There’s some good news within the semiconductor industry trends today that hasn’t been seen for some time. For many within this industry, overall profitability has return to the positive side, even though end process and memory subsectors are still lagging behind on sales. This means working capital is back to normal levels.
Because of the fragile global economic picture, however, the next few years for the semiconductor industry trends offer mixed results because of that uncertainty.
As technologies evolve within the automotive and robotic markets especially, new revenue streams have the potential to be developed outside the United States to increase the amount of semiconductors per vehicle. This means higher average demands, combined with an increased need for energy efficiencies, will give this industry a foundation of strength to build upon even with uncertainty looming.
First formed in 1960 when the production of semiconductors became viable, the first year for the industry produced over $1 billion in revenues. In 2014, the semiconductor industry saw revenues of $335.8 billion.
How End-Use Application Affects Industry Revenues
- Data processing has been the #1 driver of sales within the semiconductor industry, accounting for 39% of total use since 2012.
- Communications use for semiconductor technologies has seen a 1% increase in its market share over the past 4 years, while consumer end-use applications have seen a 2.3% decrease.
- Both industrial and automotive end-use applications make up 9% of the total semiconductor industry.
- The remaining 1% of the semiconductor industry is reserved for military and civil aerospace technologies.
- 44% of the manufacturing capacities for semiconductors now originates outside of North and South America. Japan by itself accounts for 2.3% of semiconductor manufacturing.
From 1960-2000, the semiconductor saw nearly unprecedented levels of growth. Over the last 15 years, however, that growth is starting to level out. Although there are still emerging markets which will have high levels of consumption, research and development costs for new technologies are high while mature technology prices are being pushed downward. This creates a challenging issue for the industry: how does one innovate when revenues are declining? A look at how technologies are evolving around the semiconductor may provide an answer to that dilemma.
How The Internet of Things Affects the Semiconductor Industry
- The Internet of Things [IoT] is expected to contributed up to $287 billion in total economic influences in the US annually.
- There is an expected 13% growth for the consumer demand of smart televisions.
- Streaming media players are expected to see a 5% growth annually.
- Wireless headphones are expected to see an increase of 30% for demand, while connected speaker headphones may see growth of up to 40%.
- Smart home products, such as WiFi cameras, smart locks, smoke/CO2 detectors, and similar products are expected to see 21% growth.
- Wearable technologies that include semiconductors are also expected to see strong growth, such as fitness trackers, with a 12% expectation.
- The smart watch market is expected to see growth of up to 22%.
- Other fast-growing areas where semiconductor demand is expected to stay strong include drones [up to 150% growth], 3D printing [up to 64% growth], and virtual reality technologies [up to 440% growth].
- The IoT market as a whole is expected to grow at a 16.9% CAGR [compounded annual growth rate] up until 2020, creating a market worth $1.7 trillion.
Evolving technologies allow for the semiconductor market to stay strong, even when economic times might seem to be a bit uncertain. Even during the recession years of 2007-2009, there were bright points in this industry because affordable technologies were in high demand, even if premium products were not. As more people look to upgrade their smart equipment and adopt a lifestyle that includes IoT, the potential for sales growth for semiconductors will continue to rise. Then combine these sales with the more mature products in the industry and there is a lot of promise to see within this category.
How Mature Products Drive Semiconductor Sales
- Despite high saturation rates, smartphone sales are expected to increase by 5% on a year-to-year basis.
- Laptops will also play a role within the semiconductor industry, offering a year-to-year sales increase of 2%.
- Computers that are classified as hybrids, convertibles, or detachables are expected to see the strongest growth in sales, with estimates projecting growth of up to 48%.
- The growth of the new tablet PC is expected to help offset losses that are expected within the traditional tablet market, which are projected to be at -9%.
- Standard televisions are also expected to see negative growth of -1% on a year-to-year basis.
- Emerging markets in the APAC region, especially India, are expected to continue fueling strong sales in certain product areas, especially smartphones.
- Wireless infrastructure builds in developing worlds, especially 3G or 4G LTE networks, will require investments into semiconductors to prevent network congestion, provide reliable power, and enhance security/privacy needs.
Mature technologies may be struggling in some local markets and could provide some locally negative industry trends for the semiconductor industry, but overall this market still remains a driving force. As the rest of the world begins to catch up with the US and Western Europe in regards to cellular technologies, the demand for semiconductors could be phenomenal based on the data already collected from the expansive growth in established markets. That’s not to say the mature markets are done with semiconductors either – 5G networks are currently being tested as of 2016 and they’ll need industry support as well.
Automotive and Medical Trends with Semiconductors
- Semiconductor consumption in this market was worth around $7 billion in 2015.
- The estimated 5 year CAGR for semiconductor demand within hybrid electric vehicles is expected to be 20%.
- For telematics, the estimated 5 year CAGR is 19%.
- Connectivity within the automotive industry is also expected to see strong growth, with a 5 year CAGR of 18%.
- Despite seeing some consolidation within the industry in 2015, is expected to continue having 3.7% growth on a year-to-year basis.
- These growth patterns are offering the potential of 9.7% growth within the industrial semiconductor industry through 2019.
- Global medical semiconductor sales growth, estimated at a 12.3% CAGR, would allow the industry to reach $8.2 billion in 2018.
Although IoT applications are expected to fuel massive growth and mature markets are expected to provide foundational sales, the growth within the automotive and medical sectors cannot be ignored. As connectivity increases within vehicles, there will be a continued need for security to prevent unwanted takeovers of a vehicle in motion. The various technologies within the vehicles and medical devices will also need to communicate with each other, further solidifying the growth potential for semiconductors. These are needs that the economy of today will always have, which means there may be more stability within this industry now in 2016 than ever before.
The Components Which Will Drive the Semiconductor Industry
- In regards to microprocessors, there is an expectation for there be a 10% increase in cellphones, a 3% increase in tablets and a 3% increase in PCs, servers, and similar technologies.
- Logic chips for computing, communications and automotive markets will see growth.
- Industrial markets [50%] and automotive markets [43%] are expected to be the largest consumers of semiconductors.
- Government purchases are expected to be led by logic chips, with the category accounts for 33% of sales in this sector.
- 60% of all microprocessors will go into the computing market.
- With a 19% share, the consumer markets will follow the government market and focus on logic chips.
- MCU shipments are expected to grow 41% with sales growing just 4% whereas IoT-related shipments will grow 40% and sales 16%.
- Not every sector is expecting growth. Memory revenues are expected to decline by 17.4% in 2016 and another 7% in 2017.
- Overall growth within the industry in 2015 has been revised downward from 4.9% to 2.3%. Growth in 2016 and 2017 are expected to be stable at 3%.
- Optoelectronics and analog are expected to be the strongest drivers, offering 8% and 5% growth respectively from global markets.
- The strongest semiconductor market continues to be China, followed by North America, and then the remainder of APAC. Europe is expected to remain a weak semiconductor market.
With 10 subsectors helping to fuel overall growth, 80% of the semiconductor industry is expected to see neutral-to-positive results. This is an encouraging trend not only for this industry, but for the high-tech sectors in general. Although total earnings may actually decline on a quarter-to-quarter basis, the number of sales will continue to be stable and offer the chance for future revenue increases. Future innovations will also factor into this equation with inventions not even thought about potentially affecting the industry in the next 5 years. The semiconductor industry offers potential with a firm foundation of support and that’s not something every industry can say.
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