Predicting the financial fortunes of the world semiconductor industry in 2014 is no easy task. Analysts and pundits spend hours scratching their heads, tapping their calculators, feeling the industry pulse, and staring into the swirling mists of their crystal balls to gain a clear vision of what the New Year holds.
The semiconductor market enjoyed steady but not meteoric growth of about 5% in 2013 despite economic glitches in Europe and the United States. Consumer confidence has tentatively returned to both markets, and consumers are again driving the sales of end products like tablets, mobile phones, cars, and audio and TV equipment, all of which absorb a considerable percentage of semiconductor components.
Linx Consulting’s Econometric Semiconductor Forecast reports that demand was lethargic in 2012. But by early 2013, consumer demand pushed enough growth in semiconductors to finally close at 6%. Linx believes growth should grow to 7% in 2014 (Fig. 1). So what fuels this optimistic prediction? Again, it rests with public buying confidence.
Analysts say that diminishing consumer uncertainty has driven a modest expansion in U.S. spending on technology goods of around 2.3% during 2013, up from the frail 1.0% growth in 2012. But how the overall semiconductor market trades in 2014 cannot be predicted purely on how strong national economies are and how confident consumers are about opening their purses and wallets.
In The Fabs
An important measure relates directly to semiconductor production and the amount of money manufacturers are prepared to spend on production equipment. The unassailable logic here is that no industry experiencing serious financial deterioration is going to feel sufficiently bullish to plough substantial money into purchasing capital equipment.
Gartner says that global investment in production equipment during 2013 will have declined by 8.5%. The analyst company believes worldwide semiconductor manufacturing equipment spending will total $34.6 billion in 2013 compared to a 2012 figure of $37.8 billion. So what about 2014?
The Gartner view is that capital spending is highly concentrated among a handful of companies. The top three companies (Intel, TSMC, and Samsung) account for more than 50% of 2013 spending. Spending by the top five semiconductor manufacturers exceeds 65%. The top 10 accounts for 76% of the total.
Gartner anticipates 2014 semiconductor capital spending will increase by just over 14%, followed by 13.8% growth in 2015. On a more pessimistic note, the analysts predict the next industry decline will be a drop of nearly 3% in 2016, followed by a return to growth in 2017.
This outlook is reflected in the view held by World Semiconductor Trade Statistics (WSTS). It says the world semiconductor market in 2013 will reach $298 billion (U.S.), up 2.1% from 2012. The market has made a smooth and gradual recovery throughout 2013. On a more negative note, semiconductor sales related to PC products is expected to have seriously declined during 2013, and this is a widely endorsed view within the industry.
Moving into 2014, WSTS expects the global semiconductor market to be up 5.1% to $313 billion (U.S.), surpassing the impressive highs of 2011, which peaked at $300 billion (U.S.). The good news doesn’t stop there. WSTS predicts further growth for 2015 with the global market reaching a value of $325 billion (U.S.), up 3.8%. The only word of caution closely coupled to these optimistic figures is that global economies must remain at least stable and certianly not experience any downturn.
Tablets and smart phones have been two very substantial contributors to semiconductor sales during the last few years. Semiconductor Intelligence says forecasts from two major market research firms indicate these devices will continue to have a major sales influence for the next few years. For 2013, Gartner and International Data Corporation (IDC) both expect tablet units will have grown over 50% from 2012 while PCs should decline by 8% to 10%. IDC forecasts 2013 smart-phone unit growth of 40%.
IDC predicts a 16% compound annual growth rate for tablets and 14% for smart phones from 2013 to 2017. The company expects smart phones to account for more than 50% of total mobile phone units in 2013 and 75% in 2017. So, tablets and smart phones are critical consumer items when it comes to encouraging semiconductor industry sales growth. Semiconductor Intelligence says semiconductor market growth will be 6% this year.
Around The World
Taking a broader global perspective, Semiconductor Intelligence considers China to be the key driver in the global electronics market (Fig. 2). Its recent three-month growth averages compared to the previous year topped other industrial countries and regions, including Taiwan, South Korea, Europe, the U.S., and Japan.
Another key indicator of the financial health of the electronics market is the way in which the semiconductor material sector has traded during 2013 and what it may expect from the year ahead.
SEMI says the industry’s anemic performance during the first part of this year will contrast directly with more robust growth in 2014. The organization believes the semiconductor materials market will increase by 1% this year with an impressive 7% surge in 2014. SEMI expects the global materials market to approach $50 billion in 2014.
Traditionally, Japan has consumed the most semiconductor materials by country, which is unsurprising given its significant fab base and packaging operations. But during the past four years, manufacturers in the region have consolidated many of their fabs and packaging plants. During this same period, Taiwanese companies have invested heavily in advanced packaging and foundry operations.
During the 2009 downturn, the materials market contracted 22% in Japan, compared to 12% in Taiwan. As a consequence, Taiwan is now competing with Japan and South Korea to see which one will consume the most semiconductor materials (Fig. 3).
SEMI recently completed its annual silicon shipment forecast for the semiconductor industry. It provides an outlook for the demand in silicon units from 2013 to 2015. The results show polished and epitaxial silicon shipments totaling 8.876 billion square inches in 2013, 9.230 billion square inches in 2014, and 9.684 billion square inches in 2015. Total wafer shipments are expected to reach record levels in 2014 and 2015.
Behind The Masks
Another optimistic note from SEMI focuses on the worldwide semiconductor photo-mask market. Valued at $3.2 billion in 2012, it is forecast to reach $3.5 billion in 2014. Key drivers in this market continue to be advanced technology feature sizes (less than 45 nm) and increased manufacturing in Asia-Pacific. Taiwan remains the largest photo mask regional market.
SEMI maintains the mask-making market is becoming increasingly capital-intensive. According to SEMI’s data, 2012 was the third record year for mask/reticle-making equipment, growing 14% year over year from the previous record year of 2011 to reach $1.3 billion. But while the market for mask-making equipment is growing, the number of device manufacturers in leading-edge production is contracting. In 2012, only six device manufacturers could produce sub-23-nm devices on a large scale.
As the capital intensiveness of the photo-mask industry increases, captive mask shops are increasing their market share of the total mask market. Captive mask shops have grown their market presence in recent years, now representing 43% of the market.
So in summary, 2014 looks like it will be a very good trading year for the semiconductor business with indicators from a variety of electronics industry sectors and global economies supporting that premise. We’ll wait with anticipation for the analysts’ retrospectives at the end of 2014.