Heading towards the holiday sales period, we see the latest worldwide semiconductor sales data for 2014 from Gartner holding at a steady and sustainable pace forecast of 7.2%, year-over-year. We also see that inventories for handsets and other products has been more variable. The disconnect with overall, worldwide forecasts for the semiconductor and electronics industry in contrast with macro-economic variability and differing end-product demand levels has led to rather different experiences and views across the supply chain.
Growth forecasts continue to be revised (UP!)
Thankfully, the forecast revisions for global semiconductor sales for 2014 continue to be revised upward. In August, we noted Gartner's modest growth data for the industry, with 2Q14, year-over-year growth coming in at a narrow 1.3%. This modest increase came on the heels of a slight increase to 2014 growth forecasts for global semiconductor sales from 5.4% to 6.7%, despite the relatively slight increase for the quarter. The reasoning behind the slight increase in 2014 forecasts was based on "[…] global semiconductor growth [being] supported by a wide base coming from increases in many chip sectors and applications."
This month, Gartner has again revised the 2014 global semiconductor sales forecast, raising it again, now to an anticipated 7.3% year-on-year growth. The recent rise is based on even stronger 3Q14 sales:
"Semiconductor revenue set an all-time record in the third quarter of 2014, fueled by a strong electronics build for the holiday season," said Jon Erensen, research director of Gartner. "Get ready for a flood of new product introductions, ranging from simple low-cost tablets to high-end ultramobiles and smartphones. Demand for the iPhone 6 and iPhone 6 Plus has been robust, but there is concern for other types of devices planned for the holidays."
DRAM leads all semiconductors in 2014 with revenue growth of 26.3 percent and is expected to reach an all-time revenue high of $44.1 billion for the year. DRAM continues its boom-and-bust cycle due to big supply and demand swings. Gartner predicts the next big memory oversupply downturn will hit in 2016, causing DRAM revenue to plummet 25.5 percent, weakening overall 2016 semiconductor growth to just 1.0 percent.
The warnings and device caveats
While this is certainly positive and welcomed news from Gartner, it does add confusion to the market discussions. Growth is uneven, and so the fruits of the current, steady increases really do depend on what sector and supply chain position you are in. Certainly, some smartphone device OEMs are seeing significant demand currently (although somewhat regionally variable for some OEMs), while others are seeing inventory builds that are troubling financial sheets. In particular, 3G handsets were in excess along the supply chain coming out of 1H14, causing concern during the summer months for demand forecasts – hence the great anticipation within in the industry and financial sectors around the fall device releases.
Aggressive pricing by leading chipset manufacturers has also helped to push sectors that were seeing questionable static or low uptake. Qualcomm is one example of an OEM having engaged more recently in more aggressive pricing for their MSM8916 chipset, according to recent Credit Suisse industry analyses ("Technology Sector: Asia feedback: Low risk of Chinese/N. American smartphone cutbacks this year, risk of South Korean smartphone cutbacks," 19 September 2014, p. 8). In turn, as Credit Suisse notes, the increased forecasts for 2014 are rooted in the expectation of additional pick-up of LTE smartphones based on the aggressive pricing for LTE smartphone chipsets in particular. The LTE smartphone increases arise from the new, global consumers adopting smartphones as their first and/or primary device to connect to the internet. Much as the recent smartphone inventory easing took place, lowered component pricing will allow OEMs to lower end-device prices, promoting demand increases by consumers during the holiday season.
We cannot underscore enough that there is a seeming disconnect that has a number of people in the industry scratching their heads. There are highly volatile data coming from macro-economic indicators, particularly for Europe and the emerging market economies. While these economic forecasts are sound, there are shifts in consumer purchasing indicators and demand trends. Notably, with decreasing prices for LTE enabled smartphones, in particular, as well as falling prices for tablet PCs equipped with increased features and computing capabilities, the demand for these lower-priced smart devices continues to gain and bring up the component and overall semiconductor sales data and forecasts.
In short, there are very strong and positive trends underpinning sustainable growth globally for the semiconductor and electronics industry. There are a number of volatile variables concurrent to these strong trends. While all of the trends need to be included in forecasts models, the outlook for 2014 is being reasonably upgraded and outlooks for 2015, while somewhat lower than 2014, are still solid and models are complex and sensitive enough to seem valid at this point.