A number of superlatives can describe the semiconductor industry’s performance in the first half—all of them extremely negative.
Chip sales during the initial six months of 2019 plunged by 13.9 percent compared to a year earlier, the biggest drop in a half since the first half of 2009—exactly a decade ago, according to IHS Markit. Major chip suppliers suffered their worst revenue declines in years—10 years in some cases. Major semiconductor product areas also experienced the largest drops in demand since 2009.
Global semiconductor revenue in the first half totaled $203.7 billion, down from $236.6 billion in the first half of 2018. This represents the worst performance since the market declined by 26.5 percent in the first half of 2009.
“It’s hard to overstate how bad things were for semiconductor suppliers in the first half,” said Ron Ellwanger, senior research analyst at IHS Markit. “Every region, almost every product category and nearly every application market suffered declines during the period. As a result, nine of the top-10 chip suppliers and 17 of the top-20 suppliers saw their revenue drop during the first six months of the year. From just about any perspective, the first half represented the worst six-month performance for the semiconductor market in a decade.”
Among the top-10 suppliers, SK Hynix took the biggest hit in the first half, with chip revenue dropping 34.7 percent year-over-year—a 10-year worst for the company. However, fellow South Korean supplier Samsung was close behind, with sales falling by 33.4 percent. U.S. chip maker Micron was the third-biggest revenue decliner, with a drop of 29.2 percent.
All three suppliers were afflicted by the precipitous drop in the memory segment, which fell by 36.4 percent—the largest decline of any major product category and, once again, the worst results for a half-year since 2009.
The other top-10 suppliers primarily serve non-memory markets, so their losses were somewhat constrained compared to SK Hynix, Samsung and Micron. However, most of these companies still suffered declines.
Most notably, nVidia’s revenue dropped by 20.6 percent as the company faced intensifying competition in the artificial intelligence (AI) graphics processing unit (GPU) market. Qualcomm’s revenue decreased by 10.5 percent as Qualcomm’s decline was due to the oversaturated cell phone market, which has piled up excess inventory for the chip supplier. Qualcomm’s days of inventory increased by 10 days, or 15 percent compared to the second quarter of 2018. Semiconductor market leader Intel managed to mitigate its losses, posting a mere 1.7 percent decline due to its strong results in the wireless and industrial markets.
As mentioned, memory suffered the biggest decline of any semiconductor product segment. The two largest memory product types, DRAM and NAND flash, dropped by 35.7 percent and 29.6 percent respectively.
“To understand what’s happening in memories, just look at the data-processing market, where revenue plunged 19.5 percent year-over-year in the first half,” Ellwanger said. “This year has seen a major decline in the expansion of the cloud, data centers and enterprise servers. Again, this has caused major excess inventory in the market. Another factor behind the downturn is soft demand for cell phones.”
However, the downturn hasn’t been limited to memory. Other sectors hitting 10-year records in terms of revenue declines include logic, sensors and actuators.
Looking across the various product segments excluding memory, microcomponents were down 4.2 percent, logic ICs fell by 4.8 percent, analog ICs declined by 6.1 percent, discretes decreased by 1.9 percent and sensors and actuators fell by 2 percent. Optical was the only area to expand, with revenue rising by less than 1 percent.
Application markets that purchase semiconductors also were in the red in the first half. Data processing fell by 21.9 percent--the biggest decline of any market. Wireless communications was next, with a 15.6 percent drop, followed by consumer electronics, with a 14.7 percent decrease. Industrial electronics fell by 8.6 percent, Automotive by 4.4 percent and wired communications by 0.3 percent.
Regionally, every geography experienced double-digit declines in chip revenue. The Americas took the brunt of the downturn, with revenue falling by 20 percent. Asia-Pacific was down by 14.4 percent, followed by Japan's 13.3 percent decline and Europe's 12.6 percent decrease.
“Of all global regions, North America was most affected by the data processing and handset markets,” Ellwanger observed. “This had a direct impact on memory demand,” Ellwanger said.
Hints of hope in Q2 results
While the news was almost uniformly bad, there is a slight sign of optimism contained within IHS Markit’s second-quarter semiconductor ranking results. Overall semiconductor revenue increased by 1 percent in the second quarter compared to the first. While such a sequential increase is a seasonal pattern that typically occurs in the chip market every year, the appearance of second-quarter growth comes as a positive sign amid the terrible results of the first half of 2019. IHS Markit forecasts continued sequential growth in the third quarter of 2019, with global semiconductor revenue rising by 6 percent compared to the second quarter.
However, revenue will still be down considerably compared to one year earlier, with semiconductor market sales in the third quarter of 2019 down 17 percent compared to the third quarter of 2018. Because of this, 2019 remains on track to be the semiconductor market’s worst year in a decade, IHS Markit forecasts.
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