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Industry News Why the semiconductor industry is slowing down

Michael Eckstein

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The electronics industry is affected by the consequences of the US-Chinese trade war and global political uncertainty. After two strong years in a row, market observers expect growth to slow in 2019. At least one industry is booming.

Highlight Automotive market: While demand for semiconductors is falling in key markets such as smartphones, it is growing rapidly in the automotive sector.
Highlight Automotive market: While demand for semiconductors is falling in key markets such as smartphones, it is growing rapidly in the automotive sector.
(Source: Micron Technology)

The number is enormous: Last year, semiconductors worth around 474 billion dollars were sold worldwide. This is what the German Electrical and Electronic Manufacturers' Association Zentralverband Elektrotechnik- und Elektronikindustrie e.V. (ZVEI) has reported - an increase in a good 15% compared to 2017. More conservative analysts such as WSTS calculate the increase at around 12.5%. At 60%, the Asia/Pacific region had the largest share of the global semiconductor market in 2018. China alone accounted for 33%. North and South America increased slightly to 21%. Japan and EMEA were the weakest regions in terms of sales with 9% each.

Germany's semiconductor market grew by about 8% and contributed nearly $16 billion to the overall result. "However, the German semiconductor market is growing at a slower pace than the European and global markets," says Stephan zur Verth, Chairman of the Semiconductor Components Division of the ZVEI Electronic Components and Systems Association, at the presentation of the data in Munich. For 2019, he predicted a domestic growth of about four percent.

Memory was once again the number one growth driver: "As in the previous year, the high demand for memory is responsible for the significant growth of the global semiconductor market," explains zur Verth. Without storage, it would only be about 8%. Massive expansion of production capacities for Flash and DRAM and a global decline in demand in core areas such as smartphones could cause memory prices to decline this year. Not only the ZVEI but also other analysts such as IDC and Trendforce expect a downward cycle for memory in the coming years.

Major uncertainties affect the market

Forecasts are difficult in the highly volatile semiconductor market, but Verth believes that total sales could decrease to just three to five percent this year. Sales already declined noticeably in the third quarter of 2018. Overall, last year it was a solid 7% below the 22% that the ZVEI had forecast for 2018 at the end of 2017. The primary causes he sees are the ongoing customs disputes between the USA and China as well as the enormous uncertainties for the macroeconomy caused by the imminent Brexit.

"Due to the great uncertainties, global sales of semiconductors in 2019 could also slide into negative territory," notes zur Verth. He looks back to the beginning of the 21st century: "Shortly after the millennium, many augurs projected the enormous sales increases of the preceding years into the next few years and forecast astronomical increases of 40% and more.

Things turned out differently: The bubble burst at the latest when the terror planes hit the twin towers of the WTC in New York in 2001. During the following recession, sales of semiconductors dropped by a record of 32.5 percent. Only after about four years did they reach the level of the year 2000 again. Many companies went into a long valley of tears with high losses, some of them did not come out.

Rapidly growing demand in the automotive sector

At the same time, electronics are penetrating more and more areas of life, and there is no sign of an end to this development. This means that there will also be a high demand for semiconductors in the coming years. According to ZVEI, the semiconductor share in smartphones, tablets, PCs, and TVs will stagnate in the coming years, while the use of semiconductors in the automotive sector will increase sharply due to three megatrends.

One is connectivity, i.e. the installation of premium infotainment in the vehicle, the second is autonomous driving or the use of driver assistance systems, and the third is the electrification and increasing production of electric vehicles. "In 2030, approximately 50% of all vehicles will be equipped with a form of electric drive train," says zur Verth, gazing into the future. The average value of semiconductors installed in a car could grow from the current 350 to almost 2000 dollars.

This article was previously published in German on the Elektronikpraxis.


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