The global semiconductor market was US$82.2 billion in the second quarter of 2014 according to World Semiconductor Trade Statistics (WSTS). 2Q 2014 was up 4.8% from 1Q 2014 up 10.1% from 2Q 2013. Healthy growth should continue into 3Q 2014. The table below shows initial revenue growth guidance for 2Q 2014, final reported revenue growth for 2Q 2014 and guidance for 3Q 2014 for key semiconductor companies. 2Q 2014 revenue growth versus 1Q 2014 was strong, with 13 of the 15 companies reporting positive growth. The best results were from Mediatek with 18% growth and Texas Instruments with 10% growth. In general 2Q 2014 showed better growth than initially expected. Of the 12 companies which gave 2Q 2014 guidance, 8 exceeded the initial estimate (shown with an upward arrow). The other 4 companies basically met their guidance.
Companies are guiding for continued quarter-to-quarter revenue growth in 3Q 2014. 11 of the 12 companies expect positive growth in 3Q 2014, ranging from 2% to 11%. One-third expect 3Q 2014 growth to be higher than 2Q 2014 and two-thirds expect growth to be lower. However based on most companies beating their guidance in 2Q 2014, the final 3Q 2014 revenue growth will likely exceed current expectations.
What is the outlook for the semiconductor market in 2015? Key semiconductor market drivers are generally expected to show improvement in growth rates in 2015 versus 2014. The International Monetary Fund (IMF) projects 4.0% GDP growth in 2015, up from 3.4% in 2014. Gartner expects combined unit shipments of PCs and tablets to grow 9% in 2015 versus 6% in 2015. Although IDC forecasts smartphone unit growth will slow to 13% in 2015 from 24% in 2014, Gartner expects total mobile phone unit growth to improve to 4.5% in 2015 versus 3.1% in 2014. Our forecast models at Semiconductor Intelligence predict 10% semiconductor market growth in 2014 accelerating slightly to 11% in 2015.
The chart below illustrates various semiconductor market forecasts for 2014 and 2015. The projections for 2014 range from about 7% (WSTS, Gartner, MIC and IC Insights) to about 10% (Mike Cowan, Future Horizons and Semiconductor Intelligence). Based on the latest WSTS data and company guidance, the final 2014 number should be around 10%. The projections for 2015 are much more varied. WSTS and MIC expect 2015 growth around 3%, about half of the 2014 percentage growth. Gartner and Mike Cowan see 2015 at around 5% growth. IC Insights expects 2015 IC growth of 7.5%. Our Semiconductor Intelligence 2015 forecast of 11% is towards the high end. The highest number is from Future Horizons, which expects 2015 growth of “15% or higher”.
If our semiconductor market growth rates of 10% in 2014 and 11% in 2015 are correct, it will mark two consecutive years of double digit growth for the first time since 2003 to 2004. However the growth is nowhere near as strong as we have seen in peak growth years such as 37% in 2000, 28% in 2004 and 32% in 2010. Market growth rates in the low double digits are healthy, but not high enough to indicate excessive growth and a potential significant correction. Our preliminary outlook for 2016 is semiconductor market growth in the 5% to 9% range.
Semiconductor manufacturing equipment continues to recover from a mid-2012 downturn. Based on data from SEMI and SEAJ, bookings (orders) began to pick up in December 2012. The book-to-bill ratio was over 1.0 from December 2012 through February 2014. Billings (shipments) surged in March through May of 2014 driving the book-to-bill below 1.0. The billings surge was likely due to a catch up of shipments from the backlog built up over the prior year. June 2014 billings dropped 17% from May while bookings dropped 1%, driving the book-to-bill up to 1.08.
The outlook for semiconductor manufacturing equipment looks healthy through 2015. Gartner’s July 2014 forecast shows capital expenditures increasing 7% in 2014 and 9% in 2015. Wafer fab equipment is expected to bounce back from an 8% decline in 2013 to 16% growth in 2014 and 9% in 2015. SEMI’s July forecast is for even stronger growth in fab equipment, 23% in 2014 and 9% in 2015. Gartner projects a deceleration in semiconductor market growth from 4.9% in 2015 to a sluggish 2.3% in 2016. Capital expenditures and wafer fab equipment are each expected to decline 4%. A moderate pickup in semiconductor market growth in 2017 and 2018 leads a return to growth for capital expenditures and wafer fab equipment.
|Annual Change, US$
|Wafer Fab Eqpt.
If the Gartner and SEMI forecasts are reasonably accurate, the industry will see moderate growth in the next few years with a mild slowdown in 2015. Not as exciting as some of the wild up and down cycles the industry has experienced in the past, but preferable to most semiconductor companies and investors.
Electronics production growth has turned positive in 2014 for all key geographic regions. The graph below shows three-month-average change versus a year ago for electronics production in local currency through April 2014. Total industrial production is used for Europe (EU countries) and South Korea since electronic production data is not available. The data is from government sources.
China continues to show strong growth in electronics of 10% or higher. Taiwan electronics was in a significant decline throughout 2012 and 2013 but returned to growth of 5% in April 2014. Japan electronics experienced a major decline following the March 2011 earthquake and tsunami. Japan’s electronics growth has been positive since November 2013, ranging from 4% to 8%. U.S. electronics went from positive growth in 2012 to declines of 1% to 7% in each month of 2013. The U.S. turned positive in January 2014, showing growth in the range of 2% to 4% through April. Europe’s industrial production followed the same general trend as U.S. electronics, turning positive in October 2013 and growing about 3% in each month of 2013. South Korea’s industrial production oscillated between positive and negative in 2013, but has been positive since December 2013.
Two key drivers of electronics and semiconductor growth over the last few years have been smartphones and tablets. The growth rate of these products has been slowing over the last several quarters. Tablets have slowed from over 100% year-to-year growth in 2012 to only 4% in 1Q 2014, according to IDC. Smartphone growth has decelerated from close to 50% in 2012 and the first half of 2013 to 24% in 4Q 2013 and 29% in 1Q 2012.
Despite the slower growth in the last few quarter, both tablets and smartphones are expected to show healthy growth for the year 2014. Gartner expects tablet growth of 39% and NPD DisplaySearch projects 26%. IDC lowered its forecast in May to 12% from its March forecast of 19%. IDC expects large display smartphones to take away some of the potential market from tablets. Smartphones are forecast to grow between 24% and 34% in 2014 according to Gartner. IDC is projecting 19%.
What is the next big driver of growth for electronics and semiconductors? One potential answer is the further evolution of computers and mobile phones into a single device to handle most of people’s computing and communication needs. It will probably several years of technological and design innovation before this type of device becomes mainstream.
In the near term several applications will help stimulate electronics and semiconductor growth:
- Automotive production has grown steadily over the last four years. Safety, entertainment, navigation and communication applications are driving increasing electronics and semiconductor content in automobiles.
- Television sales will see higher growth as more consumers purchase Ultra High Definition (UHD or 4K) TVs. However the high prices of UHD TVs will limit the market to early adopters for a few years.
- Wearable devices for tracking fitness and health are becoming popular. The market for these devices is currently small but fast growing.
- The “internet of things” (IoT) is getting a great deal of publicity. Basically it refers to connecting a wide range of devices to the internet to be remotely monitored and controlled by a PC, tablet or smart phone. Home security and energy management are two key IoT applications which are seeing acceptance in the market. However some of the proposed IoT applications seem to be a technology in search of a need.
The current outlook for electronics and semiconductors is good based on production statistics. Traditional and emerging devices should be able to sustain growth for at least the next few years. Our May forecast at Semiconductor Intelligence was for semiconductor market growth of 10% in 2014 and 9% in 2015. This forecast certainly looks achievable based on recent trends.