The worst semiconductor market in a decade is entering a recovery cycle

On December 16th the U.S. House of Representatives passed a bill banning the government from buying telecommunications equipment from companies considered a national security threat. It follows another unfriendly move by the U.S. government against Chinese telecoms companies following the U.S. Federal Communications Commission’s November decision to ban operators from using federal subsidy funds to buy Huawei and ZTE devices. Ren Zhengfei, Huawei’s founder, said in an interview earlier that the U.S. government sees 5G as a strategic weapon, like an atomic bomb.

In fact, this unease has been going on since the beginning of the year.

As global trade frictions escalate, countries are pursuing strategies to protect local technology, leading to pressure on semiconductor companies. Especially in the past year, Japan has strengthened its restrictions on the export of semiconductor materials to Korea, and the changes in the direction of U.S. exports in the field of chip manufacturing have directly affected the development of the semiconductor industry.

In one of the most intuitive examples, ZTE’s embargo was issued before it was launched, and most of its mobile phone products were equipped with Qualcomm chips most of the time. But after the U.S. ban, canalys-based data have suffered a sharp drop.

But the root cause of the global semiconductor turn-around in 2019 remains a decline in demand, with slowing demand for solid-state storage, smartphones and PCs, and high inventory of products hitting the semiconductor market hard, with memory chips being hit hard.

Once, the fried memory bar was called by the industry “more money-making business than speculation.” With demand for smartphones, servers, and other terminals soaring, dRAM (primarily PC memory, mobile memory, server memory) prices have skyrocketed since the second quarter of 2016, hitting sales records every quarter.

The worst semiconductor market in a decade is entering a recovery cycle

According to research firm IHS Markit, global DRAM output reached 72% in 2017 to $72.2 billion, with an annual growth rate of 16.9% in 2018. And the last time such a spectacle appeared was 23 years ago.

But at the beginning of the year, the situation reversed.

The memory market, which has been up for more than two years, turned downwards after a volatile period, and the price of memory chips fell sharply in February. Industry people commented that the electronics industry is cold, change face faster than changing days, a time, including memory, including a variety of components are reduced to inventory.

This has dragged the global semiconductor industry directly into a downward spiral. Global semiconductor revenue reached $208.7 billion in the first half of 2019, down from $236.6 billion in the first half of 2018, down from a 13.9 percent decline, according to IHS Markit. At the start of the Great Recession in the first half of 2009, the chip market fell by as much as 26%. IHS Markit predicts that the semiconductor market will be 12.8% lower in 2019 than in 2018. That would create the biggest drop in the semiconductor industry in the last decade.

But it’s worth noting that for China’s semiconductor industry, the winter on the periphery hasn’t dampened the industry’s enthusiasm.

In contrast, China’s semiconductor industry has become unusually active over the past year, driven by policy and capital. Among the 15 companies invested in the first phase of the National Integrated Circuit Industry Investment Fund, the average increase so far this year has been 91.36 percent, and the voice of domestic chip autonomy and control is becoming stronger.

The worst semiconductor market in a decade is entering a recovery cycle

Deloitte has forecast that revenue from semiconductor products made in China will grow 25 percent to $110 billion in 2019 from $85 billion in 2018 to meet growing domestic demand for chipsets.

In addition, the good news is that the semiconductor industry is expected to recover next year.

Driven by 5G and data centers, semiconductor indicators are gradually picking up. Among them, expansion capacity, chip prices and chip inventory three indicators began to show that the global semiconductor industry demand strengthened. Expansion of capacity is one of the most obvious leading indicators of chip output. According to the International Organization for Semiconductor Equipment and Materials (SEMI), the number of chip manufacturing deviceshipments reached its highest level since December.

At the same time, the price of memory chips has now stopped falling back to stability. According to the South Korean government’s statistics bureau, South Korea’s chip inventory fell 16 percent in September from August, the biggest drop since June 2017.

From the 5G industrial chain, whether it is 5G infrastructure, 5G network or 5G terminal, is ready. Research firm Strategy Analytics predicts that the overall market for 5G handsets will top 160m next year, with China the key to 5G handset shipments.

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