Robust demand for memory chips and other semiconductor products, on account of rapid adoption of cloud computing, AI, Internet of Things (IoT), autonomous cars, advanced driver assisted systems (ADAS), gaming, wearables, drones and virtual reality/augmented reality (“VR/AR”) devices, is fueling massive growth in the semiconductor space. The accelerated deployment of 5G technology — the next-generation wireless revolution — is likely to spur further growth. In fact, dynamic innovation in semiconductors enables emerging technologies to become a reality. Semiconductors are setting the pace for technology modernization, in turn digitizing aspects like healthcare, transport, financial systems, defense, agriculture, and retail, among others.
Additionally, increasing level of applications in sectors such as retail illustrates the secular movement toward technology across industries. This trend is likely to reshape economies, fueled by semiconductors. On Feb 6, the Semiconductor Industry Association announced that more than a trillion chips were shipped globally in 2018, a first in the industry’s history. Sales of chips grew 13.7% to $468.8 billion worldwide in 2018 year over year. The only major impediment to the sector’s gains at this point is the US-China trade war. However, economic and corporate losses on both the sides could force a settlement in the near term. This means that any losses on this account would only be temporary in nature.
IoT – Leading the Semiconductor Way
Leaders of semiconductor companies globally ranked Internet of Things (IoT) – the technology powering smart appliances, wearable devices and “smart cities” – as the most important application driving semiconductor revenue over the next year. IoT is expected to supplant wireless communications, last year’s leader, as the key revenue driver, according to the KPMG 2019 Global Semiconductor Industry Outlook from audit, tax and advisory services leader KPMG LLP, in collaboration with the Global Semiconductor Alliance. “Smaller firms are increasingly the source of many promising developments in the semiconductor industry. They are particularly vested in capitalizing on IoT and Artificial Intelligence (AI),” said Lincoln Clark, KPMG Global Semiconductor Industry Leader. “Our survey also found that demands for talent to support the innovation were seen as the greatest overall threat to meeting future growth. This talent risk was particularly prominent in smaller companies, while larger companies were also equally concerned about being disrupted by emerging technologies.”
About two-thirds of the 149 semiconductor industry leaders surveyed named IoT – which has applications in virtually all industries – as the most important application driving semiconductor revenue over the next year. International Data Corp. (IDC) forecasts worldwide technology spending on IoT to increase from $745 billion this year to $1.2 trillion in 2022. Wireless communications was seen as the leading revenue driver by 60 percent of respondents, and AI/cognitive/deep learning increased significantly to 56 percent, an increase from 43 percent the prior year.
5G – Connecting Semiconductor
5G is expected to change the face of wireless communications. As the key component of a connected world, wireless communications will continue to be a key revenue driver for semiconductor companies. “We see more concentrated local area, campus-type deployment as the first wave of 5G,” said Tim Zanni, KPMG Global and U.S. Technology Leader. “This will enable use cases to be tested and new business models to be refined.”
AI – Integrating Semiconductor in 2019
Artificial intelligence(AI) /cognitive/deep learning increased from 43 percent in 2018 to 56 percent in this year’s Global Semiconductor Industry Outlook, moving up from the tenth to the third spot. AI jumped to the third position from an expected revenue perspective, automotive climbed up to the fourth spot and remember that automotive is one of the four main future drivers for the industry as cars.
Industry Momentum in 2019
However, the semiconductor industry has rebounded in 2019. The Philadelphia Semiconductor Index (SOX) is up 14.5% year to date compared with 8.2% growth of the benchmark S&P 500 index. Meanwhile, the tech-heavy Nasdaq Composite index has witnessed an increase of little over 10%. Most of the semiconductor manufacturers have reported strong earnings result so far. Intel Corp. INTC, Texas Instruments Inc. TXN, Taiwan Semiconductor Manufacturing Co. TSM, Lam Research Corp. LRCX and Xilinx Inc. XLNX reported solid fourth quarter earnings results. Firstly, most of the major chipset developers reported solid fourth quarter earnings. For these companies, the earnings beat was mainly because the high-margin analog business remained strong and 5G businesses. Industrial sector and auto were also good. Revenues were strong attributed to 5G deployment by the telecom operators in North America, China and South Korea. Moreover, Texas Instruments’ transition from 200mm to 300mm and Xilinx’s strong performance of FPGA-as-a-Service (FaaS) model for data centers also helped them to post strong results. Likewise Lam Research continued DRAM shifting to lower nodes, NAND shifting to 96-layer devices, which helped the company to lower cost. Skyworks is benefiting from strong demand of its wireless communications engines. The company’s expanding product portfolio, growing clout in the Internet-of-Things (IoT) solutions and 5G markets are key catalysts.