$500 billion mark in sight for 2019, but what are the trade war implications?
SAN FRANCISCO, Calif. — The semiconductor industry is poised for as much as 15% growth this year and a shot at its first $500-billion year in 2019, driven largely by rising memory prices. The big dark spot on the horizon is a growing trade war between the U.S. and China.
That was the outlook from a handful of analysts at a kickoff for the annual Semicon West event here.
“We are at or just beyond the peak in the economic growth cycle…but the potential for political uncertainty is greater than it has been in a while and that could knock us off the growth path,” said Duncan Meldrum, chief economist at Hilltop Economics, forecasting a downturn will hit the capital equipment market next year and spread to the chip sector in 2020.
It’s the second year rising DRAM prices amid tight supply have boosted the overall chip industry. The trend is expected to continue until 2020 when more supply comes online.
“When prices went up, demand did not decline as it used to. Consumers kept buying and made the DRAM guys very happy — that was exactly what the big three needed to build their 3D NAND fabs,” said Bob Johnson, a research vice president at Gartner, referring to Samsung, SK Hynix and Micron.
Looking forward, Johnson predicts DRAM density will increase at less than half its historic 32% rate. The big questions are whether in the next couple years China will start producing DRAMs, driving prices down, or alternative memory technologies will emerge, he said.
NAND flash revenues are growing at a stately 9% compound rate, but will increasingly feel cost pressures of trying to stack more layers. “If DRAM profits roll off as China comes online, NAND investments could be pinched,” Johnson said.
A shift from smartphones to industrial and automotive markets as growth drivers is expected to moderate the ups and downs of the overall chip sector. “It looks like stair steps going forward,” he said.
Meanwhile, the memory “super-cycle” and China’s chip ambitions are fueling unprecedented fab growth, said Clark Tseng, director of industry research and statistics for the SEMI trade group that hosts the event.
Last year was a record in front-end fab investments. Fab spending in China is expected to surpass $10 billion this year and reach near $18 billion in 2019, exceeding spending in South Korea. “We haven’t seen four years of consecutive global fab growth since the 1990s,” Tseng said.
China drives growth and uncertainty
Tense relations between the U.S. and China remain the biggest flashpoint for the semiconductor industry after both countries approved broad new tariffs last week. It was the latest flare up in a long-simmering debate over China’s intellectual property practices and the recent decision to ban sales of U.S. components to ZTE.
“The semiconductor industry is in the middle of the tech and trade issues. The trade issues get worse daily, and there’s no settlement on the horizon,” said Robert Maire, president of Semiconductor Advisors.
Maire called tariffs ineffective, and said the Trump administration also is considering bans on sales to China of leading-edge foundry gear. Given the intertwined nature of the two economies “this is a bit like a nuclear standoff of mutually assured destruction, and it’s unclear who would be damaged more,” he said.
The ban on ZTE is already encouraging it to consider suppliers other than Intel and Qualcomm which do 23% and 65% of their business in China, respectively. Maire called a China court’s decision to block sales of Micron chips in the country “a thinly veiled” counterpunch in the trade dispute.
Long term, “I think it’s not a question of if but when China takes over Taiwan, they get TSMC and the tables are turned as they get more leverage over Apple, Qualcomm,” and others, Maire said.
The issues have a long history. Years ago, the U.S. forbade China’s SMIC from importing the latest fab gear, keeping it from leading-edge capabilities, said Maire, who worked on the foundry’s IPO. Such moves fueled China’s concerns about self-sufficiency in semiconductors and the ZTE ban “threw gas on the fire,” he said.
— Rick Merritt, Silicon Valley Bureau Chief, EE Times