2018 ended with a poor quarter for semiconductor sales, 8.2% down on Q3 sales. The outlook for Q1 2019 looks even worse, with most major semiconductor companies expecting declines greater than 10%.
Key factors driving the decline are weak end user demand for electronics devices, allied with inventory adjustments at manufacturers as they reposition production to cope with the lower demand.
Part of the underlying reason for this decline is a slowdown in world GDP and major economy growth. The IMF expect world GDP growth to slow from 3.7% in 2018 to 3.5% in 2019; the impact of the major economies is significant, with the Euro area slowing from 1.8% to 1.6%, the USA from 2.9% to 2.5%, and China from 6.6% to 6.2%.
Counterbalancing the major economies is good news from India, which expects to grow 7% in 2019; ASEAN-5 (the Philippines, Vietnam, Indonesia, Malaysia, Thailand) should grow 5%; and Latin America is expected to show recovery.
What’s driving this? The usual suspects: China/USA tensions and the uncertainty caused by Brexit on Europe. These factors lead to a weakness in demand for end user electronics – IDC forecasts an 0.8% decline in smartphone sales and a 3.3% decline in PC/tablet sales.
This hits memory devices hardest. In Q4 2018 Samsung was down 24.3%; Micron was down 26.3% (for fiscal quarter ending Feb 28); Hynix was down 13.0%.
There is clear uncertainty in the semi market going forward. Some analysts expect a small growth (e.g. IC insights expects 1.6%), but the majority of analysts expect some level of decline, although there is quite a range of predictions. Most of the analysts still believe the weakest element is memory, with some forecasting growth excluding memory.
Given that the forecasts for 2019 are mixed, it is no surprise that there is little consensus regarding 2020. However, there is a hope for a rebound, especially once some of the major causes of uncertainty and turmoil are behind us.