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Leadership / Digital Transformation

The Chips are Down: Semiconductor Revenue to Tumble Nearly 10% in 2019

Worldwide semiconductor revenue will tumble 9.6 percent year-on-year to $429 billion in 2019, down from $475 billion in 2018, according to Gartner, as the research house downgrades its forecast from an earlier projection of a 3.4 percent fall.

While the fall in revenue is steep, it pales in contrast to ongoing oversupply in the DRAM market that will push pricing down 42.1 percent in 2019. This oversupply is expected to extend through the second quarter of 2020, Gartner said.

“The semiconductor market is being impacted by a number of factors. A weaker pricing environment for memory and some other chips types combined with the US-China trade dispute and lower growth in major applications, including smartphones, servers and PCs, is driving the global semiconductor market to its lowest growth since 2009,” said Ben Lee, senior principal research analyst at Gartner.

“Semiconductor product managers should review production and investment plans to protect themselves from this weaker market.”

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The US-China trade clash will accelerate China’s domestic semiconductor production, as well as create local forks of technologies such as ARM processors, the note adds: “Some manufacturing will relocate outside China during the dispute and many companies will seek to diversify their manufacturing base to reduce any further disruption.”

Semiconductor Revenue: Where’s the Lift?

The comment comes amid strongly divergent views in the industry about the outlook for the semiconductor market.

Gartner’s outlook, published this week, comes as investment bank Goldman Sachs turned bullish on providers of semiconductor equipment, upgrading Applied Materials from Neutral to Buy, upgrading Micron from Neutral to Buy among other upgrades, and citing early signs of memory stabilisation, expecting NAND and DRAM margins to bottom in Q3 and Q1 2020

semiconductor report white house

Gartner meanwhile says “demand-driven oversupply” (i.e. macroeconomic/geopolitical headwinds hitting demand) in the DRAM market will push pricing down 42.1 percent in 2019 and the oversupply is expected to extend through the second quarter of 2020.

The decline is due to signs of a slower demand recovery at the hyperscale vendors and the increasing inventory levels of DRAM vendors. This ends the longest period of undersupply seen in the DRAM industry.

Ben Lee added: “We expect that high smartphone inventory and sluggish solid-state array demand will last for a few more quarters. Given the aggressive price declines for NAND, it is possible to see a more balanced supply/demand outlook in 2020. However, looking further out is concerning given slowing demand drivers, such as PCs and smartphones, and more capacity as new fabs in China impact the market.”

The chip market is betting on a combination of 5G (resulting in a major consumer phone refresh); the rise of the Internet of Things, and Autonomous Vehicles to prove a threefold fillip to the semiconductor industry. How long that will take to firm up the market depends on who you ask…

See also: Tesla Unveils New Chip, New Computer

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CBR Staff Writer

CBR Online legacy content.