As we enter the second half of 2020, a year that started with so much promise, we are now faced with a dire global economic situation due to the COVID-19 pandemic with over 27 million confirmed cases and over 875,000 deaths worldwide. Although currently, the pandemic numbers are still growing daily in 213 affected countries and territories around the world, the world is also racing to expedite the vaccine development which optimistically may be available from early next year. 

Despite the global economic situation, the semiconductor segment has stayed so far been relatively stable.

The US, the world’s largest economy, has over 6 million confirmed COVID-19 cases and saw its economy contracted by 33% in Q2, whilst Europe as a whole contracted almost 12%.  On the bright side, the US economy is expected to rebound in Q3 by around 20%, but this still leaves the economy shrunken from pre-pandemic levels.  More locally, Singapore’s GDP contracted almost 43% in Q2, though the manufacturing sector only shrank 0.7% in Q2.  For the full year, the Singapore economy is expected to contract between 5-7% according to the Ministry of Trade & Industry.  The only bright spot is China which is recovering from the pandemic and grew 3.2% in Q2. The upturn is expected to continue in the second half of 2020.

In the US, unemployment is slowly decreasing from a peak of over 14% in April to around 10% in July as the economy slowly opens up, but the pace of recovery has slowed.  In the Eurozone, unemployment was 7.8% in July but this is expected to rise as further job cuts are expected in the coming months. Companies may downsize as furlough schemes aimed at keeping people employed start to wind down.

The Semiconductor Industry

Against this backdrop, the semiconductor industry has as a whole fared quite well in the first half of 2020, and SIA is now expecting overall global semiconductor sales to grow 3.3% in 2020.  Not all sectors will do well but NAND flash, DRAM, computer CPU, and embedded MPUs categories are all expected to grow. These segments will keep the overall growth positive despite IC Insights predicting that 25 out of 33 product categories will decline in 2020.

With the computer and data centre markets fueling the growth in the memory and CPU segments, two other major end markets for semiconductors are expected to decline in 2020.  In the smartphone segment, the total number of smartphones shipped this year is expected to drop 9.5% in 2020 compared to 2019 with shipments expected to total 1.2 billion units according to market research company IDC.  In the automotive sector, the number of automobiles sold is expected to drop 20% in 2020 to 59.6 million vehicles.

Despite the pandemic, the foundry market has continued to grow this year with most foundries and OSAT’s reporting record monthly revenues in Q2.  Overall foundry revenue saw a 20% year-on-year growth in Q2, and Q3 is expected to grow 14% according to Trendforce.  TSMC is slowly extending its lead in the market and is expected to take almost 54% market share in Q3.  Its 7nm line is running at maximum utilization and its 5nm volume is growing thanks to strong demand from 5G infrastructure, CPU/GPU demand from high-performance computing applications and WFH arrangements. TSMC recently announced it will start volume production of 3nm technology in 2022 and will start 2nm development next year.  Samsung is expected to hold the number 2 slot in Q3 with 17.4% market share, down 1.4%, and GlobalFoundries is the 3rd with 7% market share.

At the same time, as TSMC was announcing its 3nm process production release, Intel announced further delays on its 7nm technology and is now reported to be considering outsourcing its leading processors to foundries like TSMC and Samsung in the future.  Both TSMC and Samsung are currently 2 years ahead of Intel as Intel continues to struggle to have the engineering expertise to keep up with its Asian competitors.

In the semiconductor equipment market, according to SEMI, global sales by original equipment manufacturers are projected to increase 6% to $63.2 billion in 2020, and sales are expected to further increase to $70 billion in 2021.  In 2020, equipment spending growth is coming from the foundry and logic market, whilst DRAM capex spending is expected to decrease this year as DRAM manufacturers remain cautious despite the strong growth in sales.

Q2 results from the top semiconductor companies were mixed, but overall revenues grew 3.9% in Q2 compared to Q1. Memory companies (Samsung, SK Hynix, Micron and Kioxia) did very well due to the strong demand for data centres and computer memory.  The non-memory companies did not fare so well in last quarter with Intel, Qualcomm, TI, Infineon, STM, NXP all reporting lower revenue than Q1 (excluding acquisitions). Overall, the non-memory companies were down 1.4% in Q2.  However, the outlook is not that bad with non-memory companies are expecting better results in Q3, overall expecting 4% sequential revenue growth and excluding Intel, they are predicting 15% growth in Q3.

US-China Trade War Continues

Back in May, the US Department of Commerce imposed restrictions on companies selling to Huawei and its affiliates if they use US technology.  Despite this ban, partly due to stockpiled chips and also by alternative sourcing, Huawei continued to grow, and in Q2, Huawei overtook Samsung to take top spot in sales of smartphones due to strong China sales.

Then in August, the US DoC further tightened sanctions. A further 38 Huawei affiliates were added to the entity list. Foreign semiconductor companies were restricted from selling chips developed or produced using US software or technology to Huawei, without first obtaining a license to do so.  This is designed to prevent Huawei from going through third parties to purchase items and effectively extends the ban to all chip designers, such as Taiwan’s MediaTek.

The US has also been putting pressure on its allies to persuade them to ban Huawei equipment from their 5G networks.  So far, countries including the UK, France, Japan, Australia and India have all announced they will not allow Huawei equipment in their 5G networks.

In response to the US using semiconductors as one of the key battlegrounds in the trade war, China is trying to further accelerate its semiconductor manufacturing capability as part of its “Made in China 2025” plan.  In August, it announced new tax incentives for domestic semiconductor players. Under the new rules, qualifying companies will be exempt from corporate income tax for up to 10 years if they use 28nm or below technologies, and 5 years if they use 65nm ~ 28nm technologies.  In addition, China is reported to plan a further sweeping suite of measures to bolster research, education and financing for the industry. These measures have been added to a draft of China’s 14th five-year plan, which will be presented to the nation’s top leaders in October 2020.  Despite all these measures, it is estimated that China will still import US$300billion worth of semiconductors in 2020 from the US and elsewhere.

Mergers and Acquisitions

Here is a summary of the major acquisitions and mergers that happened in the last 2 months.

Broadcom sold its wireless IoT business to Synaptics for approx US$250 million.  This is the 2nd time Broadcom has sold this division. In 2016, it sold its IoT wireless division to Cypress Semiconductor but retained the right to develop Wi-Fi, Bluetooth, and other wireless capabilities to support its customers in consumer electronics markets.

Austrian sensor company AMS received the final regulatory approval from Europe for its acquisition of German lighting company Osram and completed the acquisition on July 9th 2020.

STMicrolectronics announced 2 separate acquisitions, one to acquire French ultra-wideband technology company BeSpoon and the other to buy Canadian cellular IoT connectivity company Riot Micro.

Softbank has announced it is considering the sale or IPO of Arm Holdings, which it bought 4 years ago.  Arm supplies silicon IP which is at the heart of most systems on chips used by major electronics companies and used in everything from smartphones to IoT products. As such, any acquisition will come under extensive regulatory scrutiny.  With a selling price of around US$40 billion, quite a few major semiconductor companies have been rumoured to be interested but the favourite so far is Nvidia.

Optoelectronic component manufacturer II-VI announced 2 acquisitions. It has entered into a definitive agreement to acquire all outstanding shares of Swedish SiC epi wafer manufacturer Ascatron.  In another deal, II-VI will acquire all outstanding interests of US ion implant services company INNOViON.  Both transactions are scheduled to close by the end of 2020.

Fab Opening and Closures

Dutch lighting company Signify will close its production facility in Kansas US, which makes conventional lighting products, and move production to its facilities in Poland and India.

In Taiwan, there were quite a few announcements. Backend assembly and test provider ASE said it would invest US$880 million to build a new Fab, K13, in Kaohsiung to expand advanced testing and packaging capacity for 5G-related chips.

Foundry TSMC is also expanding capacity as it announced it has bought a factory in the Southern Taiwan Science Park in Tainan for US$29 million.  It is TSMC’s second purchase of a factory complex in the science park in August as it prepares to expand production capacity.  In addition, TSMC has said it plans to open a new cutting-edge research-and-development centre in Hsinchu next year to develop 2nm technology, and is also seeking to acquire land adjacent to the new R&D centre to build a production fab for 2-nanometer chips.

Whilst Taiwan foundry Powerchip said it planned to build a new 12 inch Fab in Miaoli County in Taiwan as strong demand for display drivers have boosted utilisation in their factories to 100%.  The company plans to start building it in Q2 next year, and will have an initial capacity of 15,000 wfrs per month.

In China, the news is not so good as construction at Wuhan Hongxin Semiconductor, a new logic foundry in Dongxihu started 2 years ago,  has been halted due to financial difficulties.  HSMC originally intended to build a 14nm Fab with a capacity of 30000 wpm.  This is the 4th Fab project in China that has been stopped recently.

Locally in Singapore, Vanguard plans to spend US$64 millon in its newly acquired Singapore Fab to increase capacity by 33% to 40,000 8” wfrs/month to support the strong customer demand.


It seems that the semiconductor segment will continue to do well in Q3 and hopefully, this trend will continue through into Q4 driven by demand for the Christmas and Chinese New Year festivities.  However, the global economic situation and outlook cannot be ignored. There are a few reports of inventory levels building up, so any optimism must be tempered with a sense of caution until a vaccine is readily available.

Mark Dyson
Head of Global Subcon Manufacturing of Osram Optoelectronics