The semiconductor industry recorded its highest ever sales of US $336 billion in calendar year 2014. Logic devices (FPGA’s, SoC’s, ASIC’s, etc.), Memory (DRAM, Flash, SRAMs, etc.), Analog devices (Amplifiers, Filters, Power Management devices) and Processors (excluding microcontrollers) made up nearly 80% of sales.  See: Overview o tf the Semiconductor Ecosystem and Product Segments. Year 2015 fell only marginally behind at US $335 billion. Semiconductor Industry Association forecasts the market to grow to $336 B in 2016 and about $348 B by 2017.

Global Semiconductor Sales

Sign-in to download the data xls with the charts: Semiconductor Sales for Last 25 years

Tracing semiconductor sales over the last 25 years, we see that the industry grew from US $55 B in 1991 to $335 B, at approximately 7% CAGR.  This is 2% better than the global GDP growth rate of 5% over the same period.

However the growth journey has seen its share of ups and downs. Year 2001 saw a decline of $65B (-32%) taking the market to 1995 levels. This was due to burst of the “Internet bubble”.   Year 2008-2009 also saw a decline of about 10%, setting the industry back by $30B. This time the global financial crisis was to blame.

Incremental Revenue Growth in Semiconductor Sales
Incremental Revenue Growth in Semiconductor Sales

Observing incremental growth in dollar terms, in the last 25 years there were only 7 years when the market posted a negative sales increment. If we leave out the two global meltdowns, which anyways affected all industries, we have only 5 years of negative incremental growth. Each major fall in the market was almost immediately followed by a period of strong recovery and stability (decreasing incremental growth eventually leading to a fall  in the market). Assuming that this cycle will repeat we are perhaps in the phase of marginal incremental growth and we should be expecting a fall during the 2019-2020 period.  This time period perhaps coincides with the relative maturity of the IOT market. By then a much more clearer view on practical adoption of the IOT technologies would have emerged and the demand will stabilize. This will potentially lead to correction in the related semiconductor product segments namely Microcontrollers, Sensors, Optoelectronics and to some extent logic devices.

The cyclical nature of the semiconductor industry is typically attributed to the excess inventory and capacity build up. Overall excess capacity and lack of demand results in pressure on prices. At the same time technological advances continue to better the price to performance ratio for semiconductor devices. In fact the improvement in semiconductor technology in accordance with Moore’s law has been foundational in enabling ubiquitous availability of powerful computing across the industries.

Semiconductor Price Trend
Semiconductor Price Trend

Figure 1 illustrates the continuous change in semiconductors’ constant-quality prices over time. [Note the logarithmic scale in the chart]   Therefore to ensure business sustainability, the market needs continuous stimulus for innovation from innovative end application uses. In the recent past, digital consumer devices like (cameras, music players), smartphones, tablets etc. have provided this impetus for continuous innovation in Semiconductor industry. Going forward the “Internet-of-Things” trend can be seen to drive the Optoelectronics, Sensor and the MCU (micro-controller) market.

The overall shipment data from IC Insights indicates that overall Semiconductor shipments are likely to exceed One Trillion devices in 2017. The data also indicates that 2001 (dot com bust) and 2008-09 (global financial crisis) were the only years in the last 40 years when the shipments actually declined significantly. Shipments when viewed together with the general sliding price trend indicate that despite exponential growth in shipments, the price decline is weighing down on the overall revenue growth.

The IMF has projected the global growth to be at 3.4% in 2016 and 3.6% in 2017. The semiconductor industry product segments like processors, memory, logic devices (SOC’s, ASIC’s etc.), Analog Optoelectronic and sensors have applications spread across Industrial, Communications, Computing and Consumer Electronic devices and Automotive industries. Given wide spread of application, the overall market growth pretty much is aligned to the global GDP trends.

Logic Devices, MCU’s, Optoelectronics and sensors are likely to drive the growth for the semiconductor industry; driven by higher automation and connectivity (IOT) across the industry segments. However these product segments are also challenged with continuously reducing prices. The revenue growth is likely to hit the USD $350B mark by 2018 at a CAGR of 1.5%. By 2019-2020 time frame we should see saturation setting in and expect a decline in the market.

More on semiconductor product segment revenue performance in the next post.

Please share your insights on factors impacting the semiconductor industry sales and how the growth- decline cycles can be better analyzed and predicted.