At the end of 2019, when we published our last semiconductor forecast, Covid-19 hadn’t even been identified. Now we’re assuming a global recession, and reflecting that we’ve revised our prediction for 2020 revenue down by more than 11% – wiping $55bn from the revenue. With half the world in lockdown, and the other half heading that way, few consumers are looking to spend cash on fancy electronics, which means less revenue for semiconductor companies.
We were expecting 12.5% growth in 2020, but now we reckon semiconductor revenue is going to drop by almost 1%. That figure would be a lot worse if memory wasn’t so much in demand – if we take memory out of the equation then the market will decline by 6.1%, and the impact is going to last for years to come.
Chip fabrication itself had weathered the storm pretty well – fabs are inherently clean, with workers swathed in protective outfits – but access to raw materials are starting to bite and population lockdowns are disrupting every business. Chip production could ramp back up pretty quickly, but there’s little point in making chips if no-one can afford the products that use them.
The big hit is in consumer spending. A new smartphone is very low on the priority list of someone stockpiling toilet paper, and government-backing wages will only stretch so far (80% in the UK, and based on “declared” income which ignores many cash payments). When the dust settles consumers are going to have less money to spend, which means fewer smartphones, stretching the life on cars, and putting off a new TV (at least until there’s some sports to watch).
The magical incantation: “5G” was supposed to hike up smartphone sales in 2020, but the impact will now be muted. We will see 5G handsets, and the associated increased in average pricing, ramp up in 2020, but it’ll be the tail end of the year.
Automotive production has been halted in many countries, which will probably mesh with reduced demand. China now accounts for 30% of global vehicle manufacturing, and domestic production in February 2020 was down almost 80% on the previous year. China is an extreme example, but global vehicle production (and sales of the associated semiconductors) will be down significantly compared to 2019.
Businesses spending will also slow, but the impact will be more subtle. Upgrades will be postponed as companies husband cash against ongoing disruption. Cloud providers are ramping up services right now, and server silicon will be flat against 2019, but cloud services may find themselves oversupplied once everyone goes back to the office. Enterprise spending on PCs and infrastructure will bounce back a bit, but not in the short term.
All the bad news is detailed in our Forecast Alert: 2020 Semiconductor Revenue Downgraded by $55 Billion Due to COVID-19 Impact, but the tl;dr – revenue is going to go down, at least until 2021, and recovery is going to more of a “U” than a “V”.