Subdued global demand seen for semiconductors

by Czeriza Valencia (The Philippine Star), 23 May 2020

MANILA, Philippines — Global demand for semiconductors, a top export of the Philippines, will be subdued this year despite the brief recovery in the first quarter as end-market demand will remain weak, said UK-based Oxford Economics.

In a new research brief titled “Global lockdowns test the chip sector’s resilience,” the macroeconomy research firm said lockdowns worldwide that curbed consumption would also set back the pace of recovery in the sector as demand for the manufacture of smartphones, automobiles and other consumer electronics are diminished.

Oxford Economics noted that the three-month trend in global chip sales rose by 6.9 percent year-on-year in March, making the second consecutive month of positive annual growth as the sector emerged from downturn in 2019.

While the semiconductor industry is seen to benefit from structural trends such as 5G deployment and high-performance computing by way of data and chip demand, it won’t be able to fully offset demand weakness elsewhere in the short term.

“In addition, despite a growing list of economies taking tentative steps to ease lockdown restrictions, a recovery in consumer spending will likely be delayed, dragging on some end-market demand for chips,” said Oxford Economics.

“Consumer confidence will stay subdued amid falling employment, while people may choose to social distance given the risk of getting infected. Moreover, it seems likely that the relaxation of lockdown restrictions will be gradual to avoid a renewed surge in COVID-19 infections.”

Other than the mobility restrictions caused by the pandemic, Oxford Economics also sees the renewed escalation of the US-China trade war as another damper to demand.

The US announced on May 15 that all foreign chipmakers using US semiconductor equipment will need to obtain a license before exporting to Chinese telecom giant Huawei.

“Therefore, in our baseline forecast, we expect subdued demand for semiconductors in 2020,” said Oxford Economics.

Long-term outlook for the industry, however, remains positive as structural trends such as 5G smartphones, artificial intelligence, cloud computing, autonomous driving, and the Internet of Things will create more demand for data and chips in then long-run.

“For instance, a 5G smartphone will have memory content of up to 12GB RAM, compared to a 4G smartphone, which averages just 3GB-4GB. So despite interim challenges, the semiconductor sector’s positive long- term outlook remains largely intact,” said Oxford Economics.