory overbuild and a lack of end market strength,” Arete Research senior analyst Brett Simpson told EE Times. “Memory is the obvious loser given the brutal price cuts in both NAND and DRAM, and possibly the Apple supply chain. Winners are harder to find in this market,” he said.
Qualcomm may buck the downward trend because of its breakthrough in the legal wrangle with Apple and its early execution in 5G, according to Simpson.
IDC expects market consolidation will begin to accelerate as the industry gets more clarity on the trade dispute between China and the U.S. IDC expects more moves in 2020 and 2021 in the sensor, connectivity, automotive, and AI and computer vision markets as suppliers look to drive more top-line growth and improve access to new markets.
IDC’s Morales offered a list of segments that IDC expects will be instrumental for growth in 2020 and beyond: cloud infrastructure investment, 5G mobile devices, WiFi 6 adoption, smart NICs, automotive sensors, powertrain technologies, AI training accelerators, and edge inference SoCs.
Arete’s Simpson said, “I don’t see another wave of consolidation per se, but there are a raft of positive long-term themes in semis that keep things interesting -- 5G, AI, auto EV and IoT are all early stage trends that will drive the next cycle.
“Most of these trends start to inflect next year and particularly 2021,” he continued.