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Technology’s Atlas Doesn’t Shrug Against Titanic COVID-19

Technology’s Atlas Doesn’t Shrug Against Titanic COVID-19
Technology, especially semiconductor electronics, is the modern Atlas holding up the global economy, but business sages foresee titanic challenges.

Are you tired of reading the truly terrible market news related to the COVID-19 pandemic? There is some good news, but first let’s set the stage for the one leading titan in the struggling global economy.

Even before the coronavirus grew into a pandemic, worldwide semiconductor revenues had declined by 12.2% in 2019 to $418 billion, according to the latest update to the Semiconductor Applications Forecaster (SAF) from International Data Corporation (IDC). The report lists several culprits for the poor semi performance in 2019. First, the global economy was sluggish, growing at its slowest pace since the huge financial crisis in 2008. Secondly, the US-China trade dispute grounded semiconductor sentiment and demand. Higher levels of inventory in specific areas like mobile phones and cloud infrastructures didn’t help. Finally, the DRAM and NAND memory markets were abysmal, declining 37.3% and 27.7% at the end of 2019, respectively.

And then came COVID-19, denying the world the anticipated boom and gradual recovery of the semi space in 2020. While global shelter in place orders helped to grow the computing, connectivity and memory products, the much larger change in consumer buying behaviors toward only essential goods and services have significantly curtailed spending by both consumers and governments.

IDC now expects the overall semiconductor market to decline 4.2% as the global economy fights to recover from the pandemic in 2020. Excluding the DRAM and flash markets, semiconductors are expected to decline by 7.2%. The demand for semiconductors will be very uneven across the different applications markets, for example, it will be especially bad in the automotive electronics space.

Major business markers attest to the negative impacts caused by COVID-19 on even the tech industry. Year-to-date indicators as of the end of April show that the PHLX Semiconductor Index is down 10%. Similarly, the S&P 500 index had a 12% drop and the tech-heavy Nasdaq Composite Index has declined by 3%.

Despite high demand for chips in the medical sector, the coronavirus crisis will undercut growth in the global semiconductor business in 2020, foresees Omdia. The looming threat of a global recession will only add to the struggles of the market.

The Omdia Application Market Forecast Tool (AMFT) predicts that the worldwide semiconductor market will decline by 5 percent in 2020, excluding memory ICs. With memory included, global revenue for the overall market will increase slightly. This still represents a significant reduction from the previous Omdia forecast of 5.5 percent growth for this year. One of the big challenges with the pandemic is its impact on the semiconductor supply chains.

Worldwide semiconductor market expected to decline by 5 percent in 2020, excluding memory ICs. (Courtesy of Omdia)

Now for the good news about the future of the semiconductor industry and hence the global economy, as highlighted during a recent SEMI Outlook virtual webinar by Marco Chisari, Managing Director, Global Head of Semiconductor Investment Banking, Bank of America Merrill Lynch. Here is a small edited portion of his comments.

Marco Chisari:

“In all of this negative news, what is clearly emerging is that our semiconductor industry and, generally speaking, the technology industry, is performing better than many other market sectors.”

“Clearly the semiconductor industry in particular is not seeing any of the dramatic revenue reduction that have been experienced in the transportation, aviation, hospitality, energy and even financial industries. That has been really reflected in the performance of the overall share prices.”

“Take a look at the SOXX index, (a popular ETF index fund that tracks the PHLX Semiconductor Sector space). It is generally in line with the rest of the key technology sectors. If we look at it, particularly from an ETF perspective which would be a predictor of future share price performance into Q2, then the semiconductor industries are definitely going to be performing better than many other industries and expectations.”

“It should be clear from the data (S&P 500 sectors and CY20E EPS) that the semiconductor industry is now sustaining the world economy.”

Presentation by Marco Chisari at Bank of America Merrill Lynch during SEMI Outlook virtual webinar. (Courtesy of SEMI)

“It’s very difficult at this stage (and in this market uncertainty) to provide an accurate forecast. Still, there are a couple of points to make. My perspective for now is that the more likely scenario for recovery (is based upon) the semiconductor industry being impacted less than the overall GDP. (As I’ve mentioned before) the reason is that we do not see the semiconductor industry revenue collapsing by 70%, 80%, or even 90%, as will many industries that I mentioned before.

We assume GDP production to be in the mid- to low-teens overall for 2020, with Q2 probably being the most difficult quarter for the economy since World War II. We do expect a recovery for the semiconductor industry in Q3 and Q4. Overall, our current assumption is that, for the overall semiconductor industry as an aggregate, probably a revenue decline for 2020 would be in the mid-high single digit, i.e., something between 6 and 8%.

Presentation by Marco Chisari at Bank of America Merrill Lynch during SEMI Outlook virtual webinar. (Courtesy of SEMI)

John Blyler is a Design News senior editor, covering the electronics and advanced manufacturing spaces. With a BS in Engineering Physics and an MS in Electrical Engineering, he has years of hardware-software-network systems experience as an editor and engineer within the advanced manufacturing, IoT and semiconductor industries. John has co-authored books related to system engineering and electronics for IEEE, Wiley, and Elsevier.

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