THE YEAR SO FAR

2019 has been a challenging year for the semiconductor industry with overall sales down in almost every sector. 2019 started with the industry in a deep slump caused by an oversupply of memory products and the ongoing trade war between US & China. By the end of Q1 overall sales were down 15.5%, with especially the memory sales being hard hit, down on average 33%. This was the first decline in year on year sales since 2016. The situation was further exasperated by the escalation of the trade war in May with additional tariffs implemented together with the US Trade Department adding Huawei and 70 of its affiliates to the so-called “entity list.” It meant that US companies and any companies with more than 20% US-originated technical content could not sell to Huawei, although the ban was immediately given a temporary 90-day general export license which was subsequently further extended twice. By the end of Q2, the 1st half 2019 global semiconductor sales were down 18% compared to the same period a year ago. However, even by the end of Q2, some logic companies were starting to report increased revenue compared to Q1. Even though another round of additional tariffs was implemented in September, by the end of Q3, the first signs of recovery were in sight, driven by smartphones, 5G infrastructure and AI segments. Overall the market was still down, with global sales for the year to date down 14% compared to the same period a year ago but certain areas were up. Foundry TSMC reported all-time record quarterly revenues in Q3 driven by 7nm sales, and some logic segment companies reported increased revenues. In the equipment segment, sales were starting to recover, with overall sales up 12% in Q3 compared to Q2. Only the memory segment was still languishing in the doldrums. In October, the outcome of trade talks between US and China was positive, and a so-called “phase 1” agreement was on the cards, which prevented further tariff hikes and also new tariffs on smartphones and many electrical items amongst other items being implemented in December.

2019 – THE YEAR OF MERGERS AND ACQUISITIONS

2019 saw a significant increase in mergers and acquisitions. Some of the major ones of the year were: 

In the IC segment, in March, Renesas completed its acquisition of US analogue mixed signal IC manufacturer IDT for US$6.7 billion, with the acquisition broadening Renesas’s embedded solution products. Also in March, Nvidia agreed to buy Israel’s computer networking supplier Mellanox for $6.8 billion fighting off competition from Intel. In June, Infineon agreed to acquire Cypress Semiconductors for $10.1 billion to broaden its product line. Other significant deals of the year were On Semi acquiring Quantenna Comms for US$1.07 billion to strengthen the company’s presence in industrial IoT and automotive markets. NXP bought Marvell’s wifi business for US$1.76 billion in May to increase its connectivity profile, and Alphabet acquired Fitbit for US$2.1billion to strengthen its position in the wearable market. Apple also made a couple of major acquisitions this year snapping up Intel’s modem business for US$1billion to enable it to develop its own 5G solution, and also acquired Dialog’s power management group for US$660 million. 

In the Fab space, Globalfoundries CEO Jim Caufield completed his refocusing of the foundry by selling two fabs and a business unit. It sold its Singapore Fab 3E to Vanguard (VIS), together with its US East Fishkill fab to OnSemi, and sold its ASIC unit Avera to Marvel. Panasonic exited the semiconductor manufacturing business selling its chip business to Taiwan’s Nuvoton for US$25million. In the equipment sector Applied Materials acquired Japanese batch wafer tool manufacturer Kokusai Electric for US$2.2billion whilst two metrology companies Nanometrics and Rudolph Technology merged as equals in October to consolidate their position as a leading provider of advanced process control solutions to the semiconductor industry. 

In the optoelectronics sector, II-VI finally completed it’s US$2.2 billion acquisition of Finisar and while Cisco acquired two optoelectronics companies picking up Luxtera for $660 million and Acacia for US$2.6 billion. To end the year, in December, Austrian sensor manufacturer AMS acquired German LED and sensor manufacturer Osram for almostUS$5.0 billion at the second attempt.

HOW THE 2019 ENDS

Global semiconductor sales in 2019 are now expected to end down around12.5~13% compared to 2018, with total sales of around US $410~425 billion. Memory was the worst hit segment in 2019 and is expected to be down over 30% compared to 2018, followed by analog down around 8% and logic around 4%. For the foundry segment overall, it is expected to be flat for 2019 but TSMC is expected to outperform the market with sales expected to grow in single digits for 2019 as a whole. 

Based on the overall global semiconductor sales, Intel is expected to retain its number 1 position followed by Samsung, due to the downturn in memory that has hit Samsung revenue this year. 

In the equipment sector, global equipment sales are expected to end down around 10.5% in 2019 compared to 2018’s historic peak, at around US $58 billion. Taiwan is expected to be the number 1 market for equipment sales in 2019 mainly due to strong capex spending from TSMC to support 7nm and below technologies. 

Next Year The Year Of Recovery? 

Looking ahead to next year, as long as the US-China trade war continues on its current more positive path, we should see a continuation of the upturn that we started to see in Q4 2019, and expect an even better year in 2020. Overall global semiconductor sales are expected to rise around 6% YoY in 2020. I would expect foundry to outperform the overall semiconductor market especially Taiwanese foundries, which can benefit from the trade war by being able to support both China and US growth. Equipment sales are also expected to have a much better year with sales rising 5.5% in 2020 compared to 2019.

The main market drivers in 2020 are expected to be 5G infrastructure and smartphone segments as China, US and Europe all start to build or expand their networks. Artificial intelligence (AI) and Internet of Things (IoT) segments are also expected to continue to show very strong growth next year from datacenter and industrial applications. Although fully autonomous cars are now not expected to be on the roads as soon as hope and maybe two or more years away, the automotive sensor segment will continue to be a big growth area in 2020 as more and more sensors and higher levels of driver-assist are added to cars. 

In terms of IC’s products, memory is expected to show the biggest growth after it’s dismal showing last year, with NAND expected to have round 20% growth followed by DRAM with 12% growth, with other IC’s supporting 5G, AI, IoT and specialty automotive also showing good growth. The optoelectronics segment is also expected to show exceptional growth in 2020. 

So I hope that 2020 will be the start of an industry-wide recovery that will last for many years, and the US-China trade war will be settled amicably so that the world will see better global trade relations.

“Looking ahead to next year, as long as the US-China trade war continues on its current more positive path, we should see a continuation of the upturn that we started to see in Q42019, and expect an even better year in 2020.”

ABOUT THE AUTHOR

Mark Dyson

Director Procurement, External Manufacturing, & Product Engineering at Denselight Semiconductors Pte Ltd, Singapore