What a roller coaster of a year 2020 has turned out to be for semiconductors. The year started off on a very optimistic note, then we were hit by the COVID-19 pandemic which turned sentiment to be very pessimistic, then as we learned to cope with the pandemic despite it is still not being under control. We end the year with the semiconductor market once again on an optimistic note.
If you remember 2019 was not a particularly good year for the semiconductor industry, especially the first 3 quarters. However, by Q4’19 we had started to see a recovery in the market and it was predicted that this recovery would continue into 2020. At the beginning of 2020, global annual semiconductor sales were forecasted to rise around 6% YoY with foundry sales expected to outperform the overall market. Equipment sales were also expected to increase 5.5%.
Then at the end of January, COVID-19, as it would later be known, broke out in China. China went into lockdown and this prevented many Chinese factories from being able to re-open after the Chinese New Year break. Very soon the pandemic had spread worldwide and lockdowns were imposed in many countries, shutting many factories.
As the months have gone on, countries learnt to “cope” with the virus and a “new normal” way of living including working and studying from home has been implemented to balance people’s health vs the economy. This new normal created new demand for semiconductors, allowing the semiconductor industry to fare relatively well despite the world’s overall economy shrinking.
Despite the roller coaster ride as we are near the end of 2020, the semiconductor segment has managed to have had a relatively solid year. In the early part of the year, the stay at home economy drove semiconductor sales due to a strong demand from the datacentre segment, notebooks and other home electrical appliances. As we get into the 4th quarter, the usual seasonal demand especially for smartphones, together with the automotive industry picking up is continuing to keep demand high. Latest forecasts predict that global semiconductor chip and equipment sales will outperform the global economic market. Foundry sales are forecast to increase between 15~19% this year, the highest growth since 2014. TSMC has announced it expects to outperform the market and is forecasting their revenues will grow 30% this year. The memory segment is expected to be up around 12% this year driven by demand for NAND flash. Semiconductor equipment sales are also expected to be up between 5~8% this year with advanced logic and foundry fabs driving the growth.
US-China Trade War
On top of the issues caused by the pandemic, the US-China trade war has continued to escalate. For the semiconductor market, the main impact has been from the restrictions put on Huawei and its supply chain. Last year in May, the US placed Huawei on its entity list as it was deemed a national security risk, and banned US companies from doing business with Huawei.
Despite the ban, Huawei continued to grow and improve its technology for a while. In Q2 2020, Huawei achieved its long term goal first announced in 2016. Due to strong sales in China, Huawei overtook Samsung as the world’s number one smartphone manufacturer. This position only lasted 1 quarter as the US government expanded the original restrictions twice in between May and August. The result of which has effectively stopped Huawei from receiving parts from all semiconductor companies worldwide from Sept 15th 2020 onwards if they used US technology or software in the manufacturing or design of the product. Companies need to apply for a license to sell to Huawei, but to date despite many applications from companies, only Intel and AMD have publicly announced that they have been granted licenses.
In addition to the direct ban on Huawei, the US has been putting pressure on countries not to install Huawei equipment in their future 5G networks. To date, this pressure has had varied results, whilst Europe, North America and Australia have either banned or are unlikely to use Huawei in their 5G networks, countries in South America, Africa and parts of central Asia are unlikely to exclude Huawei.
Chinese number 1 foundry, SMIC, has also come under the scrutiny of the US government. Although SMIC has not been placed on the entity list, it has acknowledged that its equipment suppliers have received notices that they need to apply for a license to sell equipment to SMIC, which could prevent SMIC from developing and producing new technology nodes in future. Amidst the trade war, both the US and China have been rolling out measures to enhance their domestic semiconductor segments. This year, China has introduced new tax incentives to boost the semiconductor sector exempting qualifying domestic companies from corporate income tax for using advanced technologies from 65nm and below.
In the US, the government has been putting in measures to reverse the decline in US-based semiconductor chip capacity by trying to attract companies to set up manufacturing sites in the US. The most notable success has been TSMC’s announcement to build a 5nm fab in Arizona. In July, the “American Foundries Act” bill was introduced in Congress, which will provide federal grants for semiconductors of up to US$25 billion if approved. A study by SIA found that Federal Grants of US$50 billion over the next 10 years would be needed to increase the amount of world semiconductor capacity in the US from the current ~12% to 13~14% in 10 years’ time.
Mergers and Acquisitions
After a slow start, what a year 2020 has been for M&A activity, and now 2020 is heading to be the highest
ever year for M&A activity beating 2015 (US$107.7 total) due to 5 large acquisitions having been agreed.
Analog Devices acquired Maxim for US$21 billion, then Nvidia acquired Arm from Softbank for US$40 billion. This was followed by AMD acquiring Xilinx for US$35 billion, Intel sold it’s NAND business to SK Hynix for US$9 billion while Marvell acquiring Inphi for US10billion.
At present, the outlook is looking good for 2021. SEMI is predicting that global silicon wafer shipments
will continue to rise in 2021 and reach a record high in 2022. They are also predicting Fab equipment
spending to continue to grow in 2021. However, there are several external factors like the pandemic
or the trade war on the horizon that could potentially derail the industry. We need to hope that these are
managed well over the coming months. Looking forward to a bright 2021.
ABOUT THE AUTHOR
Head of Global Subcon Manufacturing of Osram Optoelectronics