After three consecutive years of growth, semiconductor revenue set for slump

Fall in demand centring around China will pinch semiconductor revenues through 2019, IDC says

After back-to-back years of strong growth, semiconductor revenues will decline this year, according to IDC’s latest update to its semiconductor forecaster.

The IT market research specialist predicts worldwide semiconductor revenue to decline to $440 billion (£342 billion), a 7.2 percent drop from $474 billion (£369 billion) in 2018, due to oversupply that will continue into 2020.

IDC said the slump is temporary and expects revenues to recover in 2020 and register a compound annual growth rate of 2.0 percent from 2018-2023, reaching $524 billion (£408 billion) in 2023.

US-China dispute

The declining demand for chips in part stems from the ongoing US-China trade dispute. China is the largest global consumer of semiconductors, importing around $200 billion (£155 billion) worth of chips each year, according to Deloitte, but rising tariffs are curbing demand in the East. IDC added that excess production in some of the major markets is also to blame.

“The current market downturn is being driven by a broad weakness in demand specifically centred in China and an ingestion of excess inventories in some of the major markets including automotive, mobile phones, and cloud infrastructure,” said Mario Morales, program vice president, Semiconductors at IDC.

The industry has seen an uptick in M&A deals, such as NVIDIA’s acquisition of Mellanox in March, as companies seek to temper the effects of the dispute. IDC expects market consolidation to accelerate as the industry gets more clarity on the simmering trade war.

In particular, it expects more moves into the sensor, connectivity, automotive, and AI and computer vision markets, as suppliers seek to diversify and boost bottom lines.

IDC expects demand to return as suppliers gradually tap into these new markets.

“Cloud infrastructure investment, 5G mobile devices, WiFi 6 adoption, Smart NICs, automotive sensors, powertrain technologies, AI training accelerators, and edge inference SoCs will be instrumental in our growth expectations for 2020 and beyond,” Mario Morales added.