Semiconductor Industry Readies for Tough Year: Gartner

After seeing global revenue fall in 2015 due to weak PC demand and a strong U.S. dollar, vendors will pull back on buying equipment, the analysts say.


Weakening demand for such devices as PCs and smartphones, coupled with the continued strength of the U.S. dollar and bloated inventory, took its toll on the global semiconductor market in 2015 and promises to slow spending on equipment by chip manufacturers this year, according to Gartner analysts.

The market research firm earlier this month noted that revenue in the worldwide semiconductor space in 2015 reached $333.7 billion, a 1.9 percent drop from the previous year, when sales grew in each of the key device categories. Things changed in 2015, when the optoelectronics, nonoptical sensors, analog and ASIC segments all grew revenue while the other areas of the market saw declines.

"Weakened demand for key electronic equipment, the continuing impact of the strong dollar in some regions and elevated inventory are to blame for the decline in the market in 2015," Sergis Mushell, research director at Gartner, said in a statement. "Strongest growth was from the ASIC segment with growth of 2.4 percent due to demand from Apple, followed by analog and nonoptical sensors with 1.9 percent and 1.6 percent growth, respectively."

Revenue in memory, which the analysts said was the most volatile segment in the semiconductor industry, fell 0.6 percent, they said.

Such trends will play out in 2016 as semiconductor vendors begin pulling back on what they'll spend on equipment, the analysts said in a report released Jan. 11. Worldwide capital spending in the space will fall 4.7 percent over 2015, to $59.4 billion. It was in sharp contrast to the 3.3 percent Gartner had predicted.

"The 2016 outlook for the semiconductor manufacturing equipment market reflects a bleaker outlook for end-user electronics demand and the world economic environment," David Christensen, senior research analyst at Gartner, said in a statement. "Capital investment policies of leading semiconductor vendors have remained cautious against the background of sluggish electronics demand."

That said, the long-term forecast calls for a return to growth, though "the wafer-level manufacturing equipment market is expected to enter a gentle down cycle in 2016 due to the loss of the supply and demand balance in the DRAM market," Christensen said.

The contraction in the global PC market since late 2011 has been well-documented, with shipments expected to fall for all of 2015 by as much as 10 percent. The introduction of Apple's iPad in 2010 and the continued popularity of smartphones conspired to convince consumers and business users to extend the life cycle of their PCs while they spent more of their tech dollars on the mobile devices.

Now smartphone sales are slowing a bit, with a lot of growth coming from low-cost devices in emerging markets, while tablet revenues continue to tumble. Meanwhile, the introductions of Microsoft's Windows 10 operating system and Intel's 14-nanometer Skylake processors last year are expected to help drive new PC sales, though some industry observers don't expect that to really ramp until last this year or in early 2017.

The strong dollar also is contributing to problems in the global market, Mushell said. Demand for systems fell in some places because of rising prices, such as the Eurozone, where "the sales prices of mobile phones or PCs increased in local currency, as many of the components are priced in U.S. dollars," he said. "This resulted in buyers either delaying purchases or buying cheaper substitute products, resulting in lower semiconductor sales."

For the semiconductor industry in 2015, Intel remained on top with 15.5 percent of the market, even though the chip maker's revenue fell 1.2 percent, to an estimated $51.7 billion. Samsung Electronics' revenue jumped 11.8 percent, giving it 11.6 percent of the market, followed by Hynix, Qualcomm and Micron Technology to round out the top five.

Revenue in the NAND market—which includes solid-state drives (SSDs)—grew only 4.1 percent as the market dealt with pricing pressures driven by inventory issues and a price war triggered by SSDs moving into the spaces dominated by hard-disk drives (HDDs). The DRAM market also was hit by drops in pricing due to an oversupply of product caused by tepid PC demand, the analysts said.