Semiconductor equipment on growth track

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.

SEMI 2Q14

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$ Source 2013 2014 2015 2016 2017 2018
Semiconductor Market Gartner 5.0% 6.7% 4.9% 2.3% 3.5% 4.4%
Capital expenditures Gartner -1% 7% 9% -4% 6% 9%
Wafer Fab Eqpt. Gartner -8% 16% 9% -4% 9% 8%
SEMI -12% 23% 13%

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.

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Electronics growth positive around the world

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.

Elec apr14

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.

Unit 1Q14

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%.

Table Jun14

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:

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.

Healthy semiconductor growth in 2014 and 2015

The first quarter 2014 semiconductor market was $78.5 billion, down 1.8% from fourth quarter 2013 and up 11.4% from a year ago, according to World Semiconductor Trade Statistics (WSTS). The year-to-year growth was the highest since 4Q 2010. The year-to-year growth has been accelerating for the last four quarters. Our February forecast at Semiconductor Intelligence was for 10% semiconductor market growth in 2014. This forecast is dependent on healthy quarter-to-quarter growth of 5% or higher in 2Q 2014 and 3Q 2014. The table below shows 1Q 2014 (or nearest fiscal quarter) revenue growth for major semiconductor companies and their guidance for 2Q 2014.

Comp 2Q14 3

Most companies (9 of 15) reported revenue declines in 1Q 2014 versus 4Q 2013. Of the companies providing guidance, 11 of 12 expect revenue increases in 2Q 2014. Micron expects a decline in 2Q 2014 due to both declining memory prices and declining bit shipments. For the other companies the expected revenue increases range from 0.7% to 12%. The weighted average revenue growth for the above companies in 2Q 2014 is about 3%. Several companies provided a range of guidance, with the midpoints shown in the table above. The high end growth guidance ranges from 6% for Intel, Broadcom and AMD; 7% for Qualcomm; 8% for Infineon and NXP; and 14% for Texas Instruments. The higher guidance points toward a potentially strong 2Q 2014.

A robust 2Q 2014 could help drive year 2014 semiconductor market growth into double digits. Will this momentum carry into 2015? Below are forecasts for 2014 and 2015.

Fcst May 2014

The forecasts for 2014 range from 4.1% from WSTS to 11.9% from Mike Cowan. We at semiconductor Intelligence are keeping with our February forecast of 10%. The trends for 2015 follow three distinct patterns. WSTS, Gartner and Semiconductor Intelligence expect 2015 growth to be similar to 2014. Future Horizons projects a strong acceleration from 8% in 2014 to 18% in 2015. Mike Cowan expects growth to decelerate from 11.9% in 2014 to 4.7% in 2015.

Semiconductor Intelligence’s forecasts for 2014 and 2015 are based on an improving economic outlook and continued growth of key end equipment drivers. The table below shows recent projections for global GDP growth from the International Monetary Fund (IMF) and growth rates for PCs, tablets, mobile phones and smartphones from Gartner and IDC. The IMF expects accelerating GDP growth in 2014 and 2005. Gartner projects PC units will continue to decline, but tablets should continue healthy growth. The combination of PCs and tablets are expected to show double digit growth in 2014 and 2015. Although overall mobile phone units are forecast to continue low single digit growth, smartphones will continue to be a major driver for semiconductors.

GDP EE fcst