Coming off a year of negative growth for semiconductor companies in 2019, 2020 turned out to be a year for 10% global revenue growth and sales of $473B. This growth comes despite the challenges of the global COVID pandemic, and momentum now carrying into 2021. In addition, all indications point to another “super cycle” for memory growth with the market projected to peak in 2022. As illustrated in the two tables below, Table 1 is all semiconductor companies while Table 2 focuses on a non-memory view.

What You Should Know

• The global semiconductor industry is poised for a record-setting year in 2021 with revenues exceeding $500B for the year.
• Overall growth will be driven by mobility (global 5G rollouts), expanded datacenters, consumer electronics and led by the overall growth of electronics in the automotive segment.
• The memory segment (DRAM & NAND Flash) is headed into a new “super cycle” and could eclipse record sales from 2018 of $150B, with the cycle projected to peak in 2022.
• We expect to see overall consolidation in the market with 2020 being the second largest year of M&A activity in the industry’s history.
• US, Europe and Japan will all create economic incentives (along with regulatory policies) to boost manufacturing and production within their countries to mitigate some of the geopolitical risk.
• The Jabil SRM team will closely monitor all of these activities to help navigate our strategy and adjust where necessary to capitalize on long-standing supplier relationships.

Insatiable demand from hyperscale computing (growth in datacenters), global 5G rollouts and the exponential growth in automotive electronics will likely drive sales to over $500B in 2021. Over the past year, we have seen the trend for continued consolidation in the market with the second-highest year of M&A activities. The global landscape continues to evolve with US/China trade tensions, restricted product shipments, advanced manufacturing tools and the dominance of TSMC as a foundry powerhouse.

As we enter 2021 with price increases, extended lead-times, disruption of supply and what has the potential to be the largest total revenue for global semiconductors, eclipsing the $485B in 2018.

Table 1: Global Semiconductor Revenue (All Companies; $M)

Overall memory contribution for 2020 was $128B or 27% of total semiconductor revenue, up 3% from last year but still down 3% from 2018. As noted from the table above, the memory market in 2019 cooled off substantially from the record growth and sales of 2018. This drastic reduction in sales drove suppliers to aggressively cut CapEx spending near the end of 2018 and into 2019. With overall bit rate growth accelerating (for both DRAM and NAND Flash) in 2020, this set the stage for the beginning of the next memory super cycle -- 2021 revenues may exceed the record $150B in memory sales from 2018. Current memory demand is driven by new datacenters, record PC sales (2020 was the first year of growth in the last 10 years) and automotive segment growth. It should be noted that 33% of Micron’s sales are now within the automotive segment.

The Non-Memory Semiconductor Overview

When extracting the top 4 memory suppliers, the landscape changes and highlights the broader overall semiconductor market. Intel, as the largest player, posted sales gains of 6.7%. This was dwarfed by their largest competitor, AMD, posting a 50% YoY gain and sales growth of $3.2B to $9.6B. Qualcomm, nVidia and Mediatek all grew at greater than 30% with the latter moving up from the number 10 spot to number 6 in total sales. Mediatek’s growth has been driven by significant market share in System on Chips (SoC) for mobility products specifically for the Chinese handset OEMs. Also, a new entrant in the top 20 is Austria Micro Systems (ams) which recently acquired Osram, and now looking to become a powerhouse in optical solutions.

A couple of surprises in the ranking of the top 20: Broadcom and Qualcomm exchange places on the 5th and 6th positions overall, STMicroelectronics drops from 8 to 12 with ‘only’ 7% growth year on year. Infineon is climbing thanks to their acquisitions (International Rectifier and Cypress, which includes Spansion) and is now ranked 9, up 2 positions from 2018. A significant increase for Mediatek, jumping from $8B to $11B in a year and becomes the 2nd largest growth company with almost 40% year on year. Also, it should be noted that Apple continues its growth path with ONLY internal sales of products to its parent company and is now one of the top 5 ranked fabless companies.

Table 2: Global Semiconductor Revenue (Excluding Memory Companies; $M)

Semiconductor Landscape – Looking Ahead to 2021

HiSilicon, a captive semiconductor supplier of Huawei, will most probably drop off the charts next year due to the recent government bans. AMD and Mediatek are also forecast to have substantial growth in 2021.

Increased pricing in the low single digits is forecast across the industry with particular jumps in DRAM prices. Continued growth will project 2021 semiconductor revenue to increase 11%-19% depending on the source. Global GDP for 2021 with projections of 4.8% is also at its highest level since 1976 and is stimulating the semiconductor market in applications like 5G smartphones, high-performance computing and automotive.

How long will it take to get back to normal? At this point, there is zero elasticity in the supply chain with inventories at record low levels, including die banks, and a process that takes 20+ weeks to spin up from initial wafer start. In addition, TSMC, the largest foundry is “sold out” of its highest technology process nodes for the balance of this year and going into 2022. With very little “slack” in the ecosystem, any small interruptions will have a compounding effect on the market. Whether it’s COVID related, geopolitical tensions, government policies, water shortages, power outages, substrate, or lead frame shortages. It’s expected that after a moderation of growth, it could be towards the end of 2021 before we are back to “normal” in the semiconductor world.

Potential Macro Trends in the Industry

Business leaders in the semiconductor industry are concluding that offshoring to Asia, specifically foundry and back-end assembly, and test capabilities -- especially at the level of concentration we have seen, also brings systemic risk to the ecosystem. Over time, a complete ecosystem was built around this Asian footprint concentration, thus leaving many countries vulnerable to ongoing geopolitical tensions primarily driven by US/China trade conflict and the importance of Taiwan to the semiconductor industry. This has now ignited new regulations and incentives for both the US and Europe.

As a result of these governmental shifts in policy (and with financial incentives), we are seeing a resurgence to foundry and packaging capabilities within the US and Europe. In the US, for example, both TSMC and Samsung have announced multibillion-dollar investments in manufacturing capacity in Arizona and Texas, respectively, and Intel announcing a $20B investment in US base foundry capacity. This may help in the most advanced technologies, however, we’ll still need the focus on technologies that do not require the most advanced process nodes, such as analog, discretes and optical devices.

With new fabs requiring tens of billions of dollars of investment and 24 – 36 months of lead-time, this problem will not be solved in the short term. In addition, there’s still the need to learn from past cycles where government programs “overshot” and created an overcapacity scenario. This has led to past “boom & bust” cycles and driven consolidation in the market. As these macro tends evolve, we can only hope that the importance and maturity of the overall semiconductor industry will find the right balance of geographic investment and ecosystems to provide a healthy enabling platform for all technologies moving forward.

If you have any questions or need additional information, please do not hesitate to contact me directly (rudi_palmans@jabil.com).
     
Rudi Palmans
Director, Supplier Relationship Management