WHAT THE FUTURE HOLDS

The Semiconductor subsector is an upstream industry, producing components for many verticals from automotive to electronics to industrial applications. It serves most parts of the Technology Industry and – due to this mutual dependency – it is vital to understand its dynamics in order to understand overall development of the Technology sector.  

The Semiconductor market in 2015 experienced a significant -2.3% decline that persists in 2016. As of 2017, growth will recover with a modest +4.7% year-on-year increment and accelerated growth until 2018 (+2.4% CAGR). The 2016 year-on-year decline is partly caused by lower unit production of electronics equipment. Moreover, higher inventory levels that prevailed during 2015 also impacted the 2016 outlook. Inventory is expected to return to normal levels after supply chain corrections in Q3 2016.

An interesting market development in the Semiconductor subsector is change in the types of application for these components. Forecasts show an increase in revenues from applications like communications, automotive, and industrial but the revenues from data processing will lag behind. The strongest growth will originate in communications applications, with a 2015-18 increment of USD +13.5bn, growing at a rate of +4% CAGR.

At the same time, industrial and automotive applications will originate the second and third largest 2015-18 increments and the highest CAGRs (+8.6% and +5.9%), respectively. With the industry increasingly transitioning towards IoT, this growth is explained by increasing demand for sensor-enabled industrial equipment and “smart” automotive components.

The data processing applications market will experience a USD -4.8bn revenue decline, driven by the worsening of the solid-state drive market (SSD). SSDs are facing an increasingly aggressive pricing environment and a lower average capacity per SSDs, especially in the enterprise segment.

Referring to the different types of semiconductor integrated circuit device, strongest growth will originate in the application-specific and optoelectronics categories, growing by more than USD +5bn by 2018. The application-specific category is driven by the move from ASSP (application-specific standard products) to high-performance ASIC (application-specific integrated circuits) for data center and networking applications. Microcomponents growth of USD +4.5bn is driven by an increasing demand for microprocessors used in embedded systems for automotive, industrial, and communications applications and used in low-end servers being adopted in data centers to meet IoT processing needs.

DROP IN CAPTIAL SPENDING

With regard to investments in capital equipment, spending will drop -0.7% in 2016 to then return to grow as of 2017 (USD +3.8bn increment by 2018). The 2015-16 decline of capital spending can be explained by an overall flattening of the semiconductors market and by acceleration in market consolidations. Furthermore, semiconductor companies in 2015-16 exhibited a broad diversity of capital equipment investment behaviors, due to diverse investment cycles that reflect each company´s individual business development and strategies.

IMPACT ON SUPPLY CHAINS

Mergers, acquisitions, and partnerships are undoubtedly still a huge theme in the semiconductors market, with 14 out of the top 20 2015 semiconductor companies involved in consolidation or portfolio activities. This key market dynamic will have serious implications for companies´ supply chains. Accelerated market consolidations will, in most cases, drive transformational network optimization.

Another impact on supply chains will come from the shift in semiconductor applications (with growing revenues from automotive, industrial, and communications applications and declines in data processing applications). This shift in applications will require interlinking to different supply chain models. Furthermore, potential impact on supply chains could also originate from the “made in China” campaign that might lead to shifts in regional supply chains. Lastly, there will be an increasing demand for supply chain solutions for high-end semiconductor chips and low-cost sensors. In order to proactively react to all these changes, semiconductor companies will have to rely on reliable and innovative logistics providers.

WHAT COMES NEXT

DHL will be publishing more Technology Subsector Market Monitors about PCs & Notebooks, Mobile Devices, Imaging and Printing, Semiconductors, Networks, Consumer Electronics, and Enterprise Computing.

To receive these publications along with similar updates in the future, join our LinkedIn group, follow the hashtag #DHLTechnology on Twitter, and write to us directly at  info.technology@dhl.com

DHL TECHNOLOGY MARKET INTELLIGENCE SUBSECTOR DEFINITION

The Semiconductors subsector serves most of the other Technology subsectors. Semiconductors are defined as active products that contain semiconducting material and that react dynamically to an input signal, by either modifying its shape or adding energy to it. This definition excludes stand-alone passive components. Semiconductor devices are described in two main categories: (1) General-purpose products which may be used across a spectrum of multiple market applications, and are integrated circuits (ICs) that do not have specific functionality tailored to any particular end application; this category comprises memory, microcomponents, general-purpose logic, analog, discretes, nonoptical sensors, and optical semiconductors; and (2) Application-specific products which are ICs designed for a specific application and include ASICs and ASSPs. CAGR is used as an abbreviation for Compound Annual Growth Rate and refers to the period 2015-2018 as well as increments, always expressed in billion USD. Data Source: Gartner 2Q 2016.

Published: September 2016

Images: DHL