The fourth quarter 2013 semiconductor market declined 0.8% from the third quarter, according to World Semiconductor Trade Statistics (WSTS). Full year 2013 growth was 4.8%. Our most recent 2013 forecast at Semiconductor Intelligence was 6% in November 2013, based on expectations of positive growth in 4Q 2013. Who had the most accurate forecast for 2013 semiconductor growth? We compared publicly available forecasts for 2013 released in the few months prior to the January 2013 WSTS data release. The most accurate was IDC at 4.9%. Other close forecasts were WSTS and Gartner at 4.5% and Mike Cowan at 5.5%.
Key semiconductor companies reported 4Q 2013 revenue change versus 3Q 2013 ranging from +42% at Micron Technology (driven by revenues from the Elpida acquisition) to -18% at SK Hynix (due to a fab fire). Seven of the fourteen companies in the table below showed revenue growth in 4Q 2013 and seven had declines. Revenue guidance for 1Q 2014 indicates an overall decline in revenue from 4Q 2013. Of the twelve companies which provided guidance, nine expect declines in revenue ranging from -2% from Micron Technology (estimated based on bit growth and price guidance) to -16% from AMD. Toshiba’s semiconductor group, Infineon and Freescale all expect growth in 1Q 2014. The weighted average guidance for 1Q 2014 is a decline of about 5%.
What is the outlook for year 2014 semiconductor market growth? Forecasts in the last few months range from about 4% (WSTS and Mike Cowan) to 20% (Objective Analysis). Half of the forecasts are in the 7% to 9% range. Our latest forecast at Semiconductor Intelligence is 10%. This is down from our November forecast of 15% due to a negative 4Q 2013 and an expected 1Q 2014 decline of about 5%.
Our 10% growth forecast is largely driven by an expectation of accelerating World GDP growth. The International Monetary Fund IMF January outlook calls for World GDP growth of 3.7% in 2014, up from 3.0% in 2013. Acceleration is driven by developed economies, with the U.S. expected to accelerate to 2.8% in 2014 versus 1.9% in 2013. The Euro Area should recover from a 0.4% decline in 2013 to 1.0% growth in 2014. The strongest growth continues to be in emerging and developing economies, growing 5.1% in 2014, up from 4.7% in 2013. Although China is forecast to decelerate slightly from 7.7% to 7.5%, most other developing economies are projected to show accelerating GDP growth in 2014.
Semiconductor Intelligence’s model of the semiconductor market based on GDP for 2014 predicts 11% growth. We are reducing this to 10% based on a weak 1Q 2014. The upside growth in 2014 could be as high as 14%. 2015 GDP growth is forecast by the IMF at 3.9%, a slight acceleration from 2014. Based on this outlook, we expect double-digit growth for the semiconductor market to continue into 2015.
Semiconductor Intelligence attended the International CES last week in Las Vegas, Nevada. A wide variety of consumer electronics devices were displayed at the conference. These ranged from:
- Fascinating – but is it practical? (personal robots, drones)
- Exciting – but when will it be cheap enough for the mass market? (UHD TV, glasses-free 3D TV)
- Potential hit – devices with near term growth prospects (wearable fitness/health devices)
- Mundane – incremental improvements in established devices (tablets, smartphones)
- Questionable – does anyone really want or need this? (Internet control of lights & appliances)
Despite the wealth of new technology introduced, the near term prospects of the consumer electronics market are weak. Steve Koenig, Director of Industry Analysis of the Consumer Electronics Association (CEA) presented the 2014 forecast by CEA and market research company GfK. The presentation is available at: http://www.ce.org/Blog/Articles/2014/January/RESEARCH-What-Do-We-Expect-2014.aspx
CEA & GfK expect the worldwide consumer electronics market to decline 1% in 2014 measured in U.S. dollars. This follows a moderate 3% growth in 2014. The only product categories expected to show any significant growth in 2014 are smartphones (+6% vs. 27% in 2013), tablets (+9% vs. 30% in 2013) and video game consoles (+21% vs. -9% in 2013). Smartphones have been a strong growth category for the last few years, but have led to a decline in non-smart or feature mobile phones. The strong growth of tablets has contributed to a decline in PC sales. Video game console growth in 2014 is due to the introduction of the Sony PlayStation 4 and Microsoft Xbox One in late 2013. Despite the advances in LCD TVs such as Ultra High Definition (UHD or 4K) and glasses-free 3D, overall LCD TVs are expected to decline 2% in 2014 after 3% growth in 2013.
In terms of regions, developed countries (U.S., Western Europe, Japan, South Korea, Taiwan, etc.) are forecast by CEA/GfK to see a 4% decline in consumer electronics sales in 2014 after a 2% decline in 2013. Developing countries (China, India, Latin America, Eastern & Central Europe, Russia, Middle East, Africa, etc.) should grow 2% in 2014, a significant slowing from 9% in 2013. According to CEA, developed countries accounted for 60% of consumer electronics sales in 2010. The percentage is expected to decline to 50% in 2014 and continue to decline in future years.
Two of the emerging consumer electronics devices we focused on at CES were Ultra High Definition (UHD) TV and wearable devices for health and fitness. Although these two categories have potential to drive growth in consumer electronics in the future, what is the near term outlook?
All of the major TV suppliers displayed UHD TVs with screen sizes of 85 inches (diagonally) and up. Several UHD TVs are available on the market. Bestbuy.com lists major brand UHD TVs at about $5,000 for 65 inches and $3,000 for 55 inches. By comparison, HDTVs sell for about $1,500 for 65 inches and $750 for 55 inches. The high prices and limited UHD content will limit sales to early adopters for several years. IHS Inc. expects UHD TV sales to hit 10 million units in 2014, up from 1.5 million in 2013. Sales are forecast to hit 38.5 million units in 2018, but will be only 16% of the total LCD TV market.
Wearable devices should have near term impact on the consumer electronics market. Fitness and health are the major drivers of wearable devices. The 2014 market for wearable devices is expected to be about $5 billion. Forecasts for the 2018 market size range from $13 billion from BI Intelligence to $35 billion from the Industrial Economics and Knowledge Research Center (IEK). Wearable devices are a new area of consumer electronics and should drive growth without displacing sales of other electronic devices.
Our daily blog on CES is at http://www.semiconductorintelligence.com/ces2014
Global semiconductor manufacturing equipment sales have increased each of the last three quarters after dropping significantly in the second half of 2012, based on data from Semiconductor Equipment and Materials International (SEMI) and Semiconductor Equipment Association of Japan (SEAJ). Much of the volatility is in sales to Korea, which dropped 76% from 1Q12 to 4Q12 and then rebounded 87% from 4Q12 to 3Q13. Semiconductor equipment sales in Taiwan have varied by quarter, but have generally been close to $2.5 billion a quarter. Sales in North America were fairly steady in 2012, but declined in the first two quarters of 2013 before picking up slightly in 3Q13. Taiwan, South Korea and North America (primarily the U.S.) account for about two-thirds of total semiconductor equipment sales. China has not yet emerged as a major market for semiconductor equipment, remaining about the same size as Europe and ROW (rest of world). Japan was the largest market for semiconductor equipment for many years, most recently in 2008, but has declined to about 10% of the market.
SEMI’s December 2013 forecast for semiconductor equipment billings called for a 13% drop in 2013 to $32.0 billion from $36.9 billion in 2012. As shown above the 2013 decline is due to a weak first half, with the market increasing in the second half. SEMI expects growth to pick up 23% in 2014 and 2% in 2015. The chart below shows SEMI’s forecast and historical billings back to 2000. The year-to-year trends are very volatile, with declines of close to 50% in several years and recoveries of up to four times the prior year.
A four year average of semiconductor equipment billings shows a more consistent trend. Over-investment in 2000 kept the average close to $30 billion through 2003. Under-investment dragged the average down below $20 billion in 2005. The average recovered to $30 billion in 2008 after strong investment in 2006 and 2007. The average will reach about $38 billion in 2013 and should remain close to that number based on SEMI’s forecast through 2015.
How does semiconductor equipment spending compare to the market for semiconductor devices? The chart below shows the ratio of semiconductor equipment spending (from SEMI and SEAJ) to the semiconductor device market (from WSTS). The year-to-year data is very volatile, but again the four-year-average shows a more consistent trend. The four-year-average ratio dropped from 20% in 2000 to below 10% in 2005. For the last six years, the four-year-average has been in a narrow range of 12% to 13%.
The last several years seem to indicate the semiconductor industry may have matured from the boom-bust cycles which plagued the first several decades of its existence. We at Semiconductor Intelligence have a few theories why investment is more stable:
- The industry has matured and growth has slowed, allowing for better communication among semiconductor equipment companies, semiconductor companies and semiconductor users.
- The increased use of wafer foundries has enabled a better balance of capacity. Rather than individual semiconductor companies scrambling to increase capacity to meet demand or idling capacity as demand falls, the foundries can shift capacity among customers as needed.
- Increasing use of specialized semiconductors versus commodity semiconductors. Many electronics applications depend on semiconductors designed specifically for the application or customer. This leads to better planning between the electronics manufacturers and the semiconductor suppliers.
- Exponential rise in cost of wafer fabs. As the cost of a new wafer fab has ballooned from less than $100 million in the 1980s to multiple billions of dollars today, companies can no longer afford to build fabs on speculation of higher market growth or increased market share. Companies must base fab decisions on reasonable growth plans and may depend on wafer foundries for incremental additional capacity.