Gloom forecast for Semiconductors Industry

10 April, 2016

IHS expects a three-year period of "declining to stagnant". Says that "Weakness in end-market demand will cause revenue decay to extend into 2016 and beyond"

IHS expects a three-year period of “declining to stagnant”. Says that “Weakness in end-market demand will cause revenue decay”

Intel retained its number one ranking in 2015
Intel retained its number one ranking in 2015

Global semiconductor revenues fell by 2% in 2015. In the first quarter of 2015 the market declined 8.9% over the previous quarter — the deepest sequential quarterly decline since 2009. The revenue in 2015 totaled $347.3 billion, down from $354.3 billion in 2014, according to IHS Inc. The market drop follows solid growth of 8.3% in 2014 and 6.4% in 2013.

“Weak results last year signal the beginning of what is expected to be a three-year period of declining to stagnant growth for semiconductor revenues,” said Dale Ford, vice president and chief analyst at IHS Technology. “Anemic end-market demand in the major segments of wireless communications, data processing and consumer electronics will hobble semiconductor growth during this time.”

Overall semiconductor revenue growth will limp along at roughly 2.1% growth compound annual growth rate in 2015-2020, according to IHS Semiconductors Service. Current technology, economic, market and product trends suggest that sometime between 2020 and 2022 new products will come to market that will enable a significant level of growth in semiconductor revenues.

Semiconductors sales: Tope 25 (in $billion)
Semiconductors sales: Tope 25 (in $billion)

Reshaping the leader board

“The big story for the semiconductor industry was the record level of merger-and-acquisition activity last year,” Ford said. “Top players pursued strategic maneuvers to enhance their market position.”

Intel retained its number one ranking in 2015, after completing its acquisition of Altera, which allowed the company to offset declining processor revenues and achieve 2.9% overall growth in 2015. Qualcomm slipped to number 4 in the rankings as its revenues fell by 14.5%, because the company’s 2015 acquisition of CSR was not enough to counter declining revenues in the wireless markets. The final major deal among the top 10 in 2015 was NXP’s acquisition of Freescale, which boosted it from number 15 in the 2014 rankings to number 7 in 2015.

Among the top 20, Infineon’s acquisition of International Rectifier enabled it to jump to number 12 in 2015. Announced deals that are expected to close in the first half of 2016 will continue to reshape the leader board. Avago Technologies continues its aggressive acquisition activity with its purchase of Broadcom. Broadcom is already ranked at number 9 in 2015.

The combined revenues of the two companies would place them at number 5 overall. ON Semiconductor’s acquisition of Fairchild Semiconductor should boost it up two notches in the rankings.

Among the top 25 semiconductor suppliers, 14 companies achieved growth in 2015. This stands in sharp contrast to the overall semiconductor market where less than 42% of 285 companies tracked by IHS were able to achieve growth in 2015.

The market change course

Semiconductor revenues for data processing, wired communications and consumer electronics all declined. Automotive electronics and industrial electronics grew less than 1%, while wireless communications grew only by 3%. Semiconductor revenues in all regions of the world declined, and all seven of the major semiconductor segments (memory integrated circuits (ICs), microcomponents, logic ICs, analog ICs, discrete components, optical components and sensors) experienced revenue declines.

In fact, out of 128 semiconductor segments and sub-segments tracked by IHS, 89 declined. Combined, these 89 segments accounted for over 77% of semiconductor revenues in 2015. Thie is in contrast to 2014 when five of the six semiconductor end-market segments grew. In 2014, 195 of 307 companies tracked achieved positive growth. These companies accounted for 83% of total semiconductor market revenues. The number of companies achieving growth in 2015 fell to 119 out of 285 companies tracked. These 119 companies only accounted for 64% of total semiconductor market revenues.

The few bright glimmers from 2015

Only 10 semiconductor market sub-segments worth more than $1 billion in annual revenue grew annually more than 5% year in 2015. Wireless communications logic application-specific integrated circuits (ASICs) and analog ASICs both grew 30%, while radio-frequency (RF) small signal transistors, wired communications logic ASICs and wireless communications application-specific standard products (ASSPs) grew 10%-20%.

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