When Will the Semiconductor Industry Bounce Back? Market Experts Weigh InJuly 15, 2020 by Ingrid Fadelli
COVID-19 hard hit the semiconductor industry. How long will it take for the business to recover?
Just like other business activities, the electronics industry was adversely affected by COVID-19-related shutdowns with many companies facing reductions in purchase orders and, consequently, profits.
Some segments of the electronics and semiconductor industry have suffered more from the ongoing crisis, including those producing components for consumer electronics and automotive technology. Companies specializing in parts for communication tools and healthcare equipment were typically less affected because their work was deemed essential and thus they were allowed to continue their operations.
Intel's Fab 42 facility in Arizona will create 10,000 jobs. Screenshot used courtesy of Intel
As restrictions are lifted and more businesses open up, some analysts have predicted that most of the semiconductor industry will rebound later this year or in early 2021.
In this article, we summarize some of the recent predictions about when and how the semiconductors and electronics industry is likely to recover from the losses suffered as a result of the COVID-19 pandemic.
The Impacts of Supply Chain Shortages
At the start of the COVID-19 outbreak, semiconductor supply chains were disrupted because many electronics manufacturers and suppliers are located in Asia. For instance, Foxconn, Apple's chief suppliers and one of the largest and most established electronics manufacturers in Taiwan, was forced to cease production in January and February to limit the spread of the virus. This lead to a 90% drop in profits, according to the Wall Street Journal.
In a survey on participating superconductor manufacturers, the KPMG Advisory reported that almost 63% of respondents claimed some degree of supply chain shortages as a result of COVID-19.
While 23% of respondents said that these supply chain issues were reflected in their sales, 36% said that they did not significantly impact sales. 59% of respondents also felt that their year over year (YoY) industry revenue growth would decline in 2020, while 18% believed it would either remain stable or decline.
Suppliers Make Adjustments to Buoy Sales
Semiconductor executives who answered the survey said that they would need to implement a number of changes to ameliorate the effects of COVID-19. The two primary ones they anticipated were that they would have to revise their business continuity plans and upgrade their technology—for instance, by introducing new collaboration tools, cloud services, and increased automation.
Interestingly, many semiconductor leaders also felt that the current pandemic would positively impact the growth and increase adoption within three key sectors: 5G, AI, and IoT. This inclination is supported by IC market experts who anticipate that chips markets for data centers and communication may see a bump.
The impact of COVID-19 on 5G, AI, IoT, and autonomous vehicles. Image used courtesy of the KPMG Advisory
To address the adverse effects of COVID-19 shutdowns, the KPMG Advisory found that suppliers are seeking out stable supply chain partners that are likely to continue operating.
The KPMG Advisory also found that like most other industries, electronics firms have made arrangements for their staff to work from home. In addition, they drilled down on cybersecurity solutions to protect themselves from possible attacks that would put more strain on their business.
Shifting to Different Supply Chain Models
One of the possible strategies for companies to rebound after the COVID-19 crisis is changing global supply chain models.
A recent survey conducted by the Electronic Components Industry Association (ECIA) suggests that the pandemic’s negative impact on electronic parts supply chains could be gradually decreasing.
Component demand and production seems to be recovering from its initial drop in February. Image used courtesy of the Electronic Components Industry Association
Many leaders in the semiconductor industry appear to currently be focusing more on improving their production and delivery strategies. An example of this is renowned chip manufacturer Intel, which is focusing on the timely delivery of over 90% of its products to companies worldwide.
According to the Meticulous Research report, many semiconductors and electronics manufacturers are now shifting toward more flexible supply node network models. This supply chain model would ensure that a substantial amount of stock is based in a company's home country.
It would also require that companies don't rely on a single company, country, or region for supplies. For instance, many companies who previously ordered most of their parts from China are now shifting their supply chain to ensure that it covers other regions, such as India and other countries.
The U.S. government has made such pushes for semiconductor autonomy by calling on Intel, Samsung, and TSMC for U.S.-based chip factories. TSMC responded to this call by announcing plans to build a $12 billion fab house in Arizona.
A Slow but Steady Recovery
While the past few months have undoubtedly put a significant amount of pressure on most electronics manufacturers worldwide, forecasts for next year are fairly optimistic. A report by Wakefield Research, for instance, predicts that the semiconductor industry will emerge from the COVID-19 crisis “stronger than before."
The report highlights the fact that initial shutdown setbacks, like travel restrictions and manufacturing slow-down in Asia, have now been partially resolved. Wakefield Research predicts that the pandemic will most likely lower the global revenue for the semiconductor industry by 5% to 20% this year. Some companies are likely to take a greater hit based on the key applications for the components they produce.
Forecast of how recovered semiconductor industries in 2021 will compare to pre-COVID-19 sales. Image used courtesy of McKinsey & Company
However, a rise in remote working and growing investment in e-commerce could drive changes in bandwidth and processing equipment, which could ultimately lead to greater demands in wireless communication. Moreover, semiconductors for medical equipment are becoming increasingly vital, thus more companies are rerouting their usual design efforts to produce these components.
“Historically, the semiconductor market has recovered quickly from past demand shocks,” the report concludes. “As economic activity recovers, Wakefield Research forecasts demand for semiconductors to recover quickly, as companies begin to renew their investments in cloud infrastructure and as artificial intelligence and connected devices become increasingly commonplace in our society.”