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Semi Business in 2019 – A ‘Mixed-Reality’ for the Industry

The chip sector slowdown in the current quarter is likely to last well into next year, a Wall Street firm says. Investment bank UBS on Thursday forecast semiconductor industry revenue to decline year-over-year in 2019 for the first time since 2015.

BS sees semiconductor industry revenue dropping 4.3% in 2019, driven by a downturn in memory chip sales. Memory chips account for 34% of total industry revenue, the firm said. It forecast record semiconductor industry revenue of $473 billion in 2018.

“We expect year-over-year semis revenue growth to trough by Q3 2019, with semis stocks typically in sync or slightly anticipatory of the trend,” the UBS analyst team said in a report to clients. It called the current market “challenging.”

Also, in 2019, experts foresee IC and fab equipment industries turbulence.

Few critical issues include:

. The NAND market is projected to move from a period of shortages to potential overcapacity in the second half of 2018 or in 2019. Then, DRAM prices are expected to erode over time.
. Foundries are expected to see a slow transition from 16nm/14nm to 10nm/7nm. In addition, foundries see a slowdown at 28nm as customers migrate to 22nm. And 200mm capacity remains tight.
. China and the United States are in the midst of a trade war, which impacts ICs and other sectors.

On the other hand, to compliment the semiconductor market, mobile industry will be showing growth, 5G, artificial intelligence/machine learning, automotive and industrial continue to propel demand for chips. Not surprisingly, though, cryptocurrency will be looming.

semiconductor
Fig. 1: IC Growth Trends Source: IHS Markit

In 2019, the semiconductor market is expected to cool down and grow by 4%, according to IHS. “2019 definitely suffers from a slowing revenue growth in memory. NAND most likely will be in oversupply and DRAM will begin to see pricing erosion,” Jelinek said. “The other key issue is the end markets. Handset demand is slowing due to saturation. And none of the new end-market drivers, such as IoT, 5G and autonomous driving, are ready to jump-start the industry to take the place of handsets and PCs in terms of major growth drivers.”

In 2019, the growth will be propelled by China, which is building several new fabs. “We do see a potential slowdown in 2020. But so far, the demand seems solid,” Tseng said. Still others see a slowdown, if not a fab tool downturn, in 2019.

Fab Equipment Spending

Total fab equipment spending in 2019 is projected to drop 8%, down from a previous forecast of a 7% increase as fab investment growth has been revised downward for 2018 to 10% from the 14% predicted in August, according to the US-based Semiconductor Equipment & Materials International (SEMI).

In its latest edition of the World Fab Forecast Report published yesterday, SEMI said that entering 2018, the semiconductor industry was expected to show a rare fourth consecutive year of equipment investment growth in 2019.

The SEMI World Fab Forecast Report, had forecast in August a slowdown in the second half of 2018 and into the first half of 2019.

“Now, with recent industry developments, a steeper downturn in fab equipment is expected,” it said.

The report shows overall spending down 13% in the second half of 2018 and 16% in the first half of 2019 with a strong increase in fab equipment spending expected in the second half of 2019.

SEMI said plunging memory prices and a sudden shift in companies’ strategies in response to trade tensions are driving rapid drops in capital expenditures, especially among leading-edge memory manufacturers, some fabs in China, and some projects for mature nodes such as 28nm. Industry sectors expecting record-breaking growth in 2019, such as memory and China, are now leading the decline.

Semiconductor Manufacturing Equipment Market

SEMI reported that worldwide sales of new semiconductor manufacturing equipment are projected to reach $62.7 billion in 2018, up 10.8% over 2017. In 2019, the market will reach $67.6 billion, up 7.7% over 2018, according to SEMI.

In 2018, South Korea will remain the largest equipment market, according to SEMI. China will jump from third to the second spot in 2018, dislodging Taiwan.

US Billions
Fig. 2: Semiconductor Equipment Growth. Source: SEMI

Moore’s Law will see further slowdown. At each node, process costs and complexity are skyrocketing for finFETs, so now the cadence for a fully scaled node has extended from 18 months to 2.5 years or longer. In addition, fewer foundry customers can afford to move to advanced nodes.

Generally, the next big IC growth drivers are 5G, AI/machine learning and automotive. And from a regional perspective, China is the market to keep an eye on.

Talking to Semiconductor Engineering, Gary Patton, CTO at GlobalFoundries said, 5G, the follow-on to the current wireless standard known as 4G, enables faster data rates in phones. Initially, 5G will be deployed in the sub-6GHz frequency ranges in 2019, with millimeter-wave technology in R&D. “5G will be a big driver. It’s going to be as disruptive as data was to voice in cell phones.”

DRAM over NAND in 2019

DRAM pricing is expected to erode over time. “We are still projecting DRAM pricing will come back on somewhat approaching a normal curve. But even with a projected decline, we’re still above the traditional Moore’s Law curve by a factor of 10,” Gartner Analyst, Bob Johnson said.

Citing the price situation, DRAM revenue is expected to hit a staggering $99.3 billion in 2018, up from $72.1 billion in 2017, according to Gartner. In 2019, DRAM will reach $110.2 billion, according to the firm.

Gartner
Fig. 3: 2Q DRAM Revenue Forecast Source: Gartner

Regardless, ASPs are expected to fall by 24% in 2018 and 23% in 2019, according to Gartner. In total, NAND revenue is expected to reach $58.7 billion in 2018, up from $53.7 billion in 2017, according to Gartner. In 2019, NAND will reach $64.5 billion, according to the firm.

Revenue Forecast
Fig. 4: Q2 NAND Revenue Forecast Source: Gartner

Many analysts see a slowdown in memory in 2019 or 2020, but one analyst has a different viewpoint. “NAND spot prices have already fallen about 50% this year, so NAND oversupply should begin relatively soon,” said Jim Handy, an analyst with Objective Analysis.

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